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[Alpha Biz= Reporter Kim Sangjin] According to an analysis, the financial soundness of the construction industry has deteriorated more than during the past foreign exchange crisis or the period immediately after the global financial crisis.
Kim Hyun-tae, a research fellow at the Korea Institute of Finance, stated in a report on 'Financial Soundness Check of Domestic Real Estate and Construction Industry' on the 9th that the increase in loans in the real estate and construction industries is distinct.
Research fellow Kim analyzed that the size of domestic corporate loans has shown an annual average increase of about 11.8% since the pandemic, and the loan growth rate in the real estate and construction industries is evident.
The size of corporate loans, which was at the level of 1,208 trillion won in 2019, increased by more than 56% to 1,889 trillion won at the end of last year. The contribution rate of loan growth by industry was in the order of service industry (70.9%), manufacturing industry (16.2%), and construction industry (6.4%). In particular, there was a noticeable increase in loans to the real estate industry. The real estate industry, which has shown an increasing trend since 2012, increased by 181 trillion won (65%) over the same period.
Both the real estate and construction industries have recently shown lower liquidity and higher debt ratios. Overall financial soundness has deteriorated, with interest coverage ratios also declining. Construction loans showed a steep increase, exceeding an annual 15% during 2019-2022. As of the end of last year, the outstanding balance of construction loans amounted to 103 trillion won.
The analysis of financial indicators for 7,511 real estate companies and 2,327 construction companies showed that the debt ratio (median basis) of real estate companies decreased after the global financial crisis, then turned to an increasing trend after 2010, reaching a peak of 345.6% in 2022, slightly down to 295.4% at the end of last year.
Similarly, the construction industry has shown an increasing trend in debt ratios since the deleveraging in the 2000s. As of the end of last year, the debt ratio of the construction industry was 110.5%. The current liquidity ratio is 174.7%, which is at a favorable level, but it has decreased by 49 percentage points compared to 2019 (223.7%) before the pandemic.
The debt ratio of Hyundai Construction, a representative construction company in Korea, also reached 108.3, and the total profit margin relative to sales decreased from 9.9% in 2021 to 5.7% at the end of last year. The operating profit margin also sharply declined from 4.2% to 2.6%. The debt ratio of Daewoo Construction, ranked 7th in the construction industry, reached around 170%.
The interest coverage ratio of construction companies last year was 2.7, which was better than that of the real estate industry, but the recent decline rate was even more rapid than that of the real estate industry. In 2017, the interest coverage ratio of the construction industry was 12.4, nearly five times higher than the current level.
AlphaBIZ Kim SangJin(letyou@alphabiz.co.kr)
