According to the data of Coface Baltics, a risk management company, in 2024, the demand for trade credit insurance in the Baltics went up, while the total amount of insurance claims payments increased by almost 270%, as their number went up by 55.5%.
Aggregated data suggests that the number of bankruptcies was on the rise throughout the Baltics and the entire Central and Eastern Europe (CEE). Public announcements revealed that in 2024, in the Baltics, the number of insolvency cases went up significantly. The most substantial growth was recorded in Estonia, hitting 12.9%, while the same indicators in Lithuania and Latvia were 5% and 2%, respectively. Comparing absolute numbers, Lithuania took the lead with 1,089 registered insolvencies, Latvia reported 358 cases, and in the meantime Estonia had 157 cases of business insolvency.
According to Mindaugas Sventickas, the country manager of Coface Baltics, in 2024, the trade credit insurance market in Lithuania was characterised by substantial growth caused by increase in non-payments, number of company bankruptcies, and uncertainty of the business environment.
‘These trends compelled the companies to pay more attention to the management of buyer insolvency risks and protect one of the most important items among the assets on the balance sheet, namely the accounts receivable. Businesses increasingly realise that assurance of stable cash flows becomes the major factor in the continuity of their business. Hence, the demand for insurance services is growing.’
Mr Sventickas says.
Last year, insurance payments in the Baltics went up by almost 270% to Eur 6.6 m
According to the risk management expert, the staggering leap of insurance payments – the increase of number by 55.5% (up to 283 in 2024, compared to 182 in the previous year) and the total amount of payments skyrocketing by 269.5% (to Eur 6.6 m compared to Eur 2.45 m in 2023) – is directly associated with economic challenges in the Baltic States and their main export markets. Mr Sventickas explains that the Baltic States are closely linked with the currently stagnating Western Europe, whereas the geopolitical shocks and disturbances in the supply chains led to a decrease in consumption and production, which directly affected the solvency of companies. Growth of non-payments turned into a serious challenge for many businesses, in particular those whose activities are characterised by large financial commitments and lengthy payment period.
Biggest shocks – in the transport sector
In 2024, Coface Baltics paid several historically large insurance payments that resulted from sudden insolvency of previously successfully operating companies. The main cause of these bankruptcies was the mismatch between ambitious expansion plans and actual market trends.
‘The transport sector was affected particularly hard: in a favourable economic situation, many companies went on to expand their activities. However, as the European economy slowed down and the demand for transportation services decreased, oversupply built up on the market leading to the decrease of prices and company revenues. Inability to quickly adapt to the changes, large financial commitments and cost reduction implemented too slowly – all this opened critical financial gaps.’
the country manager of Coface Baltics says.
Mr Sventickas mentions the bankruptcy of Integre Trans in Lithuania as one of such examples.
‘A year ago, this company was still demonstrating sound performance indicators and growth; however, as the number of orders dropped down, it was unable to control the increased costs and applied to be recognised as insolvent. Coface Baltics paid millions in insurance claims payments to the insured companies as a result of Integre Trans bankruptcy.’
Mr Sventickas explains.
According to Mr Sventickas, similar cases once again remind that sustainable growth requires not just optimistic forecasts, but also a responsible risk management, including the setting up of provisions and assurance of financial reserves. Moreover, it is crucial to secure proper support from the creditors to help the businesses grow in a balanced manner and avoid financial crises.
Increase of bankruptcies fuelled by inflation, interest rates, and geopolitics
Mateusz Dadej, a Coface economist for CEE countries, notes that the increase in the number of bankruptcies* in the third quarter of 2024 was recorded not just in the Baltics, but in a majority of CEE countries as well. Quarter III of 2024 saw the number of insolvency cases go up in Central and Eastern Europe by 6.7% on average compared to the same period in 2023. In the meantime, the number of bankruptcies in the Western Europe achieved a whopping 16.3% increase.
‘One of the reasons [for the difference] was lesser support of the states to the companies during the pandemic. As a result, in CEE countries, the return to the regular business environment started earlier. In the meantime, in the Western Europe, where the support measures were more generous, a larger leap of bankruptcies is now recorded. This situation allows stating that the CEE region is returning to pre-pandemic insolvency level indicators, although business conditions remain complicated due to still-high interest rates and geopolitical risks.’
explains the Coface economist.
According to Mr Dadej, three major factors – inflation, interest rates, and geopolitics – were the biggest contributors to the increase in bankruptcies in the Baltics and CEE countries.
‘Increasing prices diminished the purchasing power of the population; as a result, domestic demand went down, especially in the retail sales and service sectors. It became more difficult for the companies to refinance debts, while new investment projects slowed down due to more expensive borrowing. War in Ukraine, counting its third year, and the associated sanctions affected the supply chains and energy prices, which particularly hit the countries dependant on the Russian markets.’
recounts the Coface economist.
Sector analysis: biggest challenges – in transport and construction
Although the insolvency indicators differ from one sector to another, in 2024, the transport sector saw the largest increase in the number of bankruptcies, by 36% on average. This was associated with further stages of the EU Mobility Package implementation, raising the operations costs and reducing the competitive ability. Furthermore, bankruptcies were rapidly increasing in the construction (+19.2%) and information technology (+20%) sectors.
Mr Dadej believes that the latter was most hit by the increase of interest rates:
‘The IT sector is still in the process of adapting to the changed business environment following a rapid growth during the zero interest period. Increasing borrowing costs stopped new projects in the construction sector. In the meantime, in the retail and wholesale sectors, the number of bankruptcies did not increase so much (+6%), seeing that the financial condition of households stabilised as a result of real wage increases.’
Future forecasts: business will have to keep financial risks in mind constantly
According to Coface experts, the beginning of interest rate cuts by the European Central Bank and central banks of the CEE countries signals a potential relaxation of financing conditions. It is expected that less expensive financing will reduce the companies’ borrowing costs and contribute to the decrease in the number of bankruptcies.
‘However, the CEE region remains vulnerable to geopolitical risks which might cause increases in raw material prices and adverse effects for the economies of the region. This means that business will have to keep adapting to the changing conditions and actively manage their financial risks’,
Mr Dadej says.
Bankruptcies of historical dimensions globally: well-known automotive, energy and construction companies folded up
The most notable bankruptcies of 2024 reveal the complicated financial developments in different sectors that led to the insolvency of the companies and wide-reaching economic consequences. An Austrian motorcycle giant KTM AG together with its two subsidiaries filed for bankruptcy facing a total debt of Eur 2.9 bn including Eur 1.3 bn indebtedness to the banks and Eur 365 m of outstanding payables to the suppliers. This bankruptcy impacted as many as 3,623 employees and 2,500 creditors, becoming one of the largest collapses in the manufacturing sector in Europe.
Energy sector did not survive unscathed by financial shocks either. A US wood pellet production giant Enviva Inc. filed for bankruptcy pressed by overlarge commitments and a debt of USD 2.6 bn, leaving 1,200 people unemployed and causing financial damages to hundreds of suppliers.
In the meantime, in the United Kingdom, one of the largest construction companies Buckingham Group Contracting Limited went bankrupt leaving 1,258 creditors and more than 1,000 employees without a job.
‘These cases suggest that there are no exceptions. Overly large financial commitments and late response to changes in the market might have a detrimental effect on a company of any size and in any sector to the extent that it is led to bankruptcy’,
concludes Mr Dadej, a Coface economist for the CEE countries.
Note:
* Due to a different regulation of financial accountability in the CEE countries, currently, numbers of bankruptcies of quarter III of 2024 are provided. Aggregated data about bankruptcies in all CEE countries for 2024 will be available in quarter II of 2025.
