Will savings soon be our lifeline?

Remarkably few companies go bankrupt during a crisis. Thanks to the state. If we look at the piggy banks of European businesses, they more than doubled last year. Private individuals have also hoarded money en masse: almost €42 billion in the Netherlands. That creates a deceptive image.

The amount of private savings has doubled compared to 2019, De Nederlandsche Bank recently reported. We're in good shape. As if nothing is wrong. But beneath the surface, the hot lava is bubbling. To immediately take the bull by the horns: things can go badly with a company, while there is still enough money in the account.

Expenditures have been significantly reduced. Lower wage costs (partly due to wage subsidies/government support), lower or no dividend payments. Investments and also the payment of bills are postponed. The tax payment has also been postponed. As a result, the cash position of many companies is now many times stronger than in economic heyday before corona.

Clap artificially delayed
There are companies that suffer huge losses, but have an excellent balance in the bank account due to government support. Last year, 16 percent fewer companies went bankrupt than in 2019, according to Statistics Netherlands. You would say: too good to be true. And that's right. The blow is artificially delayed, but the cracks become more and more visible.

I will mention a few: the longer the corona crisis lasts, the less eager to grant credit. They see that more and more companies are getting into trouble. Think of companies whose business model was already under pressure. And of course there are companies where less or no cash comes in, such as in the catering industry and retail. The longer that takes, the more reluctant banks become.

Stop doing business
Another crack: one day state aid and the suspension of payments will end. Bills have remained unpaid in a wide area. Financiers, the tax authorities, real estate landlords and suppliers have shown leniency. But somewhere that ends of course and money has to be put on the table for the arrears. As it looks now, the Tax and Customs Administration will enforce the rules again from 1 July and payments will have to be made again. And from October 1, companies will have to repay the tax debt they have incurred. There is also enough for many other creditors.  

And perhaps the most important crack: many companies have stopped doing business. Buffers are built to defend themselves. To take hits. Not to invest, innovate and take risks. They stand still. And then you automatically run into problems as a company. That is only a matter of time.

points of light
Are there any bright spots? Perhaps the most important: the consumer. Does he go out again after being vaccinated to spend money? Shopping, traveling, eating out, buying a new car maybe? Or get married and celebrate? If that enormous mountain of savings is partly released, it will still drag many companies away from the abyss.

Johan Geroms

Johan Geeroms is Risk Director at Euler Hermes, the world market leader in credit insurance and corporate debt collection. In his blogs, Geeroms often focuses on developments in the agricultural sector.

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