IBK's loans to zombie firms grew almost three times as fast as its corporate book

IBK's corporate book grew by 51.5 trillion won between the end of 2022 and the end of August. Of that, 14.5 trillion won sits with firms classed as marginal, about 28% of the increase ^[18]. That 14.5 trillion won can come from new lending or from migration. A company joins the category once its operating profit has fallen short of its interest bill for three years running ^[3]. A borrower can take a loan, watch its margins shrink and end up in the zombie column without IBK lending it another won. The figures, released by the office of Rep. Park Jun-tae of the People Power Party, do not separate the two ^[1].

The firm count gives a partial check. Marginal borrowers rose 16.7% to 19,218 ^[5] while their balances rose 62.8% ^[2]. Average exposure per zombie firm therefore went from about 1.40 billion won to about 1.96 billion won, up roughly 39% ^[19]. Larger companies may have crossed the line as interest rates rose this year ^[27], or IBK may have kept extending credit to borrowers already inside it so they could stay current, or both. The first is a credit-cycle loss. The second is a choice about when losses get recognised. "IBK needs to closely assess borrowers' chances of recovery so that it can carry out policy financing on a stable footing," Park said ^[15].

Reserves, or rather the gap between reserves and bad loans, are where the exposure shows most clearly. The National Assembly Budget Office put loan loss reserves at 4.5 trillion won at the end of March, covering 105.2% of non-performing loans ^[12][13]. Divide one by the other and bad loans come to about 4.3 trillion won, up from roughly 2.2 trillion won in March 2022 ^[20]. Coverage fell because non-performing loans grew 93.3% over four years while reserves grew 52.4% ^[13]. Take 133.4%, multiply by 1.524 and divide by 1.933, and you get the 105.2% ^[25]. In March, reserves exceeded the bad-loan balance by about 0.2 trillion won ^[21]. By August the zombie book stood at 37.6 trillion won ^[1]. "Its capital buffer against a sharp deterioration in asset quality is structurally weak," the budget office said ^[14].

Delinquency has moved faster than either balance. The rate on IBK's corporate loans was 0.32% at the end of 2022, 0.94% at the end of last year and above 1% by March ^[8]. It reached 1.21% in August ^[7], close to four times where it started ^[22]. On a 279.8 trillion won book ^[4], 1.21% is roughly 3.4 trillion won in arrears ^[23]. Sedaily, which reported the figures, expects market rates to keep rising for some time and pressure on corporate loan quality to build ^[27].

I think the next pressure point is provisioning, with capital second. Over four years IBK's reserves grew at a little over half the pace of its bad loans ^[26]. With coverage near 100%, it has little room to do that again. The counter-case is that the zombie test looks back three years ^[3], so lower rates would lift interest cover and shrink the category without a single write-off. Sedaily's outlook on rates points the other way ^[27]. The thesis is wrong if the delinquency rate stalls near 1.2% and the marginal-firm count starts to fall. It holds if non-performing loans keep compounding at anything like the 93.3% of the last four years while reserves trail at 52.4% ^[13].