Business Debt Decreasing, Group with Problematic Debts Shrinking
Despite the impact of the coronavirus and energy crisis, business debts have decreased in recent years. This is the conclusion of the Central Planning Bureau (CPB) in an analysis of the development and distribution of debts among Dutch companies up to 2022.
The researchers attribute this trend to the increase in profits. Additionally, companies are finding it harder to obtain loans from banks. Since the credit crisis, the rules for banks have become more stringent. They are required to maintain higher capital buffers and conduct stricter anti-money laundering checks. Banks often reject loans under 1 million euros, possibly because they are not profitable enough.
Having fewer debts means that companies are better able to withstand economic shocks. However, loans are a way to invest and increase productivity as a company. If there is not enough borrowing, it could hinder economic growth.
Problematic Debts
The group of entrepreneurs with problematic debts has decreased from 6 percent of all companies in 2011 to 3 percent in 2022 since the credit crisis. Among this 3 percent are mainly small, young companies. This group accounts for about 14 percent of the remaining outstanding COVID tax debts.
According to CPB researchers, these problematic debts do not pose a threat to the stability of the Dutch economy due to the small size of the group and the relatively low amount of debts.
The decrease in the number of entrepreneurs with problematic debts is also evident in the number of bankruptcies. There was a downward trend for years, with very few bankruptcies during the pandemic. Although the number of bankruptcies increased last year, it has not yet reached pre-COVID levels.
Debts in other European countries are significantly lower. Debts in Spain and Italy have decreased significantly. In contrast, companies in France have taken on more debts to increase investments.
Dutch households also have high debts compared to other countries. However, these debts have also decreased in recent years. According to CPB, both households and companies are better equipped to withstand economic shocks than a few years ago.
Geopolitical Tensions
From a broader perspective, geopolitical tensions pose a risk to the Dutch economy, according to the CPB. Examples include the trade war between the United States and China, or the escalating tensions between China and Taiwan. Since the Netherlands trades extensively with other countries, trade barriers and sanctions could hinder the economy. Additionally, uncertainty could lead to reduced investments by companies and lower consumer spending.
Despite the economic slowdown due to reduced spending and investments, the economy has weathered the coronavirus and energy crises well. It is expected that the economy will continue to grow in the long term, albeit at a slower pace.
The rapid increase in interest rates since the summer of 2022, from -0.5 percent to 4 percent in September last year, has not caused any issues for financial stability in the Netherlands. Last week, the European Central Bank lowered the rate to 3.75 percent. The CPB anticipates that interest rates will eventually return to historically low levels in the long run, although investors may take on more risks.