Federation of Korean Industries (FKI) building in Seoul / Korea Times file

Gov't urged to help create more jobs

By Kim Hyun-bin

The amount of debt held by Korean companies has been skyrocketing after the outbreak of COVID-19 and there are concerns that their repayment capacities have been sharply deteriorating, creating risks of a chain of defaults due to a reliance on variable interest rate and non-bank loans, according to the Federation of Korean Industries (FKI), Monday.

The amount of debt shouldered by domestic companies stood at 1,321.3 trillion won in the first half of this year, an increase of 345.3 trillion won from the end of 2019, before the COVID-19 outbreak.

Corporate loans have surged since the COVID-19 pandemic. From 2009 to the end of 2019, 10 years before the COVID-19 pandemic, corporate loans increased at an average annual rate of 4.1 percent. But the average annual growth rate for the last two and a half years reached 12.9 percent.

The ability of companies to repay the loans has also weakened. The FKI compared the debt savings ratio (DSR), an index that evaluates debt repayment capacity, with those of 17 major countries from which statistics are available. As a result, the DSR of companies in 16 countries excluding Korea decreased by 0.5 percentage point from 41.1 percent in 2019, before COVID-19, to 40.6 percent in the first quarter of this year, showing an improvement in repayment ability. On the other hand, the DSR of Korean companies increased by 2.0 percentage points from 37.7 percent to 39.7 percent during the same period, showing a worsened repayment capacity.

"There is a high possibility of a hard landing in the real estate economy and a contraction in domestic demand, so it is necessary to be on the lookout for bad loans in these industries," the FKI said. "Corporate loans from non-bank institutions, such as savings banks and mutual benefit financial companies, which have relatively high interest rates, increased significantly."

The job market is also expected to freeze next year due to the economic slowdown and the base effect. The Korea Chamber of Commerce and Industry (KCCI) released the "Labor Market Status and Characteristics" report that states the elasticity of employment which reached an all-time high this year, is expected to drop sharply next year.

The elasticity of employment is the ratio of the employment growth rate divided by the economic growth rate. The higher the elasticity of employment, the greater the number of employed people compared to economic growth.

According to the Bank of Korea, the August forecast stood at 1.04, the highest since 1963, since the first year employment statistics were provided.