Asia's 'Zombie Firms' Alarm: 21.4% of Corporate Debt Held by Weak Companies
IMF reports that financially weak zombie firms now hold 21.4% of corporate debt across 10 Asian economies, posing risks to banks.
A startling new report from the International Monetary Fund (IMF) has sounded the alarm on the rise of Asian zombie firms debt, revealing that financially distressed companies now account for 21.4 per cent of all outstanding corporate debt across 10 major Asian economies, including India.
The findings, detailed in the October 2026 Global Financial Stability Report titled "Resilience, Risk, and Transformation," highlight a worrying trend: businesses that cannot generate enough earnings to cover their interest payments are continuing to hold massive amounts of debt, creating a potential time bomb for the regional financial system.
What Exactly are 'Zombie Firms'?
In a specialized analysis titled "Corporate Zombies Are Thwarting Debt Deleveraging," the IMF defines these "zombie firms" as businesses whose earnings have failed to cover their interest expenses for at least three consecutive years. These companies are essentially kept "alive" by continued lending, despite their inability to service their existing debts.
The scale of the problem has grown significantly over the last two decades. According to the IMF, the share of corporate debt held by these zombie firms in the region was under 10 per cent in 2008, meaning the figure has more than doubled to the current 21.4 per cent.
The Scope of the Analysis
The IMF's assessment covers 10 key Asian economies:
- India
- China
- Hong Kong
- Indonesia
- South Korea
- Malaysia
- The Philippines
- Singapore
- Taiwan
- Thailand
Note: The 21.4 per cent figure is a combined assessment across these ten economies and is not a figure specific to India alone.
The Danger to the Banking Sector
The IMF warns that the habit of "bank forbearance"—where banks continue to lend to or avoid calling in loans from weak borrowers—creates a dangerous cycle that locks in both weak borrowers and weak banks.
The report indicates that banks with lower capital positions are more heavily exposed to this risk. Specifically:
- Under-capitalized banks: Those with capital levels below their country's median have 16 per cent of their loans exposed to zombie firms.
- Better-capitalized banks: These institutions have a lower exposure of 12 per cent.
Elevated Borrowing and Potential Write-offs
Corporate borrowing across Asia remains significantly higher than global averages. By the end of 2025, credit to non-financial companies in Asia averaged 107 per cent of GDP. In comparison, the average for emerging markets stood at 99 per cent, and the global average was 93 per cent.
The financial implications of this instability are severe. The IMF estimates that nearly 23 per cent of the debt held by zombie companies across these 10 economies could have been restructured or written off by 2025, based on standard assumptions for companies in sustained financial distress.
"This amounts to more than 5 percent of total corporate debt and is likely a source of future earnings and balance sheet weakness for the banks involved," the IMF warned.
Ultimately, the report suggests that by delaying the recognition of bad loans, the financial system is complicating efforts to reduce corporate debt and risking the long-term health of bank balance sheets across the region.