Creditor banks of South Korea’s major conglomerates are pressing their debtor companies to improve balance sheets in order to avert a liquidity squeeze following the collapse of Tong Yang Group, industry sources said Thursday.

Creditor banks called on Dongbu Group, the 17th-largest firm in Korea, to upgrade its financial soundness via all possible means, including selling assets, restructuring and securing liquidity if necessary, according to bank officials.

Other big enterprises including Doosan Group, Hanjin Group and Hyundai Group are also being pushed to revamp their financial structures by their creditor banks for high levels of debt.

The move came as Tong Yang Group, South Korea’s 38th-largest firm, defaulted last week on maturing debts due to cash shortages and filed for court receivership of five of its units including Tongyang Cement & Energy, the second-largest cement producer here.

The collapse of Tong Yang Group is the latest in a series of corporate failures that swept the local economy since late last year, when a midsized ― but considered financially sound ― builder and its holding company filed for court protection after failing to tide over the liquidity crunch.

Early this year, STX Group, the 13th-biggest conglomerate here, was disbanded and placed under court receivership and a creditor-led debt workout program on fund shortage.

Creditor banks picked Dongbu Corp., the construction arm of the group, as a risky one to watch since it has a debt-to-equity ratio of 500 percent and needs to pay back debts worth 780 billion won ($726 million) by the first half of next year. (Yonhap News)

Hanjin Group has a whopping 1,088 percent debt ratio for its flagship unit Korean Air Lines Co., with a high level of loan dependency of 66 percent for Hanjin Shipping Co.

An executive from one of the creditor banks, asking not to be named, said the move is for the financial market to stay alert against “another STX crisis” that can come in at any unexpected moment.

A spokesman at Dongbu dismissed the default possibility, saying that the builder will have enough funds to cover the maturing debts in time since asset sales have been well pulled off so far.

The group is pursuing to secure 430 billion won within this year by selling off its stakes in thermal power and logistics units. (Yonhap News)