At least 56 percent of small and medium-sized enterprises (SMEs) are now in debt due to low liquidity and high borrowing, a combination that forbids them from meeting their short-term obligations. Only a fraction have a chance of having their debt restructured, which means that sooner or later they will follow the fate of many of their peers and be forced to shut down.
This is the main conclusion of a Piraeus Bank analysis after a sample of 7,896 companies were assessed using its Enterprise Rating System (ERS). Given that over 97 percent of enterprises in Greece are SMEs, the risk both to them and the economy in general is clear, with an impact on state revenues, employment and bank provisions.
The ERS assessment resulted in four categories of enterprises based on liquidity, solvency, degree of leverage and debt servicing. Just 8.6 percent of all companies have made it into the A category. They are the healthiest businesses, with high cash flows, even though two-thirds face problems with their earnings.
Category B accounts for 35.7 percent of companies, which display satisfactory performance; however, it should be observed that the obligations of these businesses exceed their assets by 1.2 times. The largest category is C, with two-fifths of all companies, or 40.4 percent; they are enterprises which have not yet reached the brink as they have some chances at becoming sustainable, but indicate a low degree of debt servicing, finding themselves in the red.
Finally there is category D, which hosts 15.4 percent of all companies. The vast majority (82.5 percent) has a substantial problem in terms of sustainability; not only do they have a negative operating profit rate, averaging at -9.1 percent, but they are also loss-making. The average company in this category has borrowing that is three-and-a-half times its assets and 25 times its earnings before interest, tax, depreciation and amortization (EBITDA).