KUPEG : Payment discipline of Czech companies slowly improving

Prague, Oct 11 (CTK) - Payment discipline of Czech companies is gradually improving and is approaching the level seen before the economic crisis, Michal Vesely, chief executive of credit insurance company KUPEG, told CTK Thursday.

The share of defaults of trading partners in the Czech Republic is around 6 percent, which is the same as last year. The share of defaults exceeded 7 percent in 2010. A year earlier, the share was almost 10 percent.

"After a problematic period in 2008 and 2009, when defaults of domestic companies almost trebled, we can see a gradual stabilisation of the situation and even a moderate improvement," Vesely said.

"But as the end of the year is approaching and the economy in the Czech Republic is slowing down, we expect a gradual worsening of payment discipline of the most important trading partners, too," he said.

However, the development should not be as dramatic as in 2008 to 2010, according to Vesely.

But claims on companies in the Czech Republic remain markedly riskier than is common in most of the strongest export territories.

KUPEG continues to observe periodical worsenings of the payment of claims created before the end of the calendar year when many companies pre-stock themselves and run into short-term problems with cash flow.

However, the dimensions of the swings are not as big as they were in pre-Christmas transactions in 2008 and 2009.

The growing level of insurance coverage and a variety of payment conditions confirm that most suppliers realise the higher rate of risk they undergo when granting supplier loans. Shorter payment conditions are granted by Czech suppliers to clients in Hungary.

The required claim repayment period rose sharply after the start of the financial crisis in 2008 when the period grew from around 55 days to 70 days. KUPEG estimates that its clients provided over Kc3bn in operational financing to their trading partners in such a way.

But the following problems of all the involved parties forced suppliers to demand that the provided finances be returned and the payment conditions again shortened to an average 55 days.

This tightening of conditions of supplier loans was then accompanied by the outflow of bank loans.

Clients secured further financing, already at the expense of creditors, by not meeting the agreed payment condition, which led to a dramatic growth of the number of defaults.

"At this moment we can see no pressure on raising supplier financing. This, together with a moderate growth in the volume of granted bank loans, confirms a stabilised situation," Vesely said.

KUPEG is a leader on the Czech market for commercial credit insurance. Its majority owner is Belgian credit insurance company Ducroire Delcredere SA.NV. which holds 66 percent of its shares. KUPEG's minority shareholder is Czech state-run Export Guarantee and Insurance Company (EGAP).