Korean Corporate Profitability Improves as Debt Ratio Falls to Six-Year Low
Bank of Korea data show stronger profitability and lower leverage among South Korean companies in 2025, even as sales growth slowed and a record share of firms struggled to cover interest costs.
South Korean companies became more profitable and reduced their overall leverage in 2025, but slower sales growth and a record share of businesses unable to fully cover interest expenses pointed to an uneven corporate recovery, according to data released by the Bank of Korea on Wednesday.
The central bank’s review covered about 983,000 nonfinancial companies subject to external audits. Their combined sales increased 2.4 percent in 2025, down from growth of 3.7 percent a year earlier. The slowdown appeared across major parts of the economy. Manufacturing sales rose 2.4 percent after expanding 4.6 percent in 2024, while sales among nonmanufacturing companies increased 2.3 percent, compared with 2.9 percent the previous year.
Profitability nevertheless strengthened. The ratio of combined operating profit to sales reached 5.2 percent, up from 4.6 percent in 2024 and the highest level since 2021. Strong results in semiconductors, transportation and other industries helped drive the improvement. The figures indicate that companies retained more operating profit from each unit of sales despite the weaker pace of revenue expansion.
Corporate balance sheets also improved in aggregate. The average debt-to-equity ratio fell to 116.2 percent from 119.9 percent, reaching its lowest level since 2019. The overall interest coverage ratio, which measures operating profit relative to interest expenses, climbed to 292.7 percent from 244.1 percent. A higher ratio generally indicates a stronger collective ability to meet financing costs from core business earnings.
The broad improvement, however, masked growing strain among a large segment of firms. The share of companies with an interest coverage ratio below 100 percent edged up to 42.9 percent from 42.8 percent. That was the highest proportion since the Bank of Korea began compiling the relevant data in 2013. A reading below 100 percent means operating profit was insufficient to cover interest expenses during the year.
Taken together, the data show a widening contrast in corporate conditions. Stronger sectors lifted aggregate profits and debt indicators, while more than four in ten surveyed businesses remained unable to meet interest costs solely from operating earnings. The combination of slower sales and persistent financing pressure leaves the health of weaker companies as an important issue even as headline profitability and leverage measures improve.