The latest Coface Romania study shows that in H1 2024, 3,684 new insolvency proceedings were opened, an increase of 8.32% compared to the same period of last year. There is also a deterioration in the payment behavior of companies, the number of payment incidents being 29% higher compared to the same period in 2023. The data also indicate a 73% increase in the number of insolvencies among companies with business over EUR 5 million, compared to the same period of 2023.
An overview of the economic context
The international economic and geopolitical context remains complicated: the prolongation of the war in Ukraine and the start of the conflict in Israel put even greater pressure on the global economy. In this context, Romania had an economic growth of only 1.5%, in real terms, in the first semester of 2024 compared to the first semester of 2023.
The execution of the general consolidated budget ended after the first six months of 2024 with a deficit of 3.6% of GDP, compared to 2.32% of GDP in the same period of 2023. In the first half of 2024, general consolidated budget expenditures increased by 21.2% compared to the same period of 2023, reaching 339.17 billion RON, while revenues increased by 13.5% compared to the same period of 2023, reaching 275.5 billion RON. This large budget deficit led to the increase in public debt that exceeded the level of 52% of GDP, a worrying fact considering the marginal growth of the GDP.
The evolution of insolvent companies
The mojority of companies that declared insolvency in the first half of the current year operate in Wholesale and Retail Trade (986), Construction (766) and Manufacturing Industry (437) representing 60% of the total number of open insolvencies, representing 60% of the total number of insolvencies.
A growing trend is also observed in the number of insolvencies of large companies, namely +73% insolvencies (companies with a turnover of over EUR 5 million) and a double number of insolvencies (companies with a turnover between 0.5 and 5 million EUR) compared to the same period from last year. A steady increase in the number of insolvencies has also been reported over the past 6 years, with approximately 15.2% higher in H1 2023 compared to H1 2019.
"Although the business environment in Romania has slightly returned to the pre-COVID-19 normality, it is not without challenges such as the large budget deficit, military conflicts, but also the attempt of the main central banks to reduce the monetary policy interest rates (USA, EU) while maintaining a downward trend in inflation. For the second part of 2024 we expect a deterioration of the business environment which will lead to an increase in the number of payment incidents and insolvencies. This evolution can also be observed in other states, for example in Germany where the number of insolvencies opened in the first part of 2024 reached the maximum of the last 8 years. Considering these, companies must take measures to protect their businesses. As a provider of integrated commercial credit risk management services, we support businesses, step by step, to secure their cash flow," declared Alina Popa, Coface Romania Country Manager.
The largest increases in the number of insolvencies compared to the first semester of 2023 were recorded in the Professional, scientific and technical activities (+14%), Construction (+12%) and Manufacturing (+11%) sectors.
"The most important reasons why companies went into insolvency differ depending on the activity sector in which they operate, but we believe that the most important ones are the increase in the cost of financing and operational expenses, the decrease in sales and the increase in debts, especially supplier credit. It is also worth mentioning that during this period we saw the largest number of deregistered companies of the last semesters, but also the smallest number of registered companies" added Tiberiu Chesoi, Head of Claims Department Coface Romania.
The insolvencies in the first 6 counties (Bihor, Cluj, Timiș, Iași, Ilfov, Brașov) and Bucharest account for approximately 50% of the total number of insolvencies, a fact that should not be a surprise because approximately 49% of active companies legal from Romania are registered in these counties.
Perspectives on the business environment
In the first 6 months of 2024, 68,223 companies were registered, this being the lowest value in the last semesters, including the first semester of 2019. A negative evolution is also observed in terms of the number of deregistered companies, in the first semester of 2024 45,547 companies being deregistered, an increase of 34% compared to the same timeframe in 2023.
The decreasing ratio of new registrations to de-registrations in recent years has caused the growth rate of active companies in the economy to decrease, currently standing at just over 1.25 million active companies.
According to the data provided by the National Bank of Romania through their publication by CIP[1], in the first six months of this year, 19,031 payment instruments were refused for payment, while the total amount of refused payment was 1,134 million RON. Although the total amount of refused payment decreased by 4% compared to the first half of 2023, the total number of refused payment instruments had an increase of 29% compared to the same period.
In the present study, the newly opened insolvencies were considered, based on the data published by ONRC (National Trade Registry Office). The analysis of the financial indicators for the considered companies was based exclusively on the financial statements submitted to the MFP during the analyzed period, based on the data processed by Coface.
Study conducted in August 2024
[1] Central of Payment Incidents