Croatia recorded a 40.1% highest increase in insolvencies last year, the largest rise in the Central and Eastern European region (CEE), a Coface study showed on October 9.
Despite the fact most of the countries in the region experienced higher rates of economic growth, the overall number of insolvencies in the region rose last year by 6.4%, after a decline of 6% registered a year before and a 14% plunge in 2015. Apart from Croatia, the highest increases in insolvencies were reported by Poland (+16.4%), Hungary (+14.4%) and Serbia (+13.1%).
In addition, more countries were affected by an increase in insolvencies in 2017. During the year, nine countries reported a higher volume of insolvencies (Croatia, Estonia, Hungary, Lithuania, Poland, Romania, Russia, Serbia, and Slovenia). Only five reported a decline.
"High capacity utilisation and solid demand encouraged companies to expand their capacities,” Grzegorz Sielewicz, regional economist, Coface Central & Eastern Europe, explained. “In addition to this, positive periods in the economy motivated new businesses to set up, despite the high level of competition prevailing in a number of sectors. Companies frequently experienced increases in turnover, but lesser increases in profits. Profits were constrained by rising costs, including wage growth and the higher costs of inputs - as confirmed in accelerating producer price indexes,” he added.
In Croatia, the surge is explained by the current bankruptcy law, under which the National Financial Agency (FINA) is obliged to start bankruptcy proceedings for any company whose accounts have been blocked for more than 120 days. Coface expects insolvencies to rise 1.3% this year in Croatia.
In Poland, statistics are still affected by legal changes that were implemented in 2016, when separate laws were introduced to cover insolvencies and the restructuring of companies which are experiencing payment problems. Next year, Coface expects insolvencies to rise 20.2%, the highest hike in the region.
However, although changes in legislation made the total number of proceedings higher than a year before, Poland still recorded the lowest insolvency rate in the CEE region, of just 0.04%.
By contrast, the strongest decrease of insolvencies were recorded in Slovakia and the Czech Republic, by 27.1% and 26%, respectively. The drop in Czech Republic was supported by legislation changes as well as by the economic environment. Similarly, Slovak businesses took profit of supportive economic developments.
Despite the economic acceleration, insolvencies still remain above the pre-crisis levels of 2008 in most countries, the study showed. Only Romania and Slovakia enjoy lower levels of company insolvencies than before 2008.