Credit Manager Magazine 9/2021

55 CREDIT MANAGER MAGAZINE WRZESIEŃ / SEPTEMBER 2021 Figure 2 - Leading indicators by sector and country, evolution in 2020 Figure 3 – Fragile SMEs by sector, % of total companies by sector NB: in red when the indicators have deteriorated in 2020 vs. 2019, in green when the indicators have improved Sources: Euler Hermes, Allianz Research Sources: Euler Hermes, Allianz Research under consideration (see Figure 4). The aver- age French SMEs are the ones that increased their cash positions the most. Interestingly, in some countries such as France, it appears that all SMEs managed to get their hands on more cash. On the other side of the Rhine, SMEs with already strong positions managed to strengthen them fur- ther whereas weaker firms were cut off from access to cash: We see that the share of cor- porates with current ratios close to zero has increased (see Figure 5). Such a phenom- enon could indicate that the unwinding of state support schemes could prove be quite challenging for French SMEs. However, in Germany, those SMEs that are cash-less have more to fear. This stronger SME cash position is also con- firmed by our analysis of Days Sales Out- standing (DSOs). Indeed, we find that SME DSOs have remained stable in Germany while they decreased in France and the UK (see Figure 6) in line with the cash positions. But there is some good news: While SMEs are more indebted after the Covid-19 crisis, public support helped improve their interest coverage ratios. In 2020, total non-financial corporate debt increased more in France (+14.3pp of GDP) compared to Germany (+5.0pp) and the UK (+6.3pp). At the same time, equity remained stable. For SMEs in particular it is interest- ing to look at debt-to-equity ratios to under- stand their vulnerability following the crisis. Looking at our proprietary data of financial statements, we find that SMEs’ debt-to-equi- ty ratios have increased much more in France compared to the UK while they decreased slightly in Germany (see Figure 7). Howev- er, when looking closer at the distribution of debt-to-equity ratios for German SMEs, we see that the average decrease in debt-to-eq- uity is mostly because in 2020 unlike 2019, there were very little SMEs with extremely high ratios. Actually, the median ratio slight- ly increased from 1.22 to 1.23. Despite the additional debt, SMEs were able to strengthen their interest coverage ratios (see Figure 8). On one side, the low interest rates on new loans played a significant role. In France for example, the interest rate on new loans of up to EUR1 million, a proxy of SME financing, has decreased by -40bp since the start of the crisis from already the low- est level within the Eurozone (1.3% in July 2021). This compares to -10bp in Germany BUSINESS