The Bank of Spain has released a report this Tuesday with the title The impact of the COVID-19 crisis on the financial situation of non-financial companies in 2020: evidence based on the Central Balance Sheet in which it indicates two impact scenarios of COVID 19 on Spanish companies in the long term so that between 6.1% and 9.9% of the companies in our country will disappear due to a solvency problem, their business results would not be sufficient to respond to the pressure financial and would end up being liquidated. In 2019, the percentage of insolvent companies that ended up closing only reached 4%.
The percentage of companies with high financial pressure would have increased very sharply as a result of the COVID-19 crisis, as explained by Oscar Arce, General Director of Economics and Statistics of the Bank of Spain. It has gone from 13.9% of the pool of Spanish companies with problems in response to their debts in 2019 to a financial pressure that drowns 40.6% of the business community in 2020.
The increases would be greater in the case of SMEs and, above all, in the sectors most affected by the crisis, which Arce has defined as a local industry (hotels, restaurants and leisure, and motor vehicles). Thus, in the hotel and catering sector, up to 72.4% of companies would have viability problems because they would be unable to generate results to pay their debts, in the case of motor vehicle companies it reaches 64.6% or 41.6% of those of transport and storage and 42.4% of commerce.
Arce pointed out that “the economic policies developed by the Government have been remarkably effective in mitigating liquidity risks, although it is true that from now on pressure on business solvency constitutes one of the main challenges for the economic authorities.”
These data are explained taking into account that during the first nine months of the year, 36% of Spanish companies have had losses. The deterioration in profitability would be particularly intense in the SME segment and, above all, in the hotel, restaurant and leisure sectors, and motor vehicles.
This negative profitability has had an impact on employment. The decrease in jobs in the first three quarters of 2020 was 5.9%, although with uneven results depending on the type of contract. The fall was concentrated in the group of temporary workers, with job losses that reached 19.5%, while permanent staff has only been reduced by 3%. Now, half of Spanish companies have destroyed jobs, 50.6%, between January and September of this year, 14 percentage points more than in the same period last year.
Within between 6.1% and 9.9% of the Spanish companies that will go bankrupt, at least, they do not monopolize a high level of debt, which would mean an added problem of delinquency for the financial system, nor a high weight within employment. Thus, the companies that could be liquidated would represent up to 4.1% of the jobs and up to 5% of the liabilities of the Spanish business sector.
The Director General of Economics and Statistics of the Bank of Spain has stressed that “in terms of the impact on employment and, above all, on debt, the largest proportion of companies would be in the group of viable companies” since large companies , which are being less affected by the crisis, absorb a greater relative proportion of employment and debt.
Arce has highlighted the need to modify bankruptcy legislation, a rule to which the Bank of Spain has attributed “limitations and inefficiencies in the insolvency framework”, to make a more agile and efficient legal framework so that companies in this situation could continue their activity in the future.