France: Economic weight of corporate bankruptcies – High levels to be put into perspective
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Like their number, the economic weight of corporate bankruptcies has increased to an unprecedented extent since March 2022, starting from an all-time low in 2021.
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This ratio compares the outstanding amount of bank loans to newly bankrupt corporates to the total outstanding amount of bank loans to corporates (in difficulty or not).
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These developments are mainly due to the continued catch-up of corporate bankruptcies. This concerns more fragile corporates whose would have already gone bankrupt in the absence of the economic and health measures put in place in response to the COVID-19 pandemic.
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Furthermore, the repayment of State-Guaranteed Loans does not seem to have an excessive impact on the financial situation of the majority of corporates that have benefited from them.
In addition, the number of corporates founded increased sharply between 2016 and 2021, which also helps explain the increase in the number of bankruptcies. The analysis of the economic weight of the latter makes for more relevant reading than that from merely observing their number (especially when bankrupt corporates are distinguished according to their size) because it gives a better account of their impact on banks. In any case, French banks largely appear in a position to absorb this increase in their cost of risk, which is mainly attributable to small corporates. Indeed, banks’ net interest income should benefit from the easing of monetary policy and the drop in short-term interest rates. Finally, their equity far exceeds the prudential requirements and recommendations.
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