South Korean manufacturers’ capacity to repay debt deteriorated in 2011 due to sluggish economic growth and increases in borrowing costs, the central bank said Tuesday.

The ratio of a manufacturer’s operating cash flow to short-term borrowing and interest reached 53.8 percent last year, down sharply from 66.1 percent reached in the previous year, according to a survey of 7,404 manufacturers conducted by the Bank of Korea .

The ratio measures a company’s ability to service short-term debt with cash generated from operating activities. The 2011 data marked the lowest level since the 51.4 percent tallied in 2008, the central bank said.

“Last year, local manufacturers’ cash flows from their business activities fell as the slowdown in the global economy affected domestic growth and the bottom line of many large conglomerates,” a BOK researcher said.

She added that because local companies borrowed more money to meet preset investment plans and other business obligations, there was a rise in interest payments.

Local manufacturers posted a net cash inflow of 11.5 billion won ($9.8 million) on average last year, down from 12.4 billion won in the previous year.

Asia’s fourth-largest economy expanded 3.6 percent last year from 6.2 percent reached in 2010.

Korean manufacturing companies also posted a net cash outflow of just under 14.2 billion won on average from investment in 2011, up from 13.9 billion won in the previous year. In the cited period, their net cash inflow surged 152.7 percent on-year to 3.2 billion won due to a rise in corporate bonds issued, and they paid out an average of 1.84 billion won in dividends, the BOK said.

The latest report, meanwhile, showed that large companies experienced a sharp drop in cash inflow for their business activities last year, while numbers for smaller ones edged up. Cash inflow for big companies hit an average of 63.5 billion won, while the number for small and medium enterprises reached 1.6 billion won.

The ratio measuring a large firms’ capacity to service short-term borrowing reached 67.0 percent last year, down 17.9 percentage points from 2010. But the corresponding ratio for smaller companies edged up 1.4 percentage points to 24.9 percent, the BOK said. (Yonhap News)