Financially weak companies that cannot generate enough earnings to cover their interest payments now account for 21.4 per cent of outstanding corporate debt across 10 major Asian economies, according to the International Monetary Fund. The findings, in the IMF’s October 2026 Global Financial Stability Report titled “Resilience, Risk, and Transformation,” point to growing risks for banks and the wider financial system as lending to distressed companies continues despite their inability to service debt.
In a special analysis titled “Corporate Zombies Are Thwarting Debt Deleveraging,” the IMF defines zombie firms as businesses whose earnings have failed to cover interest expenses for at least three consecutive years. Their share of corporate debt has more than doubled from under 10 per cent in 2008. The analysis covers China, Hong Kong, India, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand. The IMF warned that continued lending to weak businesses could create problems for banks, particularly those with weaker capital positions: “Bank forbearance therefore locks in both weak borrowers and weak banks.”
The scale of the strain
Corporate credit in Asia is projected to reach 107 per cent of GDP by end-2025, exceeding the global average of 93 per cent and the emerging-market average of 99 per cent. Natixis reports the share of listed Chinese companies unable to cover interest rises to 12.5 per cent by June 2026 — double the global rate of 6.5 per cent. The IMF estimates that if the stock of zombie debt were subjected to hazard and recovery rates typical of sustained distress, almost 23 per cent would have been written off or restructured as of 2025.
Why it matters beyond Asia
The report says this rising share of corporate debt is increasingly concentrated in firms that cannot service it. For global investors, the warning is that Asia — central to supply chains and capital flows — now holds the largest concentration of zombie firms anywhere. With the IMF also flagging AI-driven market exposure, depleted oil buffers and cyber risks in the same report, the message from the annual meetings in Bangkok is that the global economy’s buffers are thinner than they look.
