The prolonged restrictions were reflected in the number of bankruptcies and insolvencies of enterprises – mBank representatives indicated in Monday’s comment. Coface’s report shows that first-quarter insolvencies increased by 122 percent year-on-year. It is the worst in transport and services.
Representatives of mBank pointed out that “the pandemic lasting over a year and the related restrictions mean that more and more enterprises are forced to some form of restructuring of their operations or bankruptcy”. “Aid programs keep some entrepreneurs afloat, but they cannot replace normal economic transactions. We expect that after the state aid ceases, the number of bankruptcies may increase even more, which should be reflected in the NPL ratio of the banking sector” – they stressed.
The NPL loan portfolio quality index relates to the ratio of irregular receivables to total receivables. An increase in the index means a deterioration.
On the other hand – as mBank representatives noted – in 2020 some banks created relatively high provisions, which should partially amortize the impact of bankruptcy on banks’ results in 2021.
Increase in insolvency
The Coface report shows that the total number of insolvencies of Polish enterprises in the first quarter of this year amounted to 515 cases and is higher by as much as 122 percent compared to the corresponding period of 2020, when simplified out-of-court proceedings were not yet operational.
According to the data at the end of March, it appears that in the first three months of 2021 the courts announced bankruptcy and restructuring decisions of 161 Polish companies. This is 31 percent less than last year. “It should be taken into account that the work of the courts in March was difficult (fewer cases) due to the third wave of the pandemic and absences of employees, which also resulted in difficulties in obtaining complete data from the courts” – noted the authors of the report.
Additionally, in the first quarter of this year. 354 economic entities announced insolvency in the form of a new simplified procedure for approval of an arrangement (without registration in court) in the Court and Economic Monitor.
The highest increase in insolvencies was recorded in transport – by 236 percent, and services – by 220 percent. In the first quarter, 37 and 153 bankruptcies and restructurings, respectively, were recorded in these sectors. For comparison, in the same period last year, there were 11 and 48, respectively.
There was also a clear increase in trade from 43 to 101 (increase by 135 percent) and construction from 30 to 53 (increase by 77 percent).
“The situation in services is deteriorating (153, +23 q / q), which is understandable given the nature of the restrictions. The number of bankruptcies in the construction industry is increasing for the next quarter, but we believe that in the second half of the year, with the release of EU funds, they should catch their breath both larger enterprises and smaller subcontractors “- assessed the representatives of mBank.
There is also a very large increase in agricultural insolvencies – by 150 percent. In the first three months of this year, 80 bankruptcies and restructurings were recorded in this industry, compared to 32 in the previous year.
High level of consumer bankruptcies
On the other hand, as we read in mBank’s comment, in the first quarter of this year we saw a decline in consumer bankruptcies quarter on quarter. “In quarterly terms, the number of consumer bankruptcies fell by 7 percent, but in annual terms we still have a strong upward trend (+128 percent)” – indicated.
According to the data of the Central Economic Information Center (COIG), 4,726 entities decided to go bankrupt in this form in the first quarter. As emphasized, “obviously the increase in a way reflects the worse situation of the consumer, but the most important issue seems to be the change of regulations.
“According to COIG, by March 2020, the courts dismissed about half of applications for consumer bankruptcy, but since then the change in regulations has meant that each petition is accepted, and the court only decides in what amount and for what period the debtor will pay the liabilities. only the data for Q3 will be comparable y / y (in Q2’20 some courts did not operate normally, which means that despite the new regulations, the number of bankruptcies did not increase) “- explained.
Moreover, mBank representatives expect that the prolonged restrictions in the economy are not conducive to starting a business. “Therefore, we believe that the number of suspensions and termination of operations in February and March 2021 will continue to exceed the number of resumed and newly established operations,” reads the Monday commentary.
Main photo source: PAP / Darek Delmanowicz