Larger companies threatened by insolvency in Romania

A study by CITR shows that over 50 percent of companies of impact in the Romanian economy (having assets exceeding EUR 1 million) are in difficulty. Although the number of insolvency cases has declined in the past three years, over 50 percent of companies falling into insolvency reported a double loss and an increase in indebtedness in 2015 over 2014.

“The macroeconomic indicators have reported an increase in 2015, and the market in Romania garnered the attention of foreign investors, principally through NPL portfolios of loans traded in the market. Looking strictly at quantity, insolvencies have decreased in number and there are significant investor cash allocations for the Eastern European market. But the Romanian economy is one of SMEs, reinforced by the few multinationals that support a large number of small and medium indebted companies. Some 50 percent of companies of impact is still in difficulty, and the ratio of relevant companies and companies in difficulty and imminent insolvency has stayed constant during the last three years,” said Andrei Cionca, president of CITR Group and CITR CEO.

Although Romania is second to last in Eastern Europe when it comes to the number of active companies (22 companies per 1,000 inhabitants), we are still first in the number of insolvencies per 1,000 active companies (45.4 companies). The median of Central and South-eastern Europe stands at over 70 companies per 1,000 inhabitants and less than 15 insolvencies per 1,000 active companies.

Though during 2015 there were 50 percent fewer insolvencies opened as compared to 2014, among companies with turnovers of more than EUR 100,000 the decrease in insolvencies is of 19 percent. From the point of view of assets owned by the impactful companies that became insolvent, the decrease is even lower, at 15 percent.

Cumulated assets of impactful companies that became insolvent in 2015 exceeded EUR 1.8 billion, while the average assets per impact company becoming insolvent in 2015 exceeded by more than 7 percent the value registered in 2014. In 2014, 341 insolvent companies cumulated assets of EUR 2.1 billion, while in 2015 only 271 companies reached EUR 1.85 billion.

Of the companies of impact that entered insolvency in 2015, 23 percent are industrial companies, their impact on the economy being multiplied by the domino effect. Another 23 percent of companies are active in services, 18 percent in construction, 15 percent in trade, 13 percent in real estate and 8 percent in agriculture and animal husbandry.

Losses of insolvent companies rose by over 90 percent in 2015 compared to 2014 and their indebtedness rose to 127 percent in 2015 compared to 105 percent in 2014.

According to Andrei Cionca, “it takes a series of measures to help change the current situation of companies in imminent insolvency“. These measures cannot be taken by a single entity, but all decision makers from Romania must work together, Cionca states, including the legislative forum, the central bank and the state.

Natalia Martian