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Study: A third of companies may enter insolvency in case of new economic crisis
The local business environment has lost at least 100,000 companies and 15% of firms with incomes over 1 million euros since 2008. At present a third of active firms are likely to enter insolvency, according to a Coface Romania study.
“Only the most powerful have survived, but most companies were affected by turbulence in the last 6-8 years. Compared to 2008, Romanian companies are now in debt, have negative work capitals, commercial exposures two times higher and have a fragile self financing capacity. After the application of shocks like those of 2009, both financially and commercially, Romanian firms have a weaker immunity: 1 out of 3 companies will enter insolvency compared to the 20% average recorded in 2009. In this context, companies must remain more flexible, by externalizing services or positions which do not belong to their basic activity. Basic risk is doubled by a rising systemic risk, as companies are more interconnected by doubling commercial credit,”said Iancu Guda, Services Director, Coface Romania, quoted in a study about the immunity of the business environment in the context of domestic and international uncertainties.
In that context, according to the BNR financial Stability Report issued in May, the map of the main domestic risks includes the following challenges; rapid deterioration of investors’ confidence in emerging markets; tension of macroeconomic balances in the case of increase based on consumption and pro cyclic fiscal measures, feeding inflation pressures and growing foreign deficits (commercial, current account); maintaining modest credits for companies; uncertain and unpredictable laws; price acceleration of real estate stock.
Coface analysis wants to present a very important additional risk with possible impact on the business environment: low immunity in case of materialization of non-performing commercial credit.
The business environment is characterised by the doubling of interconnectivity degree among companies in the last 8 years (on the background of doubling the average debt collecting deadline) and an ample polarization phenomenon (the largest 1% companies hold two thirds of incomes of all firms), when 1 out of 2 companies present major insolvency risks. This framework sets the premises of developing and propagating non performing commercial credit though the contagion effect from one company to another.