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Rising number of firms in financial distress, especially in real estate

Published: 17 Dec. 2025, 18:56 Updated: 17 Dec. 2025, 20:25

An apartment construction site in seen in Seoul on Aug. 11. [YONHAP]

A growing number of companies, especially those in the real estate business, are increasingly seeking court-led rehabilitation or financial restructuring, as prolonged market stagnation and high interest rates reveal vulnerabilities even among mid-sized builders.

The Financial Supervisory Service (FSS) said on Wednesday that 221 construction companies received a C or D rating in this year’s regular credit risk assessment, indicating signs of financial distress.

Utop, a builder known for designing Gwangju-Kia Champions Field, the home stadium of KBO team Kia Tigers, filed for court-led rehabilitation in October. The company ranks 97th in the country by construction capacity assessment and is considered a major mid-sized firm in the Jeolla region.

Shin Dong-Ah Construction, which ranks 58th in the construction capability assessment and is known for its apartment brand Familie, also filed for corporate rehabilitation in January and has since concluded the process.

The number of companies in financial distress has been surging in recent months.

A builder working at an apartment construction site in Seoul on Aug. 11. [YONHAP]

The FSS said 221 companies received C or D ratings in its latest regular credit evaluation. Including those identified through ad hoc reviews, the total number of troubled firms in 2025 reached 437, up from 391 in 2024. Banks conduct these assessments annually under the Corporate Restructuring Promotion Act, reviewing companies’ industries and financial health.

Larger firms and small businesses undergo separate regular evaluations, while ad hoc assessments take place when necessary. Companies identified as distressed in an ad hoc evaluation are excluded from the regular count, so both results must be combined to reflect the total number of financially troubled firms.

In the grading system, a C rating indicates a company that may require financial restructuring, while a D rating suggests the need for court-led rehabilitation. These ratings do not automatically trigger formal procedures; if a company refuses to enter restructuring, banks may instead recommend internal financial adjustments.

An apartment construction site in seen in Seoul on Aug. 11. [YONHAP]

Real estate companies have shown a particularly sharp rise in financial distress due to the slump in the construction sector.

In the regular evaluation, 38 companies in the real estate sector received C or D ratings, the highest by category, followed by 16 in the automotive sector, 15 in wholesale and brokerage, 12 in machinery and equipment and 11 in rubber and plastics.

“The prolonged high interest rates have weakened the financial structure of marginal companies,” a FSS official said.

Financial authorities, however, believe that although the number of financially distressed companies has increased, the risk is unlikely to spill over into the financial sector in the near term.

As of the end of September, total loans and guarantees extended to such firms stood at 2.2 trillion won ($1.5 billion), or about 0.1 percent of total bank credit. Estimated loan-loss provisions for these firms amounted to 186.9 billion won, and their impact on the BIS capital adequacy ratio is expected to be minimal — just 0.01 percentage point.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY KIM NAM-JUN [[email protected]]