Looming credit crunch: more bankruptcies due to bank turmoil?

Status: 04/11/2023 11:58 a.m

According to a study, the most recent banking crisis is likely to have an impact on the number of company bankruptcies. Cautious lending could leave more companies in trouble than expected in 2023.

The credit insurer Allianz Trade expects more bankruptcies in the current year as a result of the recent bank turbulence. For Germany, the study expects an increase of a good fifth, i.e. 22 percent, compared to the previous year to around 17,800 cases in the current year.

“Due to the now even more restrictive bank lending, more companies are likely to get into difficulties than expected at the beginning of the year,” according to the experts’ assessment. So far, the credit insurer had predicted an increase in corporate insolvencies in Germany by 15 percent.

Accordingly, the problems of banks in the USA and Switzerland are also leaving their mark in Germany: “With the sharp rise in interest rates, companies with rather poor financing are running the risk of getting into difficulties,” explained the CEO of Allianz Trade in Germany, Austria and Switzerland, Milo Bogaerts. However, this is not a wave of bankruptcies, even if a double-digit increase initially gives the impression, according to Bogaerts.

Is there a credit crunch?

The background is the assumption that banks could grant fewer loans in future due to the turbulence in order to reduce the risks in their balance sheets due to loan defaults. A so-called credit crunch, in turn, could have a weakening effect on economic growth, which could subsequently lead to further defaults.

According to a recent study by management consultancy EY, many banks actually want to reduce their lending in view of the surge in energy prices and the weak economy. Two out of three German financial institutions assume that lending will decrease, and only 15 percent expect an increase, according to a survey.

According to the survey, companies and private customers must also expect higher requirements when applying for a loan. According to the EY survey, 76 percent of the institutions surveyed probably wanted to make stricter requirements for documentation and collateral. At 64 percent of the financial institutions, the additional credit costs would increase for new customers. 43 percent of the bank managers surveyed also expected more applications to be rejected. 21 percent of the institutions assumed that they would not grant any new lines of credit.

But there are also other assessments: Based on its own survey, the Munich Ifo Institute recently came to the conclusion that companies in Germany are finding it easier to get credit again. In December, 30 percent of companies still reported that banks were reluctant to grant loans, but in March it was only 22.7 percent. “The turbulence at some international banks has had no effect on lending in Germany,” concluded the head of the Ifo surveys, Klaus Wohlrabe.

Company bankruptcies picked up in 2022

According to official data, the number of company bankruptcies in Germany increased last year for the first time since the global financial crisis of 2009. In 2022, according to the final results, the German district courts reported 14,590 requested corporate insolvencies, the Federal Statistical Office reported. This means an increase of 4.3 percent compared to the previous year.

In 2021, 13,933 cases were registered, the lowest since the insolvency code was introduced in 1999. However, it should be noted that from March 2020 to May 2021 the obligation for over-indebted companies to file for insolvency was suspended in whole or in part as a result of the corona pandemic, according to the statisticians. Since 2009, the number of corporate insolvencies has been steadily declining year-on-year.

Inflation and consumer restraint

“The main reasons for the company insolvencies last year were the high energy costs, the existing problems in the supply chains and the high inflation. Added to this was the reluctance to spend among consumers, who had less money available due to the high energy prices and inflation. The resulting loss of purchasing power had a negative impact the companies as well,” said Frank Schlein, Managing Director of the credit agency CRIF, explaining the data for the past year.

According to the number of employees affected, the biggest insolvency of the past year was the bankruptcy of Galeria Karstadt Kaufhof with around 17,000 employees. This was followed by the insolvency of the MV shipyards with more than 2000 employees. Well-known names were also the fashion chain Orsay and the shoe retailer Görtz.

“reason for caution”

Despite the projected increase, even by the end of 2023 Germany will not have reached the pre-pandemic level, Bogaerts predicted. “This is only likely to be slightly exceeded again after a further increase in insolvencies of six percent in 2024.”

According to Allianz Trade estimates, global insolvency figures will also rise by a good fifth (21 percent) in the current year from the comparatively low level recently. Here, too, the credit insurer expects that the level of the pre-Corona year 2019 will not be nearly reached again until 2024.

“Germany is still doing well in a European comparison,” said Bogaerts. “However, the dynamics of the increase in bankruptcies in the course of normalization have meanwhile adjusted to global events.” This is not a reason for panic, but a reason for caution, said Bogaerts.

source site