PARIS (Reuters) - Rising French corporate debt could leave firms struggling to survive and saddle banks with dud loans, the central bank said on Tuesday in its biannual financial risk report.
French companies went into the coronavirus crisis with debt already at record levels, topping 72% of gross domestic product at the end of last year, according to the Bank of France.
A nearly two-month coronavirus lockdown left many with little choice but to tap state-guaranteed bank loans as their cashflows all but dried up, providing short-term relief by adding to their debt burdens.
Companies have so far taken on additional debt of more than 100 billion euros ($112.9 billion) of such state-backed loans, with three-quarters going to small and medium-sized firms, according to data from the finance ministry.
“The increase in corporate debt could hurt many (firms’) solvency and this risk could be made worse if the recovery is weak and their ratings deteriorate,” the Bank of France said.
“A sharp increase in corporate bankruptcies could in turn increase banks’ non-performing loans, slowing the flow of credit necessary for the economic recovery,” it added.
The OFCE economics think-tank estimates France will see 40,000 bankruptcies this year on top 55,000 that could be expected under normal circumstances.
Reporting by Leigh Thomas; Editing by Catherine Evans