Since the pandemic hit many Swiss companies have been able to stave off bankruptcy. There are however signs that this might change next year.
Swiss banks could be facing a wave of loan defaults from companies who are in danger of slipping into insolvency next year, according to a survey by consultancy firm Alvarez & Marsal on Wednesday.
Companies which struggled during the pandemic were able to delay going bankrupt through government funding received in 2020 and 2021. Insolvencies in Switzerland declined by almost 20 percent compared to 2019 as a result of these measures, the survey found.
End Of State Backing
However, when state backing ends next year, banks could get hit from these companies defaulting on their loans. Among the 180 companies surveyed, around a quarter suffered from severe financial conditions in 2020. This represents a 30 percent increase over 2019.
Switzerland was one of the first countries to unleash a lending bazooka shortly after COVID-19 was declared a pandemic. Small business in Switzerland has since expressed anger over how banks want the glut of cheap loans repaid.
Milder Swiss Hit
Furlough measures, due to expire in February, are likely to aggravate the situation. Companies which took out COVID-19 loans of up to 500,000 Swiss francs ($536.000) will likely have to start making amortization payments at the start of 2022.
As with other economies, the size of the fallout is difficult to predict as the effect on businesses and the government measures were unprecedented. Swiss banks' losses on dud loans granted during the pandemic have thus far been much milder than those in wider Europe.
