Coface: 1,074 companies went into insolvency in the Czech Republic last year

In the Czech Republic, 1,074 companies went into insolvency in 2023, five percent more than last year. In the CEE region, the number of corporate insolvencies rose by 39 percent. This is according to an analysis by Coface, which the claims insurer provided. According to data from the Czech Statistical Office, there were 570,000 companies in the Czech Republic at the end of 2023.

The construction sector accounted for almost a fifth of the total number of insolvencies in the Czech Republic, followed by the retail sector with 11 per cent and services with 10 per cent. "The Czech economy was operating at a higher interest rate than the euro area, energy price compensation was not as generous, and household purchasing power declined the most in the region. These factors contributed to the cancellation or postponement of many construction projects. 2024 will also be a difficult year from this perspective and a return to normal growth levels can only be expected in 2025," said Martin Procházka, Coface's Chief Underwriting Risk Officer for the Czech Republic and Slovakia.

According to the analysis, virtually all countries in the region faced an economic downturn, high inflation and weak GDP growth last year. In addition, companies are facing rising input costs, wage growth pressures and weak customer demand.

Average GDP growth in the CEE region has fallen from four per cent in 2022 to 0.5 per cent in 2023. As a result, it is the lowest GDP growth rate this century, excluding the global financial crisis in 2009 and the covid-19 pandemic in 2020. The Czech Republic, Estonia, Hungary, Latvia and Lithuania have even seen a decline in 2023, Coface added.

"The consequences of Russia's invasion of Ukraine have been felt across the CEE region. They have disrupted supply chains and contributed to a sharp rise in energy prices. These external shocks, together with internal problems such as rising input costs and labour shortages, weighed heavily on companies, leading to a significant increase in insolvencies," Procházka commented.

Coface expects a further increase in insolvencies in the Czech Republic and the region this year in selected sectors, especially in the construction and retail sectors. However, the total number of insolvencies could fall year-on-year due to the recovery in consumer spending and the overall stabilisation of the macroeconomic environment.

The Czech and Slovak markets remain linked by the complicated case of the investment company Arca, where insolvency proceedings have been ongoing for several years. It involves more than 150 disputes and claims in excess of EUR 600 million, or CZK 15 billion. It thus aspires to be the largest insolvency case in many years for both countries.

According to Coface, the most important insolvency cases of 2023 in the country are in particular the retailer Rosa market, the mobile phone distribution company Mamut and the energy supplier Tameh. The largest bankruptcy in Slovakia concerns the bankrupt Axe Capital group, which has collected over EUR 50 million, or CZK 1.25 billion, from investors.

Coface provides its clients with protection against the risks associated with trading, in particular information on the financial stability of customers, suppliers and potential business partners. Its product portfolio includes debt insurance and debt recovery. Worldwide, the Coface Group has 50,000 clients in more than 100 countries.

Source: Coface and CTK