SEOUL, March 29 (Xinhua) -- Zombie companies in South Korea kept growing on the prolonged low rate trend and the slumping construction industry, a central bank report said Thursday.
The number of companies, incapable of repaying interest with operating profit for the third consecutive year, stood at 3,126 as of end-2016, the Bank of Korea (BOK) said in a financial stability report.
It was down 152 from the previous year, but an upward trend actually continued since 2010 when considering the number of companies closing down businesses because of their inability to pay back interest, which were excluded from the calculation.
The 2016 figure for zombie firms accounted for 14.2 percent of the total non-financial companies that are subject to external audit.
The protracted low-rate trend helped marginalized companies survive despite their weaker ability to generate profit.
The BOK raised its benchmark rate by 25 basis points in November last year to 1.5 percent from an all-time low of 1.25 percent, the first rate increase in almost six and a half years.
Among the zombie companies, the number of firms which failed to repay interest with operating profit for at least nine years was 504 as of end-2016, or 23.4 percent of the total.
The number of marginalized firms, which posted an operating loss, was 2,167, or 69.3 percent of the total zombie companies.
The slumping construction industry increased the number of real estate developers and builders that are incapable of paying back interest with profit. The figure was 835, or 26.7 percent of the total zombie firms in 2016.
Amid the low rate trend, households rushed to purchase new home with borrowed money, leading to a continued record-breaking trend in household debts.
The government under President Moon Jae-in, who took office in May last year, announced a series of measures in 2017 to control speculative real estate investment.
The BOK was widely forecast to raise its benchmark rate further later this year as the U.S. Federal Reserve lifted its target rate to a range of 1.50-1.75 percent, higher than the BOK's policy rate of 1.5 percent.
If the BOK tightens its monetary stance belatedly, it could cause an abrupt foreign capital outflow from the South Korean financial market.
In contrast, rapid rate hikes by the BOK could increase the number of zombie firms going bankrupt and the debt-servicing burden for households.
