Companies placed under creditor-led restructuring has reached the highest count in recent years in 2015 and the number is likely to rise even further next year, Korea’s financial regulator said Wednesday. 

According to the Financial Supervisory Service, 15 troubled large companies are to be put under creditor-led rehabilitation, in addition to 35 already undergoing forced restructuring. That pushed the total number to 54, the highest since 2010 when the figure stood at 65.

As for smaller companies, a total of 175 enterprises, selected in June, are already in the process of improving their financial health. The tally is the highest since 2009.

“From the way things look now, the number of companies that will be put under restructuring will continue to rise next year (2016),” FSS Gov. Jin Woong-sub warned in a meeting with bank executives Wednesday.

He also advised banks to beef up provisions for corporate loan losses, urging heightened vigilance against defaults as Korea’s economy is expected to struggle in 2016 amid weak global demand, falling oil and commodity prices and China’s slowdown.

“It would be wise for banks to act preemptively and set aside more in loan-loss provisions, when capable,” Jin said.

As of the end of June, local lenders’ cover of corporate nonperforming loans stood at 108.6 percent, which means all bad loans are backed.

Korea has been accelerating the corporate restructuring drive, as a prolonged slump in global demand deteriorates the financial soundness of key exporting companies.

Shipbuilders are among the hardest hit, with creditor banks led by the state-run Korea Development Bank now pushing for a major downsizing of the ailing STX Offshore, the world’s fourth-largest shipbuilder.

To weed out zombie companies, the FSS conducts an annual check on the financial health of firms, based on the credit risk assessments from creditor banks. Companies are given a rating of from A to D based on their insolvency risk and those with a C rating are subject to creditor-led debt workout, while those in the D category must file for court receivership.

The list announced Wednesday is the result of a rare second inspection that FSS carried out this year into 368 firms whose credit expansion surpassed 50 billion won ($42.6 million) and which shows a sign of going bust.

Of the 19, 11 are C-rated, while the rest are given a D rating. The FSC did not disclose the name of the companies.

The country’s push for speedy corporate restructuring, however, is likely to hit a snag, as a key law pertaining to debt workout programs is to expire on Dec. 31, unless the National Assembly passes a motion to extend it by two and a half years at the last minute.

The workout program, a bridge between creditors-led voluntary restructuring, for which a 100 percent content of all creditors is required for any decision, and court receivership, is intended to facilitate a speedy restructuring process, as it lowers the threshold for workout agreements to 75 percent of creditors.

By Lee Sun-young (milaya@heraldcorp.com)