Nearly 12% of South Korean firms became insolvent last year due to the downturn in construction and real estate, marking the highest level since 2019. These companies, burdened with more debt than assets, face complete capital erosion and financial instability.
According to the Federation of Korean Industries (FKI) on March 23, about 4,466 companies, or 11.9% of all 37,510 externally audited companies (excluding financial firms), are expected to be completely insolvent. This marks an increase of 116 companies (2.7%) from 4,350 in 2023 and represents the highest number in six years, since analysis began in 2019. The insolvency probability also reached a record high of 8.2% last year.
By industry, real estate and rental businesses faced the highest risk at 24.1%, feeling the direct impact of the construction downturn. Next came utilities (15.7%), health and social welfare services (14.2%), and arts and leisure services (14.0%). The construction sector showed the steepest increase, with its insolvency risk (6.1%) nearly doubling from five years ago (3.3%) due to fewer orders amid high interest rates and inflation.
An FKI official warned, “More insolvent companies rapidly increase uncertainty by worsening the real economy and expanding financial market risks,” adding that “risks must be reduced through lower financing costs and liquidity support.”
