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Out of the Hungarian companies assessed by Coface, every second is considered as a definitely or moderately risky business partner, however, the domestic ratio is still lower than the regional average. The situation of companies will likely to worsen compared to previous years, however, as a result of the uncertainty around Europe, it is extremely difficult to prognosticate processes. On thing is certain, though: the time of procrastination is over on macro-level.

In the last few years, the number of Central Eastern European companies marked as risky by credit insurance companies have grown, says András Bagyura, Commercial Director of Coface Hungary. In 2011, 54% of CEE companies were classified as moderately risky or risky by the company due to financial risk-factors: This is 5% more than in 2010 (48.33%).

Both the current picture and the prospects are contradicting. While in Romania, the activities of companies are aided by dynamic growth (of course, the base value is low due to the significant recession), on the other hand however, political uncertainty surrounds the country, which could lead the country to either direction. Poland is doing well, too, and there have been some positive changes in the assessment status of Polish companies, however, the reason for that is a correction, as their classification had been high for seemingly no reason. The status of Czechoslovakia clearly depends on the outer conjuncture, just as Slovakia’s, where in addition, there will be elections this year. Mr Bagyura points out: the biggest question in the whole region, including Hungary, how the situation is shaping up in Europe.

There are many question marks, he says, and adds that what will happen in Europe in 2012 is not necessarily up to the performance of companies, but rather political and economical decisions. There is uncertainty, and this year could bring both positive and negative surprises. He is sure in one thing, though: we will see where Europe will proceed, whether or not the conditions of turning back to growth can be established, and how all of this will be assessed by investors and creditors. In any case, if countries get further downgraded, it will have more serious effects on companies than ever before.

According to Coface, if there is no essential improvement this year, the hardships of companies will grow as well as the proportion of risky companies around the region. The survival of many companies depends on economic growth; for example, a company in debt can only pay off if it can increase production, otherwise its financing obligation will grow, becoming more and more risky for its partners.

Even though last year, because of the aforementioned correction, primarily the classification of Polish companies got worse, Slovakian and Romanian companies turned out to be the riskiest in the region. In the case of Hungarian companies there is a slight improvement, though the proportion of companies categorised as risky by Coface is still above 50%. This, by the way, does not reach the regional average, and inside CEE, Hungarian companies still seem less risky.

Compared to 2011, the proportion of risky companies decreased from 51.36% to 49.84%. (Coface rates companies in a scale from 1 to 10, 1 being the worst and 10 being the best). However, analysing risk levels it is confirmed that the in riskiest category (between 1 and 5), the proportion of domestic companies has decreased. Moreover, the number of companies has really gone down in the category between 1 and 3 (that is, the worst category).

In order to place that in the right context, we have to analyse underlying processes, points out Mr Bagyura, calling attention to the fact that these processes usually show up one year after the date is published, and Coface’s assessments are always based on the reports of the previous closed financial year. In reality, the improvement of year 2011 shows the results of 2010. 2010 was considered successful (partly due to the strong Hungarian currency, which benefited importer companies and companies with currency credits), so the question is now how companies performed in 2011. Based on economic processes, it is probable that the situation worsened compared to the previous year owing to the fact that the economic environment and the conjuncture hadn’t improved, and secondly, the rate of the Forint had got worse, which caused importers losses and it had an even worse effect on companies with loans in foreign currencies.

The processes at the end of last year are very similar to those of the financial crisis in 2008 (which later led to a recession). This, of course, could also mean that currency rates will stabilise, which would be noticeable through the improved risk assessment status of companies. However, for that, at first, it is essential to consolidate economic policies, which very much depends on political decisions/issues. Nevertheless, macro-processes are not promising (there is no growth), and the situation is rendered more serious by the fact that there is a huge burden on companies if we look at tax-engagements or even inflation.

The focus is on the midfield, that is, companies rated as 4 and 5. Looking at the data from the past four years, we can see that the shift in proportions is the most concentrated in this category. It is an important question how the assessment of these companies will change this year. It’s a huge risk that almost the quarter of the companies are on the dividing line between risky and not risky, rated as 5: wherever these companies move, it significantly affects their ratings. Bagyura expects more companies to fall back to weaker categories.

In order to improve their assessment level, companies have to increase their performance, which requires economic growth and the livening of the inner and outer conjuncture. However, there are no signs which would indicate that. Even though production in the Mercedes’ Kecskemét plant starts in the spring (which aids the growth of export), it will only be enough to counterbalance the closing down of factories such as Nokia or the effects resulting from the bankruptcy of MALÉV.

Mr Bagyura advises: we (as companies) really have to pay attention to the activities of partner companies. We have to do everything to avoid being unprepared when a partner company has liquidity problems. In order to do that we have to operate by gathering information and by using company assessment and monitoring services: nowadays, these services are widely available and with more profound information content. And when there is a problem with a partner, we have to react instantly and effectively.