Association of credit buyers expects an increase in bankruptcies in 2021 – banks could “reach their limits in terms of capital and resolution”.
The credit insurer Acredia expects an increase in insolvency applications from the third quarter.
With the obligation to file for insolvency, which is suspended in times of corona, the credit buyers believe that a wave of bankruptcies is building up in Germany. The Federal Association of Credit Purchasing and Servicing (BKS) expects the number of bankruptcies to skyrocket from currently around 4,500 per quarter to 6,000 to 7,000 per quarter starting next year.
According to BKS President Jürgen Sonder, the wave of postponed insolvencies of small and medium-sized companies as well as the expected bankruptcies of solo self-employed could put a heavy strain on the entire banking system. Together with a possible restriction on lending, a rapid economic recovery would be unlikely, warned Sonder on Monday, whose association represents the interests of 31 member companies currently active in the credit trade in Germany.
The obligation to register insolvencies is partially suspended until the end of the year due to the corona crisis. Experts warn of “zombie” companies that would be artificially kept alive. If too many companies or private individuals can no longer service their loans at the same time, the banks will reach their limits in terms of capital and liquidation, according to the BKS boss. “This not only affects the risk capital to be kept, but also the real cost of loan defaults.”
The European Central Bank (ECB), meanwhile, warned with a view to the euro area against a hasty withdrawal of the aid measures for the economy. If the recovery is slowed down and growth turns out to be weaker than expected, an early exit could significantly increase the number of corporate bankruptcies, writes the central bank in its financial stability report. This would also have consequences for banks. An abrupt end to the measures would also increase financing risks. Companies would then likely be even more vulnerable than at the height of the global financial crisis.
According to the ECB, the aid measures have so far helped to limit the number of company bankruptcies. These included government loan guarantees and the suspension of bankruptcy filing obligations. Companies should still be able to service their debts. This assumes that borrowing costs remain low and that economic activity and payment flows ultimately recover, the experts write.
In order to contain the consequences of the pandemic, the ECB has initiated extensive monetary policy support measures for companies – including a pandemic bond purchase program now worth EUR 1.35 trillion. As part of this program, which has been named PEPP, it acquired corporate bonds with a volume of more than EUR 20 billion and short-term corporate debt securities (commercial paper) with a volume of more than EUR 31 billion by the end of September.
