Il back into the eye of the Covid-cyclone. “The increase in infections due to new Omicron variant and the containment measures necessary to stop it, risk bringing tourism to its knees, a sector that is still feeling the effects - more than others - of the economic repercussions linked to the pandemic. Non-performing loans in the accommodation-catering sector started to increase again in October: it is a sign that should not be underestimated”. The coordinator of Competere.eu's Next Generation Observatory, Giuseppe Arleo, sounded the alarm during the presentation of the analysis carried out by the think tank on bank non-performing loans for the tourism sector.
It was supposed to be the first Christmas of a real recovery for the sector. But the increasing infections and the new restrictions (albeit slight compared to 2020) have brought the bogeyman back to the whole world. All this has translated into numerous cancellations of reservations in accommodation facilities that find themselves reliving last year's déjà vu, especially winter ones. New restrictive measures risk causing non-performing loans to rise again in an already severely affected sector.
“The spread of the Omicron variant and the consequent increase in infections – declares Arleo – risk turning back the hands of time to last year when the third wave, which began in October, forced the strengthening of the Covid containment measures and the closure of some areas and activities with a negative impact on the performance of the economy. Today we run the same risk, which can be fatal for many companies that have not yet recovered from the impact of the pandemic crisis”, added Arleo.
The coordinator of Competere then recalled how the measures introduced to limit the spread of the infection last spring led to "a collapse of the economy (GDP decreased by almost 19% cumulatively in the first two quarters) with devastating effects on the Italian production system (-50% drop in industrial production only between March and April). And that "the sudden fall in turnover, which in some sectors has almost disappeared, has dramatically affected businesses, with an extremely heterogeneous impact, also due to the selectivity of the measures to contain the contagion".
In response to the collapse in turnover caused by the pandemic, Arleo stressed that the government "has adopted various measures intended to support business financing, such as guarantees and loan moratoriums". But this time they may not be enough.
THEcorporate debt increased, especially for those sectors that have been brought to their knees by the pandemic crisis such as accommodation facilities, restaurants but also trade and automotive, which in the face of a reduction in cash flow have had to make greater use of loans. In 2020, loans to the accommodation-catering sector alone increased by €6 billion (the stock of loans was €27 billion in 2019) against negative cash flows of over €10 billion. As of October 2021, the overall stock of debt to the sector amounts to just over 37 billion euros.
So, the patrimonial situation deteriorated significantly, with risks to investment capacity and solvency in the medium term. The years of cash flow required to pay off debt have more than doubled in several sectors, for example “for the accommodation and restaurant sector, an increase to 5,9 years has been estimated.”
“The joint effect of the drop in profits and the increase in debt - Arleo explained - has weakened the capital structure of the companies, worsened their creditworthiness and increased the risk of insolvency. According to Istat, after the acute phase of the pandemic, around 45% of Italian companies are structurally at risk of closure; the situation is especially alarming for businesses in the accommodation and catering sector, already severely affected by the measures introduced in the last year and a half. Among these, the risk of insolvency rises to 78% in the hospitality sector and 95% in the catering sector.”
Despite the good performance of the summer months, the tourism sector has not yet recovered from the drop in turnover recorded in 2020. And the fourth wave risks being fatal for many businesses. Non-performing loans in the accommodation and catering sector are still high and up in October compared to September, for the first time in about a year: they amount according to Bank of Italy to 1,53 billion euros from 1,51 in September, albeit down by about a third compared to a year ago (it was 2,3 in October 2020, as can be seen in the graph). These are loans whose collection is not certain for the banks and financial intermediaries who have provided the loan since the debtors are in a state of insolvency or in comparable situations.
If on the one hand the policies implemented during 2020 aimed at avoiding the collapse of companies in liquidity crisis, now "the policy objective must focus on the insolvency risk”. Possible insolvency "constitutes the main problem for the Italian production system" and "increases tensions both on bank balance sheets and on bank-company relationships", added Arleo.
“In response to this risk, the Gruppo dei Thirty, of which Mario Draghi is co-chair, had asked for action to be taken in three directions: to encourage capital strengthening through the raising of private capital; promote the speed and effectiveness of debt restructuring processes for companies with recovery prospects, in order to guarantee the continuity of company activities and improve the procedures for managing company crises", concluded the coordinator of the Competere.eu Next Generation Observatory.
