Up to 18.7% of Spanish companies could be insolvent by the end of the year because of the economic impact from the COVID-19 pandemic, with one in 10 of them unviable “zombies”, according to a worst-case scenario published by the Bank of Spain on Tuesday.
Even in the central bank’s most optimistic scenario, the number of insolvent companies would still rise to 14.5% from 10.5% last year.
Spanish companies have been among the most active in Europe in applying for state-backed credit and liquidity lines, but as in other European countries the focus has now been switching to solvency.
Businesses in the hospitality sector are particularly hard hit, with possibly as many as a third considered insolvent, the central bank said. Small businesses and motor vehicle companies are also under extreme financial pressure, it said.
Unviable companies – those expected to have negative results in the long term and therefore unable to meet debt payments – account for just under 5% of total company debt, with a similar weight in total employment, the Bank of Spain said.
But their fragility “is expected to have an impact on their creditors, logically including the financial sector”, the Bank of Spain’s chief economist Oscar Arce said.
The government last month approved an extension, until March, of restrictions on forced bankruptcies of companies affected by the pandemic to avoid the so-called cliff effect from the withdrawal of some support measures.
In line with this use of publicly guaranteed loans, the Bank of Spain sees a general increase in liquidity, particularly in the hospitality sector, and also an increase in the leverage of companies, but a decrease in the financing cost.