The number of legal cases brought by Hungarian companies trying to collect overdue receivables increased 14% year on year to 7,300 in the first half of 2006, showing a troubling trend, according to Mikael C Szabo, who heads the Hungarian unit of French credit insurance company Coface.
According to figures compiled by Coface, the highest rate of companies facing claims for payments past due was seen among textile companies, with 3.11% facing claims. Textile companies were followed by construction companies (2.71% facing claims) and trade companies (2.37% facing claims). Sectors with the lowest rate of companies facing claims for payments past due included the chemicals industry (1.2% facing claims), the tourism and catering industry (1.9%) and the transportation sector (1.74%). The number of companies facing claims in all three of these sectors is falling as well, Szabo said.
About 1.5% of Hungarian companies currently face liquidation, one of the highest rates in Europe, Szabo said. He added that the number of companies which file for bankruptcy protection is still minimal: just ten asked for protection from their creditors in order to reorganize in the first half of the year. And the recent inclusion of the liquidation procedures under the Company Act rather than the Bankruptcy Act will not boost this number any further, he said.
Part of the problem is the number of businesses in Hungary. In the wholesale-retail sector, there are often as many as six companies between importer and retailer, Szabo said. There are as many grocery stores in Hungary as in the UK, a country with six times Hungary's population; and there are 54,000 construction companies in Hungary, compared to 8,000 in Austria, even though the combined revenue of the Austrian companies is more than five times that of the Hungarian companies.
Szabo said just 900 of Hungary's 1,000,000 companies purchase solvency ratings of their partners, which could be one reason for the 2.7% of receivables which go unpaid. Coface had recently downgraded its rating of Hungary's receivables market to A3 from A2-, reflecting the level of solvency of the country's companies as well as growing macroeconomic imbalance and exchange rate risk.