The “exceptional support” public authorities provide allows companies to view the financial situation today which is sometimes better than it was before the COVID-19 crisis.
While the amount of loans (+ 9.2%), debt securities (+ 6.9%) and other liabilities (4.1%) of Canadian corporations “increased slightly” in 2020, the amount of cash they have available to meet their financial obligations has seen a “sharp rise.” “About 28%, or $ 150 billion The Bank of Canada revealed in its first assessment of the impact of COVID-19 on the financial health of Canadian companies on Monday.
Thanks to the postponement of loan repayments from banks, but also, and perhaps above all, to the “exceptional support measures” provided by emergency financial assistance programs to governments and the extraordinary easing of monetary conditions by the Bank of Canada, and we note that a number of companies “are experiencing significant financial difficulties” It was particularly low. ” In fact, the number of people finding themselves in insolvency decreased by nearly 25% last year compared to 2019. As for future bankruptcy risks, they “generally appear contained” to the extent that after a sharp upward review last spring, the bad debt provisions For the big banks “are now back to normal.”
Among them alone, the Canadian Corporate Contingency Account ($ 89.5 billion) that allows small businesses to obtain subsidized loans, Canadian emergency wage support ($ 20.3 billion) and emergency commercial lease (4.2 billion) from the federal government represents a total financial aid of 114 billion from 2020 to 2021, According to the estimation of the official in the parliamentary budget in March.
However, this collected data should be taken with caution, bank experts immediately point out. First, because it does not allow us to discern the disproportionate impact of the epidemic on different economic sectors, less than half of the hotel, restaurant, or even leisure and entertainment companies have been accused of losing at least 40% in revenue, compared to only one in seven in real estate or professional services. Or scientific.
And also because updated financial data on small and medium-sized companies (SMEs) are currently more scarce than those of the large listed companies. However, the bank notes in its report that while the financial difficulties of large firms may have a greater impact on the entire financial system, the dominant role of SMEs in employment and economic activity makes their financial position no less important.
last week, Vice President of the Canadian Federation of Independent Business (CFIB) in Quebec, François Vincent, Once again warned governments of the “spinning debt” accumulated on small and medium-sized enterprises since the start of the epidemic. Hundreds of thousands of them are planning to stop working forever. “
Since financial assistance provided to companies by public authorities “spoils” to some extent their health record, the Bank of Canada does not rule out a “sudden and unexpected increase” in the number of companies. In insolvency when this occurs, public assistance ends. Another risk is that this public intervention has artificially survived companies that were not commercially viable in the long run and that these “zombie companies” still had a monopoly on financial and human resources for a long time that others could better use.
After that, “the epidemic is not over yet,” the bank recalls. Some companies that have managed to stay afloat so far can see their financial health deteriorate as the pandemic continues. “
Thus, she concludes in her report, “At present, we cannot conclude with certainty that the financial health of the business sector has survived, or that it will remain immune to the epidemic.”