South Korea’s construction industry went through hard times last year despite a general boom in growth in other sectors, a report by the central bank showed Thursday.
The woes were mainly due to the sluggish local real estate market that caused a general drop in houses being built across the country and led to a decrease in work. Such developments exerted negative influence on key numbers such as ratio of operating income to sales, cash flow coverage ratio and reliance of borrowings.
The Bank of Korea said the average ratio of operating income to sales for local builders last year fell to 2.8 percent compared to 4.4 percent in 2009.
In the same period, numbers rose to 7.5 percent from 6.2 percent for other industries thanks to the solid pace of economic growth that hit 6.2 percent in 2010.
The report also said the cash flow coverage ratio for the construction sector, which shows the ability of businesses to pay back debt and pay interest, plunged from 31.1 percent to 13.6 percent in the one-year period.
This is in contrast to the 124 percent reached for other industries, up from 107 percent tallied in the previous year.
The BOK also said reliance of borrowing for the construction sector moved up from 25.9 percent to 28.8 percent in the cited period, while numbers for other industries dipped from 23.6 percent to 22.8 percent. Reliance on borrowing measures the proportion of loans compared to total assets held by a business.
The latest findings showed that financial health of the average construction company deteriorated throughout last year.
The BOK said the debt-to-equity ratio hit 195 percent, which is much higher than the average 88 percent for all domestic industries.
“Most industries did well last year, but the stagnant real estate market and numerous smaller sized builders going bankrupt affected builders as a whole and put pressure on the country’s financial system,” the central bank said.
It added that while larger companies may be able to overcome the current weak market, smaller companies may continue to close their doors in the coming months.