Liquidity pressure is growing in numerous sectors
The number of corporate insolvencies continues to rise. In January, the number of insolvencies rose by 26 per cent compared to the same month last year, in February the number rose by 18 per cent compared to the same period last year and in March the increase is likely to be on a par with March 2023, when 13 per cent more companies filed for insolvency. "On the one hand, this development is no cause for concern, as it means we have roughly returned to pre-coronavirus levels. On the other hand, however, we are currently seeing an increase in major insolvencies in which some suppliers have already suffered considerable bad debt losses," says Dietmar Gerke, Head of SRM at the international credit insurer Atradius.
Last year, 17,800 companies in Germany filed for insolvency. According to the Atradius manager, this figure is likely to be reached "at least" again this year. According to him, companies of all sizes that do not have sufficient liquidity buffers are affected. During the coronavirus crisis, several hundred billion euros in corporate aid was provided - including to companies that were already under pressure before coronavirus and were only able to remain on the market thanks to this aid. Now that the aid has come to an end, the loans from the Kreditanstalt für Wiederaufbau have matured, energy and commodity prices are high, supply chain problems have arisen and financing costs have risen due to increasingly restrictive bank policies, these already weakening companies are increasingly facing liquidity problems.
In addition, the pressure from higher interest rates will continue this year and may not ease until 2025 due to the delayed effect of monetary policy. The latest surveys by banks on lending in the USA and the eurozone, for example, show that they expect lending standards for companies to tighten further in the coming months. This puts additional pressure on companies, as the liquidity buffers that many companies accumulated during the pandemic have now largely been used up. "The poly-crises of electricity and commodity prices, geopolitical crises, inflation and high interest rates are leading to a consolidation of the economy," says Dietmar Gerke, adding: "Insolvencies are part of a healthy economic development, the only question is: to what extent?" Only strong and healthy companies are able to follow the path of transformation that the German economy is currently undergoing.
Old and new problem sectors
As in 2023, the sectors that are particularly at risk are the automotive sector - and suppliers in particular - the building and property sector, the textile industry, mechanical and plant engineering and the construction industry. "Companies in the construction and construction supply industry in particular will keep us busy in 2024," expects Dietmar Gerke. He cites tile manufacturers as an example, who on the one hand have high energy costs to fire the tiles and on the other hand are struggling with falling sales due to the decline in construction activity. "No company can cope with this in the long term," says the Atradius risk expert. This will lead to a massive market shakeout in the construction industry, especially for smaller companies. In his view, the healthcare sector could become a new problem child. For the first time, church hospitals are also going bankrupt. According to him, there will also be a lot going on in the paper industry, particularly among manufacturers of printed products. One reason is that more and more companies are abandoning the printing of catalogues, brochures or photographic paper.
Creditors' claims on the rise
Last year, creditors' claims from corporate insolvencies rose from 14.3 to 26.6 billion euros compared to 2022. "This figure will not fall in 2024," expects Dietmar Gerke. He assumes that the number of major insolvencies of companies with a turnover of more than 10 million euros will increase this year. In terms of the total number of insolvencies, however, he believes a moderate development compared to the previous year is conceivable. "I don't expect a wave of insolvencies this year," says the Atradius manager. So there is no reason for pessimism. A comparison with 2009 proves Gerke right: back then, the Federal Statistical Office reported 33,000 insolvencies in Germany. For this year, the credit insurer Atradius expects the overall insolvency trend to stagnate compared to 2023 and a decline in company bankruptcies of around three per cent next year.
Insolvency as a restructuring instrument
According to him, it is positive that insolvency has been increasingly used as a restructuring tool since the coronavirus - often with success. "Before coronavirus, insolvency was a stigma. That has now changed," says Dietmar Gerke. It is important to bring in third parties at an early stage to take a look at the company, its structure and its finances. "It's actually already too late when you have to talk about liquidity measures." In his view, there is a good chance of success if the problems are recognised at an early stage and restructuring can be achieved without insolvency.
