Weak financial companies that are unable to generate sufficient income to cover their interest payments now account for 21.4% of corporate debt in 10 major Asian economies. This information was published in the October 2026 report of the International Monetary Fund (IMF) titled "Global Financial Stability: Resilience, Risk, and Transformation."
Risks to the Financial System and Banks
The findings of this report point to increasing risks for banks and the broader financial system, as lending to weak financial companies continues, despite these companies' inability to settle their debts. In a special analysis titled "Zombie Companies Hinder Debt Reduction," the International Monetary Fund stated that "this growing share of corporate debt is increasingly concentrated in companies that cannot settle it."
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Definition of Zombie Companies and Their Status
The report notes that such companies, known as "zombie companies," are businesses whose income has been insufficient to cover interest costs for at least three consecutive years. The International Monetary Fund stated that "in 10 Asian economies, zombie companies whose income has failed to cover interest costs for at least three consecutive years now constitute 21.4% of corporate debt in the region, up from less than 10% in 2008."
This analysis includes countries such as China, Hong Kong, India, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand. The figure of 21.4% represents a joint assessment of these economies and is not specific to India.
Consequences of Lending to Weak Companies
The International Monetary Fund has warned that continued lending to weak financial businesses could create problems for banks, especially for those banks with less capital. The report states: "Bank support in this way involves both weak borrowers and weak banks."
According to this analysis, banks with capital levels below the average of their countries have allocated 16% of their loans to zombie companies, while this figure is 12% for better-capitalized banks.
Overall Lending Situation in Asia
The International Monetary Fund also emphasized that corporate lending in Asia remains at a high level. By the end of 2025, credit to non-financial companies in Asia will average 107% of GDP, while this figure is 99% for emerging markets and 93% globally.
The report also estimates that nearly 23% of the debt of zombie companies in 10 Asian economies could be subject to forgiveness or restructuring by 2025 under assumptions typically applied to companies with sustainable financial difficulties. This amounts to over 5% of total corporate debt and is likely to be a source of future weaknesses in the income and balance sheets of committed banks.
The findings of the report indicate the risk that continued lending to businesses unable to settle their debts could delay the identification of non-performing loans, weaken bank balance sheets, and complicate efforts to reduce corporate debt in the region.
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