The International Monetary Fund found that companies unable to cover interest costs for at least three years accounted for 21.4% of outstanding corporate debt across ten Asian economies. The share has more than doubled from below 10% in 2008, according to analysis in the October Global Financial Stability Report. The study covered major markets including China, India, Indonesia, South Korea and Thailand.
Asia’s corporate credit averaged 107% of gross domestic product at the end of 2025, compared with 81% before the global financial crisis and 93% globally. The IMF linked the persistence of distressed borrowers partly to banks rolling over credit rather than recognising losses. It warned that this can preserve reported capital in the short term while weakening credit allocation and productivity.
BANK CAPITAL SHAPES FORBEARANCE
The fund found that weaker-capitalised banks had 16% of their loan books exposed to zombie companies, against 12% for better-capitalised lenders. That gap suggests balance-sheet strength influences whether banks recognise troubled credit or extend loans to borrowers that cannot service existing debt. The pattern also raises the risk that reported asset quality understates economic stress.
Under the IMF’s sustained-distress assumptions, nearly 23% of zombie-company debt would have been written off or restructured rather than repeatedly rolled over. Recognition would impose near-term losses on lenders, but it could also release credit for viable companies. The report therefore presents corporate restructuring and bank-loss recognition as connected financial-stability questions.
RESTRUCTURING TEST MOVES TO BANKS
The regional aggregate masks differences between markets and lenders, so the 21.4% share does not imply that every banking system faces the same exposure. Even so, the concentration of zombie lending at weaker banks makes capital adequacy, provisioning and supervisory enforcement central to the adjustment. Authorities will need to distinguish temporary cash-flow problems from structurally unviable borrowers.
The next evidence will come from national asset-quality disclosures, corporate restructurings and bank provisioning decisions after the IMF assessment. If lenders recognise losses more quickly, headline non-performing exposures could initially rise while underlying credit allocation improves. Continued refinancing without credible restructuring would instead extend the pressure on bank capital and productive investment.