German credit insurers report “massive” rise in corporate defaults

German credit insurers are recording a massive increase in corporate payment defaults for 2023, according to analysis carried out by the German insurance association GDV. “We are seeing significantly more and significantly higher damage from bankruptcies and payment delays this year than last year,” said the chairman of the GDV Credit Insurance Commission, Thomas Langen. “We are currently assuming that credit insurers will provide benefits of over €1.2bn for the full year 2023. Compared to the previous year, this is an increase of around 44%,” he added. In 2022, payment cases had already increased by around 50%. The background to this development is the difficult economic situation in which Germany currently finds itself, said GDV deputy managing director Anja Käfer-Rohrbach. In addition to the economic weakness, she cites other obstacles to growth such as the shortage of skilled workers. “Of course, [but] these problems exist everywhere. Germany, in particular, is affected by many of these factors…now that energy will be permanently more expensive, entire sectors of the economy, such as the chemical industry, are facing major challenge,” added Käfer-Rohrbach. The GDV estimates that credit insurers have increased their reserves for possible payment defaults to a record level. Trade credit and surety insurers currently cover default risks of German companies amounting to €587bn, 4.5% more than in the previous year. However, the increase was lower due to the weaker economy. “This shows that even in challenging times like these, the export-oriented German economy in particular can rely on the fact that its business is secure,” said Langen. Led by persistently high energy and material prices, German credit insurers expect an increase in insolvencies of around 10% in 2024, after an expected increase of 20%-25% up from 17,400 cases to 18,200 in 2023. “After years of falling insolvency numbers, the trend has reversed. For many companies, the generously distributed government funds of the past are now becoming a boomerang. The repayments of the aid and sometimes delayed adjustments to the business model lead to a financial and economic dead end with persistently rising interest rates,” said Langen, referring to the state aid dished out during lockdowns and relaxation of insolvency laws during that period. GDV said that it counted the most company bankruptcies in 2023 in the construction industry, the service sector and retail. However, the previously relatively inconspicuous health sector was also affected. According to figures from the German Hospital Association, more than 30 hospitals filed for bankruptcy in the past 12 months. “Hospitals are increasingly making losses. Here too, the causes are rising energy, personnel and material costs, while at the same time the utilisation rate is falling. This development worries me,” said Käfer-Rohrbach. Langen criticised the EU’s planned late payment regulation, which in future will mean companies have to pay invoices after 30 days at the latest. In Germany, the average payment term is 32 days currently and in other EU countries it is sometimes considerably longer. Firms that exceed the deadline will automatically pay high penalty interest in the future. “This presents many companies with significant liquidity problems and increases their risk of insolvency,” said Langen. “The insurers are committed to retaining the current late payment directive, which enables flexible national regulations that are in line with interests… Otherwise, there is a risk of even more insolvencies and job losses,” he added.

German credit insurers report “massive” rise in corporate defaults

Construction sector hardest hit as insolvencies forecast to rise 10% in 2024

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