Katarzyna Kowalska: A surge in bankruptcies is possible

Are Polish companies doing well or are they facing risks?

It is not bad yet, but there are signs of a gradual decline. Nevertheless, I do not think it will happen this year. We are now seeing a significant 100% increase in the value of collected receivables. Increasingly, entrepreneurs are experiencing problems with timely payment, so our clients turn to us with requests to clarify the situation and prompt their contractors for payment. In terms of value, we have seen a twofold increase in the first eight months of this year; and in terms of volume, we have half as many such requests for intervention. We estimate that within six months or so, a portion of these unpaid invoices will turn into compensation paid by the Export Credit Insurance Corporation. At the same time, one has to reckon, and we have been observing such a correlation for many years, that a wave of company bankruptcies in Poland will follow. We have seen a dynamic increase in debt collection since June, so it can be anticipated that bankruptcies will start to increase from the beginning of next year.

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How big this wave of bankruptcies might be?

This is difficult to estimate today. We are trying to make everyone aware that these bankruptcy figures should not be compared to the last two years. At the time, companies had very high financial liquidity provided by, among other things, support programmes and subsequent anti-covid packages, so they did very well. They significantly improved profits and profitability. As a result, we have had few bankruptcies, while more restructurings have emerged, due, among other things, to changes in the law and the introduction of new forms of proceedings for the time of the pandemic, which allowed easier protection from creditors and gave more time to repair the company’s finances. As a result, not only in Poland, bankruptcies were at a record low. It is, therefore, to be expected that year-on-year increases in the number of insolvencies will take on large proportions next year. But this does not mean an alarming situation in the corporate sector, only a return to pre-pandemic “reality.” It will be easier for us to estimate whether this wave will indeed be large and dangerous for the economy and the employed, or just larger than in the last two years, closer to the end of this year.

Is it better in Poland than in neighbouring countries?

Poland fared well in the pandemic. We observed payment problems more frequently in other EU markets. We are now keeping a close eye on our biggest trading partners, like the UK and Germany, because things are not going well there. In the UK, we have the highest level of companies at risk of bankruptcy in a decade. Macroeconomic data from the German market is also not encouraging, due in large part to entrepreneurs’ fears about the impact of energy prices on their businesses.

In fact, Germany is our most important trading partner and the UK is our fourth export market. Therefore, their economic problems may compound ours.

Which sectors face the most difficulties?

We are worried about construction industry and those segments of the market that are dependent to it. This is, for example, the finishing industry. Our customers say they are already seeing a 40% drop in orders today.

Is it related to the situation in the credit market?

Certainly. These companies had a very good Q1, even better than expected. Fortunately, the current downturn is not yet expected to drastically affect this year’s results. But the decline in orders in the finishing industry clearly correlates with interest rate rises. As the Monetary Policy Council raised rates, which caused a decline in demand for mortgages, orders for products, such as furniture, fixtures, ceramic tiles, and home furnishings, increasingly fell.

But construction companies operating in the infrastructure segment are also having a hard time. The price increase is clearly reflected in the contracts performed; yet, many of them operate based on public contracts, where the options to renegotiate rates are limited. Fewer and fewer companies are entering the tenders that are being announced, fearing that they will not be able to complete the investment with the level of prices quoted at the beginning of the tender. One big question is what the scale of the ongoing procurement will be in general. Many of them are constantly being postponed. Local self-governments and other contracting authorities are having trouble estimating investment costs with such a large price increase.

At the Export Credit Insurance Corporation, we try to encourage construction companies to expand overseas. Such diversification is an opportunity for them to maintain business and profitability in these difficult times.

Is it easy to persuade companies in this industry to internationalise their operations?

The problem is that many entrepreneurs – despite the risk mitigation and financing solutions offered by us and other support institutions – are clinging to the domestic market they know best. Meanwhile, while uncertainty and economic downturns are affecting virtually the entire world, there are numerous infrastructure projects underway in many countries where a sizeable piece of the market can be carved out for our manufacturers and contractors. I am thinking of Africa, among others, where there is even competition among funding institutions for participation in these projects. We can supply equipment to hospitals, for example, as has happened in Ivory Coast, where more than a dozen Polish companies are involved in the renovation and construction of 62 maternity wards. On the continent, the needs are great, and we have the information and capabilities to help our entrepreneurs win their first contracts and start making a name for themselves in foreign local markets.

— Recorded by: Grzegorz Balawender