Abi - Cerved Outlook on Corporate Defaults
Expected increase in 2023 but still below highs of 2021
In 2023 the corporate default rate is expected to reach the 3.1% level, some 100bps higher than 2022 and still above pre-Covid levels but far below the 7.5% record level of 2021
Italian Economy has faced several challenges during the last 24 months; high inflation and the sharp rise in interest rates are causing a gradual deterioration in the financial health of corporates, causing a worsening of risks.
This dynamic is reflected in the default rates of non-financial corporations, which, as reported by the Bank of Italy, after the slight increase at the end of 2022 (2.2% vs. 2.0% in 4q 2021), continued to rise in the first quarter of 2023 to 2.3% (vs. 2.0% in 1q 2022), compared with a trend that continues to remain slightly downward for households.
The unfavorable economic situation, with the persistence of uncertainties regarding inflation, interest rates, slowing economic growth, and the evolution of the geopolitical scenario, will produce a rise in business default rates in the next two years, which will increase significantly from the historically low levels recorded in previous years.
According to Abi and Cerved estimates, in 2023 the business credit deterioration rate will touch 3.1 % (up from 2.2% percent in 2022), exceeding pre-covid values for the first time (2.9 percent in 2019). A further increase is expected in 2024, bringing the index to a peak of 3.8%, the highest value since 2016. In 2025, on the other hand, there will be a reversal of the trend, with a reduction in new Non-Performing Loans (NPLs) that will bring the deterioration rate back to 3.1 percent, to higher values than in 2019 although far from the highs recorded in 2012 (7.5 percent).
In 2023, the highest increases are estimated for micro (from 2.4 percent to 3.3 percent) and large enterprises (from 1 percent to 1.9 percent), for enterprises operating in manufacturing (from 1.7 percent to 2.8 percent), especially medium-sized ones (from 0.9 percent to 2.4 percent), and in southern Italy (from 2.8 percent to 4.0 percent), with particularly large deteriorations among micro (from 2.9 percent to 4.2 percent).
At the end of 2025, the end of the forecast period, the rate of credit deterioration will return to similar or lower values than in 2023 in all business-size classes. At the sector level, however, the situation is more heterogeneous, with the construction and agriculture sectors worsening their condition compared to 2023 (from 2.9% to 3.3% and 2.8% to 3.2%, respectively). Deterioration rates will be higher than pre-Covid levels in all dimensions classes, while at the sector level, construction will be the only sector to observe lower levels than in 2019 (3.3 percent versus 4.0 percent). At the territorial level, the South is the only area with a declining rate of deterioration compared to 2019 (3.9 percent versus 4.2 percent in 2019).
These are, in a nutshell, the main findings of the Abi-Cerved Outlook, which provides estimates of corporate impaired loan flows in 2023 with details by size, by sector, by geographic area, and a time horizon that includes forecasts up to 2025.
Relevant Links:
https://research.cerved.com/analisi/outlook-abi-cerved-aumenta-il-tasso-di-deterioramento-dei-crediti-alle-imprese/
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