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Expectations for South Korea's economic growth rate remain high. Outlooks from international institutions have also emerged projecting that the country's potential growth rate will rise for two consecutive years for the first time in 40 years.

This is due to a semiconductor boom. Consequently, domestic enterprises are showing improvements in profitability and growth potential, with economic fundamentals also appearing to strengthen. However, this is a trap of averages. This is because the business environment for enterprises in vulnerable sectors such as construction and real estate, as well as small and medium-sized enterprises (SMEs), continues to deteriorate. Among SMEs, marginal firms unable to cover even loan interest with their operating profit are nearing 50%.

Accordingly, points are being raised that alongside structural improvements for vulnerable sectors, an ecosystem for corporate restructuring must be established to ensure that government support does not merely serve as a life-support mechanism for marginal firms.

Shin Yong-sang, a senior research fellow at the Korea Institute of Finance, analyzed on the 18th in a report titled "The Shadow of Growth Polarization: Corporate Loan Risks in Vulnerable Sectors," stating, "Entering this year, corporate profitability and growth potential have broadly improved, and debt repayment capacity, such as the interest coverage ratio, also appears to be improving on average." However, Senior Research Fellow Shin pointed out that polarization is deepening across industries and enterprise sizes.

Overall revenue growth rate and operating profit margin for domestic enterprises grew by 19.6% and 18.0%, respectively, in the first quarter of this year compared to last year. The interest coverage ratio also improved from 5.2 times to 13.6 times over the same period.

However, this is the result of sharply improved performance concentrated in select industries, such as semiconductor and AI-related companies. Non-performing loans at domestic banks are increasing once again, centered around vulnerable sectors. The proportion of SMEs with an interest coverage ratio below 1, commonly referred to as "zombie companies," surged from 34.2% last year to 46.3% this year.

According to Representative Park Seong-hoon of the People Power Party, a member of the National Assembly's National Policy Committee, the volume of SME loans delinquent for more than a year held by the Industrial Bank of Korea (IBK), a specialized lender for small businesses, stood at 567.8 billion won, surging sixfold over the past three and a half years. Considering that IBK's market share in SME lending sits slightly above 20%, observations suggest that the total scale of long-term delinquency across all SME loans could reach several trillion won.

While the volume of delinquencies is expanding, the deteriorating quality of delinquency, including long-term arrears, is also a cause for concern. Regarding this, Representative Park Seong-hoon said, "Signs that SME hardships are hardening into long-term insolvency beyond temporary liquidity shortages are showing up in the numbers," adding, "We must strengthen tailored management for viable enterprises and reinforce insolvency prevention frameworks."

Senior Research Fellow Shin Yong-sang likewise advised, "In preparation for the prolonged slump in domestic demand, rising funding costs driven by higher market interest rates, and the potential deterioration of financial accessibility, there is a need to step up debt monitoring and asset soundness management for SMEs in vulnerable sectors."

                                                                                                           Cho Eun-kook