Heaviest Impact of the Credit Crisis yet to Come - Atradius
11-06-2008
AMSTERDAM, The Netherlands, June 3
Credit crisis related factors such as tight credit and increased payment defaults are expected to result in slower growth and growing business defaults over the remainder of 2008 and into 2009. A 14 country survey, covering businesses in North America, Europe and Australia, sponsored by Atradius found that a much more significant impact is expected in 2008 than was felt in 2007. Some of the survey's findings include:
- Approximately 65% of respondents are expecting some bank failures as a result of the credit crisis.
- Direct exposure to sub-prime lending is higher in Europe (14% of respondents) than in the US (9%).
- About 31% of respondents say they have indirect exposure to sub-prime lending with exposure highest in Mexico (51%) and the United States (46%).
- Larger companies are more frequently impacted by the credit crisis than smaller companies.
- Outside of the US and Mexico, companies in Italy (58%), the UK (46%), Spain (44%), and Australia/New Zealand (43%) have expressed the highest rates of impact from the credit crisis.
- Swedish respondents expressed a very low rate of impact (7%) from the credit crisis.
- 69% of companies in Mexico have already experienced tightening credit with Italy and Spain also experiencing a high rate of tightening. Sweden (less than 20%), the Netherlands and Denmark (less than 30%) have experienced the lowest rates of tightening.
- By industry, the energy sector has experienced the most tightening and the agriculture industry the least.
- Businesses in the energy sector have been impacted by the credit crisis more than any other industry.
- The Building Supply & Construction, Industrial & Manufacturing and Consumer Goods industries are expected to suffer the most over the next twelve months.
- Only about 38% of companies surveyed have adjusted their credit extension policies in response to the changing business climate.
Companies that securitize their receivables have already felt the pinch. Fewer buyers for and plummeting valuations on collateralized debt obligations have resulted in more expensive terms for financing growth through receivables securitization. Additionally, in countries where the real estate and financial sectors have been key contributors to economic growth, or where trading with the US is important, the past and expected future impacts are amplified. The survey, which looks at a broad range of industries, found that the energy and basic materials industries have been impacted the hardest thus far.
Peter Ingenlath, Vice Chairman of the Atradius Management Board commented; "While it seems natural to adjust your credit extension policies in the face a deteriorating credit environment, there is no need to tighten credit policies if your receivables are sufficiently protected, for example by a credit insurance policy."
The survey highlights industries and countries for which risks associated with the credit crisis may be more prominent as well as some of the concerns about the impact the credit crisis will have on their businesses. An increase in payment defaults (71% of respondents) was the biggest concern of companies surveyed followed by restrictions in sales growth (67%) and increased capital costs (65%).
Ingenlath concluded; "In 2008 we expect economic growth to slow globally and in some markets to decline as a result of slowing consumer spending, reduced production, inflationary pressures, rapidly rising energy costs and the weak USD and Sterling. Awareness of the potential risks that can damage your business is essential to maintaining a healthy company. The credit crisis is highlighting the importance of protecting the most important organ of financial fitness, your cash flow. Atradius research can help support decision makers in many countries and trade sectors."
TOP