The SHARP rise in energy prices drove several hundred companies in Germany into bankruptcy in August, the economic institute IWH warned, and banks expect a significantly higher amount of non-performing loans next year. A bankruptcy filing was submitted in August by 718 companies, a quarter more than last year, and the institute estimates that the same growth rate will also be recorded in September.

In October it could climb to 33 percent, if we compare the number of bankruptcies with the same period last year, the institute estimates. “After a long period of small numbers of companies in bankruptcy, the trend has changed radically,” said Steffen Mueller of IWH.

The German business association BDI warned of a “major recession”. In a survey it conducted among 593 companies, more than a third of them stated that they were threatened with collapse due to high energy prices. In February, when the war in Ukraine began, 23 percent of them gave that assessment.

Museum of industry?

The industrial group VKU also expressed concern, warning that local utility companies are threatened with insolvency due to high energy prices and potential problems of customers with payments. The head of the chemical industry association VCI warned that increasingly expensive energy could seriously threaten Germany's competitiveness.

“The step from a leading global industrial nation to a museum of industry has never been so small,” VCI head Wolfgang Grosse Entrup told Reuters. A survey of leading credit institutions in August showed that non-performing loans in Germany will rise next year to 37.6 billion euros, from this year's 31.9 billion.

Questionable comparisons

“Our corporate clients did not experience a wave of bankruptcies during the pandemic,” said Helmut Schleweis, president of the German savings banks association, at a recent banking conference. “Today, however, that can no longer be ruled out, except that the scale (of bankruptcies) still cannot be quantified,” he pointed out.

Christoph Schalast, a professor at the Frankfurt School of Finance and Management, said that non-performing loans did not increase noticeably during the pandemic since the state helped companies with support programs.

“But the situation has changed radically. We now also have other factors, such as inflation, disruptions in supply chains, the war in Ukraine and rising interest rates,” he said. Some experts, however, warn that wrong conclusions should not be drawn from the figures showing a rise in the number of bankruptcies.

They may now look bad because they were artificially reduced during the pandemic, in 2020 and 2021, when the government supported struggling companies with state aid and suspended the law obliging them to file for a declaration of insolvency, they explain.

Source: index.hr