The risk of companies defaulting on French state-guaranteed loans is increasing as the Covid-19 crisis continues with further restrictions on activity, public investment bank Bpifrance has said.
The lender now expects a default of between 5.5% and 7.5% of all French Covid loans, instead of 4.5% to 6.5% as it had estimated in October. The increased risk stems from the recent opportunity given to French companies to delay repayment of their loans for an additional year, which adds to the risk borne by the country’s banks.
“Given the lack of visibility that we still have today, we are starting to see that many companies will use this delay option,” Deputy CEO Arnaud Caudoux said when presenting the bank’s results on Thursday. “All other things being equal, it increases the amount of losses we can expect a bit.”
Although still relatively small, the rise in defaults in the euro area’s second-largest economy may be a sign of wider distress to come with the withdrawal of government measures to support the pandemic. A longer loan term means a higher probability of default, especially as Paris and 15 other departments in France entered a new foreclosure on March 20.
Thursday, Bpifrance unveiled its first loss since its creation in 2012 due to the increase in provisions. The amount set aside to cover bad debts jumped 459% to 462 million euros ($ 546 million), leading the bank to record a loss of 121 million euros in 2020.Default expectations do not relate to government-guaranteed loans to large companies, but only to loans to small and medium-sized businesses, which account for the bulk of the € 130 billion in guaranteed credit issued since the start of the crisis. crisis.
This Covid
Eurozone non-financial corporate debt soared in the first nine months of 2020
Source: Bloomberg calculations on Eurostat and ECB data
To facilitate the return to normal and eliminate the shortcomings, the government has introduced a new debt instrument backed by government guarantees that aims to strengthen corporate balance sheets. Finance Minister Bruno Le Maire also said recently that the government may consider turning some of the government guaranteed loans into grants.
