July the 27th, 2021 - Although the title might sound rather funny, Croatian zombie companies are not only no laughing matter but are only increasing in their numbers as a result of the ongoing coronavirus pandemic.
As Poslovni Dnevnik/Jadranka Dozan writes, despite a certain degree of domestic economic recovery and a better macroeconomic outlook, which also reduces short-term risks in the corporate sector, structural vulnerabilities in Croatia and overall exposure to systemic risks remain elevated, according to the Croatian National Bank (CNB).
The risks to the resolvability of companies whose operations were disrupted during the pandemic are especially emphasised, and that same magnifying glass also includes high and rising real estate prices and their, as they said from the CNB, "further separation from the foundations".
The combination of the vaccination progress and the mitigation of epidemiological measures should support the continuation of economic recovery throughout 2021, the new edition of Macroprudential Diagnostics points out, although the risk of increasing Croatian zombie companies remains.
Epidemiological variables such as new strains/mutations of the novel coronavirus, a slower vaccination rollout, or potential vaccine ineffectiveness are also a source of uncertainty for the further course of economic recovery. This is especially true for tourism and other activities more exposed to the effects of such a public health crisis.
Despite the overall better performance of entrepreneurship, risks and vulnerabilities remain elevated as a result of the ongoing situation, which while better, is less than favourable.
Among other things, things all depend on the effectiveness and duration (expiration) of the measures to mitigate the effects of the ongoing global pandemic on liquidity and solvency. In the acute phase of the coronavirus crisis, these risks were mitigated by very generous public sector assistance packages and the adjustment of supervisory rules to try to treat banks' exposure to affected clients.
Due to the still present uncertainties, the risk of the so-called zombification that may adversely affect the operations of banks, but also economic growth in the long run.
"As long as the support measures last, credit losses related to the corporate sector will remain low, but after their expiration, and especially due to the reduction of the capital of companies operating within sectors most exposed to the effects of the pandemic, there could be an increase in risk," warns the CNB .
Data on the fiscalisation of accounts clearly shows the recovery of revenues, but compared to pre-crisis 2019, they are still lagging behind, primarily in the activities most affected by the coronavirus crisis.
These companies, primarily those in tourism and transport (to a lesser extent also from the manufacturing industry), continue to rely on their own accumulated liquidity, the CNB notes. As of the end of May this year, these activities were in the lead with a percentage drop in deposits at the beginning of this year. At the same time, credit data shows that part of the liquidity deficit is being compensated for by additional borrowing.
The share of loans under the moratorium, on the other hand, is gradually declining, and at the same time, exposure to corporate loans in the so-called phase two, which is estimated to increase credit risk at the end of March rose to 22.7 percent.
With the gradual expiration of the moratorium, and especially if the recovery of the economy weakens, the CNB notes that the materialisation of credit risk in this segment could further burden the operations of banks and do nothing to help the increasing number of Croatian zombie companies across heavily affected sectors.
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