SEOUL, July 2 (Reuters) - Credit ratings agency Moody’s on Thursday said South Korean banks were at risk from a growing number of so-called marginal companies with an extremely high debt burden at a time of worsening profitability in key sectors. “The increase of marginal companies is credit negative for Korean banks and we expect large corporate loan exposures in structurally declining sectors to pose a significant risk to asset quality,” Moody’s Investors Service said in a report. In South Korea, the number of marginal companies - those whose operating income did not cover interest expense for three consecutive years - has increased every year since data compilation began in 2009, a central bank report showed this week. As of the end of 2014, 15.2 percent of South Korean companies subject to outside auditing were marginal companies, up from 12.8 percent in 2009, according to the Bank of Korea’s financial stability report published on Tuesday. “The greatest risk is from loans to the shipbuilding, steel and shipping sectors, where the number of marginal companies increased last year despite ongoing restructuring efforts led sometimes by policy banks,” Moody’s said. The report came as the country’s central bank chief has said the effect of monetary policy easing on boosting growth in Asia’s fourth-largest economy would be limited without restructuring of the corporate sector. “Although macro-economic, monetary and fiscal policies are necessary, structural reforms are important for the country to achieve sustainable growth,” Bank of Korea Governor Lee Ju-yeol told a news conference, when explaining an interest rate cut on June 11 to a record low of 1.50 percent to support economic growth. (Reporting by Choonsik Yoo; Additional reporting by Christine Kim; Editing by Christopher Cushing)
Moody's stated today that South Korean banks are at risk from an increasing number of so-called marginal companies with an extremely high debt burden. It said that it is expecting "large corporate loan exposures in structurally declining sectors to pose a significant risk to asset quality", and that the "greatest risk is from loans to the shipbuilding, steel and shipping sectors, where the number of marginal companies increased last year despite ongoing restructuring efforts".