Textile chemical firm A, which operates a factory in Gyeonggi Province, saw its revenue fall by approximately 30% last year compared to the previous year. Its sales continue to decline as the structural downturn in the textile industry is compounded by U.S. tariff policies.
"About 60 to 70% of nearby firms are unable to avoid losses," a textile chemical industry official said Thursday. "On top of that, with the Middle East crisis driving up oil prices and exchange rates this year, companies are also struggling to absorb the costs of packaging vinyl, dyes, electricity and other utilities." He added, "Many firms cannot close their doors even when they are on the verge of bankruptcy because they still have to repay bank loans."
Financial industry sources say a growing number of companies are being pushed to the brink of corporate rehabilitation and workout (corporate improvement procedures) amid the prolonged high exchange rate, industrial restructuring and trade uncertainty. Banks are maintaining heightened vigilance as the number of clients classified as "companies with a high likelihood of becoming distressed" under credit risk assessments has surged.
KB Kookmin Bank classified 729 companies as "Grade B (potential distress risk)" as of the end of last year, up 5.7% from the previous year. Shinhan Bank (28.6%) and Hana Bank (16.7%) also posted steep increases. At Woori Bank, Grade B companies jumped nearly fourfold from 163 in 2024 to 631 last year.
State-run banks and regional creditor banks are also seeing more companies pushed to the edge of restructuring. At the end of last year, the Korea Development Bank classified 344 companies as Grade B, up 25.1% from the previous year. That is 2.4 times the 146 companies recorded in 2020 during the COVID-19 pandemic. At iM Bank, which has a heavy presence in the Daegu and North Gyeongsang Province region, Grade B companies surged 2.1-fold within a year to 356 as of the end of last year. BNK Busan Bank (16.1%) and Kwangju Bank (63.3%) also saw sharp increases in Grade B companies. A commercial bank branch manager in a non-metropolitan region said, "Unlike some major corporations enjoying a boom, many provincial small and medium-sized enterprises face considerably poor business conditions. It is inevitable that many firms have been pushed to the brink of restructuring."
The number of companies that banks have moved into auction or rehabilitation procedures has also steadily increased. As of the end of last year, six commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup and iM), two state-run banks (IBK and KDB) and five regional banks (Busan, Kyongnam, Jeonbuk, Kwangju and Jeju) reported managing 311 companies for liquidation. That is up 42.7% from 218 the previous year, and the increase reaches 94.4% compared with 160 in 2020.
The concern is that the U.S.-Iran war could push even more companies to the verge of workout or restructuring. Corporate loan delinquency rates had already been running high even before the war escalated in March. According to the Financial Supervisory Service, the overall corporate loan delinquency rate stood at 0.76% as of the end of February, the highest level since 2017 (0.79%). The small and medium-sized enterprise loan delinquency rate was 0.92% at the end of February, the highest February reading in 10 years since 2016 (0.95%).
Financial industry voices are calling for preemptive support and restructuring measures targeting companies with a high likelihood of distress. The Financial Services Commission is currently considering a plan to separately classify Grade B companies in greater need of restructuring as "Grade B-minus." A financial industry official said, "As the Middle East war has deepened corporate difficulties, there is a need to carefully examine whether more companies require targeted support."
There are also calls to convert the Corporate Restructuring Promotion Act, which is set to expire at the end of this year, into a permanent law. A senior financial industry official stressed, "In the auto industry alone, many parts suppliers are likely to face structural difficulties from factors such as the shift to electric vehicles. Restructuring of marginal firms must be accompanied for the sake of productive finance as well."
