According to a study conducted by the International Monetary Fund (IMF), Indian firms have the highest corporate debt vulnerability among Asian countries. This vulnerability refers to the likelihood of defaulting on debt payments. The study indicates that a significant portion of corporate debt in India, China, and Thailand is held by firms with low interest coverage ratios, which signifies their susceptibility to default.
In the case of India, around 31.1 percent of corporate debt is held by firms that are at risk of default. An additional 32.6 percent of debt falls into the category of firms with interest coverage ratios between one and four, implying that this debt could potentially become vulnerable to default if borrowing costs rise.
Thailand has 28.03 percent of its corporate debt concentrated in firms with interest coverage ratios below one, while in China, it is 25.8 percent. On a global scale, approximately 16.8 percent of corporate debt is held by firms susceptible to default.
Countries such as the Philippines, Malaysia, and Hong Kong have significant proportions of debt held by companies with coverage ratios slightly above one, making them potentially vulnerable to default if borrowing costs increase.
A common trend observed across the region is the prevalence of low interest coverage ratios among firms in the property and construction sectors. While having cash buffers can offer temporary relief against rising interest rates, they may prove inadequate if borrowing costs remain high for an extended period.
It is important to address the debt vulnerability issue to safeguard the financial stability of these economies. Measures such as improving corporate governance, enhancing risk assessment frameworks, and promoting responsible borrowing practices can help mitigate the risks associated with high corporate debt and reduce the likelihood of defaults in the future.
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