Risk minimising strategies
2006. june 15-16
Romanian-Hungarian Business Forum
Cluj-Napoca
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Themes
Is it risky to do business in Romania and/or Hungary:
 Country risk in comparison
 Payment morale in comparison
What to do – how to minimise actual trade risk:
 Credit reports
 Debt Collection Services
 Credit Insurance
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Coface in our region
 Established 1990 in HU, 1996 in RO
(first Intercredit, then Coface Intercredit, now Coface Hungary)
 Since 1996 the leading information provider in RO, market leader also in
Hungary
 More than 60.000 delivered Credit reports per annum in both countries
 Debt Collection portfolio of more than 62M EUR in HU and RO
 Since january 2005: credit insurance activity in Hungary, coming soon in
Romania, 2006 June: already 11% market share
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Coface Country Risk rating
Credit Rating of Hungary and Romania
Hungary
Romania
A1
A2
A3
A4
B
C
D
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A comparison
 A1 countries (excerpt):
Germany, Spain, France, United Kingdom, Sweden
 A2 countries (excerpt):
Italy, Czech Republic, Hungary, Portugal, Slovenia
 A3 countries (excerpt):
Poland, Slovakia, Malta, Lithuania
 A4 countries:
Romania, Croatia
 B countries:
Bulgaria
 C and lower:
Bosnia, Serbia, Moldovia, Turkey, Albania
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Trade risk situation Hungary
Structure of economy:
 1,1 million established companies incl sole proprietors (10m population!)
 460.000 Bt., Kft., Rt.
 98% of these smaller than 80 KEUR turnover (!)
 Just some 4700 companies larger than 2M EUR t/o
Payment morale:
 since June 2003 constantly worsening
 Non payment affects 96% of all questioned companies
 Payment deadline is now a feature, as important as price itself
 Payment terms: 30 asked, 95 on average
 Non payment leads to highest insolvency rate in EU 25
 Mature market – price war – concentrations expected
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Insolvency situation in Hungary
Insolvencies in Hungary:
 Every 30th company goes insolvent every year, officially
 Grey Zone is approx 10-20% higher due to slow courts and simple closures
 Every (remaining) company is statistically affected by 2,7 insolvencies
 Pace of Insolvency growth +15% in Q1 2006
Toplist branches:
 Agriculture:
4,08% insolvency rate
 Textile:
3,78%
 Wholesale:
3.35%
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Trade risk situation in Romania
Structure of economy:
 525.000 million active companies
 82% smaller than 100 KEUR turnover
 Just some 950 companies larger than 10M EUR t/o
Payment morale:
 since 2004 constantly improving!
 But non payment still affects almost 90% of all companies
 Payment deadline – relatively stable, but will rise to 30 days soon
 Payment terms: 15 asked – 80 on average ( 75% delayed )
 Romania has the 2nd highest insolvency rate in the region, ..but:
 Striving, booming economy – still more chances than risks
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Insolvency situation in Romnia
 2005: Over 3500 insolvencies in Romaina
 Grey Zone estimated to be over 10% ( 3900 – 4100 companies affected)
 Romania has the highest growth rate in Insolvencies in the Region
(in Europe, actually) with +54%!
 The most difficult sectors
• textiles manufacture
• furniture
• construction industry
• Transports
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Outlook EU accession Romania
What will happen:
 Tougher competition from EU25 in most economic areas
 Market concentration – survival of the fittest
 Non payment and insolvency rates will possibly grow
 Rise in domestic competition must be counterweighted by export success
 State sector will spend more – EU funding – chance for local companies
What will probably NOT happen:
 Half of Romanian companies will not dissapear
 It is not going to be better for ALL, regardless of product and services
 Real estate prices are NOT going to rocket forever
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Hungarian experience
250.000 Companies insolvent because of EU ?
 Highest insolvency rate, but still more foundations than insolvencies
 Number of companies however, never reflect the real business situation.
One „economical unit” often consists of 5-6 companies (one owner)
 In general there is an ongoing concentration of companies. Hungary has
54.000 companies within the construction sector – Austria has 8000, but
they make 5x the t/o.
 Hungary still has 800 fodder mixing units – germany has only 6 !
 Concentration towards fewer, well capitalised, market players is inevitable,
but will not happen overnight.
 Workforce will shift to fewer but larger units
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Hungarian experience II
Real estate price will rocket ?
 In Hungary, particulary in Budapest, there was a high expectation that the
accession will push the prices further.
 Since end 2004 (EU accession year) the prices are falling / stagnating
 Pre-accession boom was mainly fired by governmental loan guarantees,
and NOT by millions of foreigners wanting to buy flats.
 Commercial real estate is another story: offices moderately up, commercial
and logistical green-fields and prime spots still on the way up.
 Residential: only the top locations, or other objects qualifying as financial
investments are moderately sought after now.
 Standard housing, as flats, periphery etc. are falling, as the prices were too
high exactly due to EU expectations.
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So, what should be done?
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Risk minimising strategies
The three pillars of risk management:
1. Know your buyers well before delivering goods on credit.
Decide how much credit they are worth and stick to your decision
CREDIT REPORTS / MONITORING
2. If client is late with a payment, react quickly and effectively
INKASSO / DEBT MANAGEMENT
3. If you are not sure that a client will pay in the end – secure yourself with an
insurance policy
CREDIT INSURANCE
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CREDIT REPORTS
What is a credit report?
 A reactive researched credit opinion, which shows the clients financial
standing at the moment, and gives an exact credit limit suggestion.
When should it be used?
 Always when new business contacts are established – especially export
What does it cost?
 Depending on the country and the spedd required, between EUR 25 and
EUR 80 per report.
Is it complicated?
 No, at Coface, reports can easily be ordered or downloaded online
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Debt Collection
What is professional Debt Collection?
 A professional Debt Collection company collects your debts nationally and
internationally fast, reliable and legally correct. Especially internationally
we have a strong persuasion power as multinational collectors.
When should it be used?
 As soon as you experience a change in the payment behaviour of your
client, and don’t get a fully credible answer on the reason why this
happened.
What does it cost?
 Depending on the country, between 5 and 25% of the actually collected
amount.
Is it complicated?
 No, at Coface, debt collection can easily be ordered online. You have a 24/7
insight to all of your DC cases.
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Credit Insurance:
What is credit insurance?
 An insurance against the insolvency of your client OR against simple nonpayment of your invoices.
When should it be used?
 In our opinion – always when you are delivering goods on open invoices
What does it cost?
 Approximately 3-5 promille of your annual turnover
Is it complicated?
 A bit, yes, but it gives you absolute security in your business!
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Summary
 The EU accession of Romania will bring chances and raised risks at the same
time. It is an exciting opportunity for our region.
 Competition will get tougher, as cross-border business will (and should)
increase largely.
 Companies will have to cope with more competition and more sophisticated
financial and business techniques.
but
 We do not expect dramatical changes to the worse, not even in the real estate
market.
 It is a great chance for all of us – let’s go out and grab it!
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Köszönöm a megtisztelő figyelmüket!
Thank you for your attention !
Multumesc pentru atentie !
[email protected]
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