Bankruptcies To See 10 Pct Increase In 2015, Insurer Says

The number of bankrupted companies will surge by 10 percent this year due to rising risks in the economy, according to Özlem Özüner, the chief executive of insurance company Euler Hermes Turkey.

A total of 15,822 firms either went down or requested a suspension of discharge from bankruptcy in 2014 and the bankruptcies will, according to Euler Hermes's estimations, see a 10 percent year-on-year rise at the end of 2015, Özüner was quoted as saying by the Cumhuriyet daily on Wednesday. Underlining that premium installment periods in Turkey have already been much longer than in European countries, Özüner said these data alone prove a riskier business environment. Yet, she added that credit insurance risks showed a considerable increase this year and that deterioration in the macroeconomic picture has now become more visible.

Euler Hermes covers 5 billion euros worth of commercial loan risks and pays an average loss ratio of 70 percent compensation each year, Özüner said. “It is good for us to give back [at most] 70 percent of premiums we collect in loss payment. … Yet we are having a bad year this year.” Özüner said the loss ratio has surpassed 85 percent this year.

Among the sectors that endure the highest commercial loan risks are retail, chemical, machinery, textile, construction and metal industries. “I cannot say that [companies in] these sectors are bankrupted. There are many firms without difficulties. However, they become more vulnerable to risks as the macroeconomic picture worsens. They are impacted more by fluctuations in foreign exchange rates or they [are likely to] become the first to be influenced by domestic [economic] shrinkage,” Özüner said.

One of the worst performing emerging market currencies, the Turkish lira has lost as much as 30 percent of its value against the US dollar since July 2014. Finance experts, global banks, rating agencies and insurance companies have been persistently warning Turkish companies against their sweeping loans in foreign currency.

Following years of rapid growth, the Turkish economy has recently been stuck in what many call the middle-income trap. While Turkey's growth hit 9 percent in 2010 and 2011, the rate is forecast to be less than 3 percent this year. The government is mulling over whether to revise down its forecast in the coming days amid increasing political and economic challenges such as terrorist attacks, protracted coalition talks and an interest rate hike by the US Federal Reserve.

(Cihan/Today's Zaman)