Survey: Businesses remain financially resilient, but banks less likely to turn to banks for loans

“This year again, Lithuanian companies did not spare challenges: due to negative economic trends, the profits of most companies, especially in industry, decreased and had to increase production prices or reduce production volume. However, it seems that even in the cold economic conditions, the financial health of companies remains relatively good, they continue to be financially resilient and have a rather optimistic view of the future,” said Arnoldas Bytautas, principal economist of Macroprudential Analysis. Department of the Bank of Lithuania, said in a statement.

Nearly half (45%) of companies surveyed said demand for their products had decreased this year. The drop in demand was felt more by industrial (50%), commercial (49%) and construction (48%) companies. Trends in the services sector were slightly better: 36 percent said demand had declined. companies in this sector, and 32 percent. indicated that demand for their services has even increased.

In a difficult economic environment, more than half of the companies surveyed made fewer profits. In order to reduce negative consequences, companies have increased the prices of goods and services (41 percent of companies) or reduced the volume of production (35 percent of companies). The challenges of the economic environment also had an impact on plans to attract new employees – stagnation was recorded here, and large companies, as well as companies in the industrial and service sectors, reduced the number of employees. employees faster than they hired new employees.

Companies have also tried to improve the working conditions of employees by increasing salaries. Nearly 60 percent of companies reported that they had increased their employees’ salaries over the past year – by an average of 12 percent. Almost the same number of companies (58%) plan to increase salaries in the next 12 months. – an average of 11 percent. As demand recovers, more companies intend to hire new employees: 21 of them plan to do so and 12% plan to lay off workers. businesses.

Businesses expect an increase in external and domestic demand and a slowdown in price growth in the coming years. For the coming year, more companies expect an increase in exports rather than a decrease (difference of 10% pp). In the most exporting sector – industry – this figure was 17 percent. points and is the highest since 2020. Companies are also optimistic about the increase in production demand in the domestic market: an average of 5 percent is expected. higher demand. Next year we can expect slower price growth than in recent years. Compared to 2022, the number of companies planning to increase the prices of their products and services has halved, from 46 to 23 percent. On average, prices are planned to increase by 3 percent.

Business investment plans improved slightly compared to last year: 59 percent. companies will invest the same amount as last year, or 17 percent. will increase the volume of investments (11 percent of companies planned expansion last year). Internal resources become the essential source of financing activities – at 53 percent. of companies indicated that a very significant part (more than 60%) of the company’s activity is financed by internal resources; last year, they were 22%. At the same time, the importance of loans granted by banks and other credit institutions is decreasing. The share of businesses that do not use loans offered by credit institutions has increased from 60 percent. (last year) up to 72 percent. (This year). The majority (63%) of businesses that did not apply indicated that they simply did not need to borrow, indicating reduced demand for loans. The share of borrowers facing hardship and the share of rejected loan applications did not increase over the year, but rejected small business applications increased. The most common reasons for rejecting applications are the financial situation of a poorly evaluated company and insufficient guarantees.

Companies that have borrowed remain financially resilient and meet their obligations on time: they have sufficient funds to ensure the continuity of their activities and meet their existing obligations. The sufficiency of companies’ cash reserves would allow them to continue their activities for a certain time without external assistance: almost half of the companies could continue their activities for at least 6 months, another third – from 3 to 6 months.

One in ten companies was late in loan repayment due to rising interest rates, and in the industrial sector the share of such companies was 20 percent. Compared to 2022, the number of companies that pay late or do not pay their invoices to other companies at all (from 43 to 28%).

The probability of bankruptcy did not change during the year: as in 2022, 42 percent. of companies believe that the number of bankruptcies could increase in the years to come. The share of construction companies that expect bankruptcy has decreased significantly, from 54 percent. (last year) up to 40 percent. (this year) and in the industrial sector, on the contrary, the mood has become a little more gloomy: 44% expect more bankruptcies. businesses (in 2022, there were 37 percent of such businesses).

Source: The Delfi





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