The increase in taxes, the accentuation of the financial blockade and the effects of inflation create big problems in the business environment, where over a third of Romanian companies have massive capitalization deficiencies. Without sufficient working capital, dependent on receipts, many of the companies are at risk of entering the risk zone, a fact that could generate wide-ranging problems along the economic chains, Sierra Quadrant warns.
An x-ray of the Romanian business environment, in 2024, indicates a high level of vulnerability. More than 133,000 companies went into difficulty last year (16,335 companies suspended their activity, 39,031 were dissolved, 71,241 were written off and 6,650 went into insolvency), and the prospects for 2024 do not look good at all.
Sierra Quadrant estimates that the number of troubled firms could exceed 150,000 this year amid the negative effects of rising taxes, persistent inflation and a sharp decline in sales.
Beyond the estimates regarding the fragility of the business environment, an alarm signal also comes from the National Bank which, in its latest report, states that the number of companies with losses (around 225,000 companies) remains high, at around 29% of all active companies .
Of these, 15% have recorded persistent losses over the past three years.
Moreover, a third of the companies have massive capitalization deficiencies (almost 140 billion lei), with implications on payment discipline, as well as on access to credit.
They generate 58% of non-bank arrears and 21% of non-performing loans.
“Most of the companies with problems are from the SME sector, where the problems have worsened this year, with the increase in taxes, the decrease in sales and the increase in financial blockage. Large companies have the option of intragroup loans, accessing investment funds or even issuing bonds”, says Ovidiu Neacșu, Sierra Quadrant coordinating associate.
The degree of indebtedness of Romanian companies increased, last year, to 166.7%
The financial radiography carried out by the National Bank indicates that 16% of the companies are in the risk zone (they have a debt level over 200%), and possible risks (persistence of inflation, risks related to the war in Ukraine, etc.) could creates difficulties for companies with bank loans.
The BNR thus states that the credit risk has increased for 8 of the 10 sectors considered, the riskiest sectors being the energy sector, followed by industry and transport.
“Very poorly capitalized, without financial buffers, the vast majority of Romanian companies have come to depend on receipts from one month to the next. Vulnerabilities are transmitted along economic chains, and if one of them is blocked, the effects are felt on a large scale, like in a house of playing cards”, he added.
According to statistical data, over 42% of small businesses are considered risky by banks, followed by micro-enterprises with a percentage of 30%.
Financing costs double what it was 2 years ago
For a Romanian company, financing costs have increased exponentially in recent years. If in 2021-2022, companies accessed loans with interest rates of around 4%, currently they borrow at a double interest rate of 8-9%.
“The increase in financing costs is directly reflected in the competitiveness of Romanian companies. Expensive loans, high energy, gas and labor costs have resulted in many Romanian products being more expensive than imported ones, and the effects are fully felt in the economy. Industrial production has been falling for several months now, exports are raising more and more question marks, and the outlook does not look good at all,” says the Sierra Quadrant analysis.
In 2021, the NBR had a key interest rate of 1.75%. It currently stands at 7%, and the prospects for its reduction appear to be receding as inflation continues to be high. In January, we have the highest inflation in the European Union.
The National Bank stated, in its latest report on systemic risks, that “against the deteriorating economic prospects, the recession still remains a plausible scenario. The risk of energy prices interrupting the downward trajectory of core inflation cannot be ruled out, with its materialization largely dependent on winter weather conditions as well as global economic and political developments. In addition, an intensification of geopolitical risk may occur amid uncertainty surrounding the recent conflict in the Middle East, the persistence of Russia’s war against Ukraine, and ongoing tensions between the United States and China.”