South Korea’s financial watchdog on Tuesday designated 176 small and medium-sized enterprises to undergo restructuring, the largest number of firms since 2010.

The Financial Supervisory Service evaluated credit risks of a total of 2,035 SMEs with credit ceilings of less than 50 billion won ($42.8 million) and graded them in levels from A to D. The annual evaluation is conducted by the watchdog in order to reduce risks of corporate bankruptcies.

A total of 71 firms were given a grade of C, while 105 were given D. The C and D-grade firms are considered fiscally ill.

The number of small businesses facing fiscal risks has been on the rise amid a prolonged economic slowdown. The watchdog had designated 121 firms in 2010, 77 in 2011 and 97 in 2012, before the figure kept growing from 2013 through 2016.

By industrial sector, 26 of the companies are related to the shipbuilding, construction, petrochemicals, steelmaking and shipping industries. These industries have been closely monitored by the government and financial authorities due to a growing number of underperforming companies in the midst of slowing demands and falling exports.

Others included 22 metal processing businesses, 20 electronic part makers, 19 machinery manufacturers and 14 rubber and plastic provider, the FSS said.

Four membership golf course operators and five sports service businesses are also included in the FSS list.

“The FSS will have the C-rated businesses carry out swift measures including workout, while inducing D-rated ones to file for court receivership,” the watchdog said in a statement.

“Creditors will halt providing funds and adjust credit ceilings or interest rates for companies that do not take any measure.”

As of September, the total credit ceilings for the companies subject to restructuring stood at 1.97 trillion won, slightly down from 2.2 trillion won last year. About 1.7 trillion won, or 88.6 percent, was covered by commercial banks.

If the designated companies go under workouts or file for court receivership, the banks are expected to set aside an estimated 320 billion won as allowances for losses.

“Considering the banks’ financial capabilities to absorb the losses, the impact of their restructuring on the financial system will be limited,” the FSS said. 

By Song Su-hyun (song@heraldcorp.com)