A Wave of Bankruptcies Is Underway
Up to a third of the companies in Bulgaria are threatened with insolvency
Bulgaria will report a growth of nearly 21% in bankruptcies this year and next, compared to 2019. This is stated in the updated report of "Euler Hermes" - a leader in commercial credit insurance.
They warn that the global bankruptcy index will reach 35%, a potential threat to all industries.
Electronics and the IT sector remain the most stable, although some cuts are already underway.
The report highlights that the crisis could be exacerbated by the so-called "zombie companies" - companies that rely on loans and grants without possessing sufficient capital. In case of a recession, they are the first to go bankrupt.
According to economists, recession is inevitable.
Bulgarian insolvent companies will increase by 25-30 percent. This is the forecast of the manager of the credit insurance company Coface Bulgaria Plamen Dimitpov especially for "THE BANKER". However, he made the remark that there are
two types of bankruptcy - official and illegal in BG.
The first is conducted in strict compliance with the procedure and declared by the court, while the second is related to the company being emptied of assets and then sold to low-income citizens. "In the decline I predict, about 18% will be the share of official bankruptcy and the remaining about 12 per cent - of illegal transfers," Dimitrov said.
"In the first half of the year we recorded a decline in insolvency, which is explained by the measures for reduced working hours of the courts. But in fact it is about some "walking dead" and the effect of their existence has yet to show itself," Dimitrov said.
He also explained that "after the period of no real receivables collection because the court system did not work, cases have accumulated and the system will soon start slipping. But we are trying not to go to court and to sympathize with each payer through agreements and rescheduling," he added.
He said that, reasonably, the most risky industries are those that have suffered and continue to directly suffer from the development of the pandemic. "These are tourism, fuel trade, metals," he said. the textile industry goes along with them, where the decline is more than 50%.
In Dimitrov’s words
current trends in business-to-business indebtedness are:
long-term partners, who have, until now, trusted each other, start to shorten the payments deadlines. If certain companies do not trust each other, they do not manage to agree on payments rescheduling.
"It is clear that not every commitment made before the crisis, can be fulfilled after the crisis. In this regard, the average time of payment delays among businesses is increasing and the trust between companies is declining," he said.
He noted that a minimum of 25% insolvency on a global scale is being expected in 2019. Countries such as the United States expect this growth to be close to 40%.
The manager of Coface Bulgaria pointed out that there are several similarities of the current crisis to the one of 2008 - over 35% of the large purchases will be terminated, over 70% of the people will spend part of their vacation and as a whole there will be a reduced demand of goods and services.
"The difference is that back then there was mistrust in and between the banks. Now the trust between them is not damaged, as well as the trust of the business in them", Dimitpov added.
He said that according to official forecasts, the GDP is expected to shrink by at least 1.5% globally, 6-7% for the strongest economies in Europe and 3% for Bulgaria.
However, the grave condition of the companies is also influenced by
the state and municipalities arrears to the companies
and citizens. The latest data from mid-August shows they exceed BGN 220 million for the first half of the year.
The central authorities are slowing down to BGN 76.5 million, and the local authorities are late with payments of nearly BGN 144 million.
As of the end of June 2020, the municipalities have delayed payments by BGN 143,827 million. For comparison, at the end of the sixth month of 2019 the debts of the municipalities were BGN 123.89 million.