Covid support did not create “zombie” companies



Two new central bank reports found that 65% of the loans tolerated in any form this year were related to just two sectors – real estate, housing and groceries; and entertainment and recreation.

They also note that the “vast majority” of companies that got into financial trouble during Covid have a viable future and that the support has not created a large group of so-called “zombie” companies.

Based on survey data, one of the central bank’s reports predicts that the rate of corporate financial distress will decline from a high of 12% in 2020 to 7% in 2024.

It also expects the need for assistance to diminish due to “a significant sales rebound currently taking place in Ireland”.

However, it underscores concerns about whether or not some companies will achieve the same level of sales.

The report finds that without government support, more than 30% of small and medium-sized businesses may have relied solely on savings to pay off their debts.

The report finds that 70% of businesses that might still have faced distress by 2024 would have also faced distress or an unprofitable prepandemic.

This, the report says, underscores the need for a bankruptcy system that can distinguish between companies in need of temporary cash assistance and those in need of liquidation.

Another central bank report found that from December 2020 to the end of September loans worth 4.7 billion euros were tolerated in some form.

79% of these loans went to businesses. 65% of the loans went to the real estate, accommodation & food and entertainment & recreation sectors.

This corresponded to 12% of the loans to the corporate sector and 10% of the loans to the SME sector.

The most common forms of deferral were pure interest repayments and payment breaks.

The report finds that businesses continue to need support from their lenders this year.

While 90% of bank customers with payment breaks will return to full repayments in 2020, the report finds that the percentage of businesses that had one payment break in 2020 and then another this year increased from 18% in December 2020 to 37% in September has doubled 2021.

The household forbearance rate was labeled “stable” this year, but these reports are more business-focused and do not provide all of the information needed to get a fuller picture of the household sector.



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