Statistics: Plenty of strong companies remain despite rising bankruptcies

TALLINN - According to data from Statistics Estonia, the number of bankrupt companies in the second quarter increased by nearly a third year-on-year. However, recent data from Creditinfo indicates that the number of companies with a strong credit rating is higher than at any point in the last four years.

According to Marjan Savtsenko, head of corporate banking at Luminor, the rise in bankruptcies alone is not enough to indicate a broad-based weakening of the business sector.

In the second quarter, 47 companies in Estonia went bankrupt, up from 36 a year earlier. Last year, a total of 154 companies were declared bankrupt, while the country had nearly 160,000 active businesses. This translates to approximately one bankruptcy for every 1,000 active companies.

"A nearly 30 percent increase might seem significant at first glance, but with small absolute numbers, it's essential to look at the broader picture. Bankruptcy still affects a very small portion of active companies in Estonia. A historical comparison also shows that the current level is low: in 2009, Estonia saw 544 corporate bankruptcies," Savtsenko said.

This stability is also confirmed by the latest credit rating data from Creditinfo. At the end of June, Estonia had 38,439 companies with an A, AA, or AAA credit rating, an increase of 795 companies, or 2.1 percent, compared to the previous year. This figure is the highest it has been in the last four years. The Creditinfo rating assesses a company's creditworthiness and business risk, considering factors such as its economic and financial standing and payment history.

However, the total number of companies in the business register grew even faster, from 278,651 a year ago to 297,421 at the end of June this year-an increase of 6.7 percent. Consequently, the proportion of companies with a strong credit rating fell slightly, making up 12.9 percent of all registered businesses this year, down from 13.5 percent the previous year.

"The rise in bankruptcies and the growth in the number of companies with strong credit ratings are not contradictory. The business landscape is currently diverse: some companies are under pressure, while at the same time, Estonia has more companies with a strong credit rating than at any time in the past four years," said Simon Renno, head of sales at Creditinfo Estonia.

Savtsenko noted that it is also important to consider the time lag when interpreting bankruptcy statistics. It can take years from the onset of a company's financial difficulties to the final declaration of bankruptcy, meaning that current figures may actually reflect the economic environment of several years ago.

The highest number of bankruptcies occurred in the trade, construction, and real estate sectors. "In trade, the key factors were weaker demand and greater price sensitivity among consumers. In construction, companies faced difficulties due to rapid price hikes, especially those locked into fixed-price contracts. Meanwhile, the real estate sector was impacted by rising construction costs, the increase in the Euribor rate, and falling demand. The effects of these events might not show up in bankruptcy statistics for several years," Savtsenko explained.