Despite the fall in insolvencies for a third consecutive year in 2015, the failure rate of Irish businesses is still three times higher than before the crisis in 2007.
Adding to the worrying picture is the level of non-performing loans at Irish banks, which stands at approximately 23% of total outstanding loans.
Seven years since the onset of the crisis, Ireland still has among the highest rates of non-performing loans in Europe.
This restricts the capacity of banks to support the economic recovery and the rising demands of exporting companies, which have seen double-digit growth over the last two years.
Such health indicators have worked their way into the assessments of credit risk country ratings of the major export credit insurance companies which provide bad debt and payment default insurance to exporters and importers in Ireland.
There are three major European insurance companies offering export credit insurance, Euler Hermes, Atradius, and Coface, which between them provide more than 80% of credit insurance across Europe, including Ireland.
Euler is the largest of these and in its November bulletin, which updated the credit risk ratings, Ireland is rated as a “medium risk”, alongside China, Spain, and Italy.
Atradius, the second- largest insurer, ranks Ireland as a ‘moderate risk’, in a group that includes Brazil and India.
Coface, meanwhile, has Ireland listed as a ‘quite acceptable’ country risk.
Many may be surprised that all three insurance organisations assess the UK, the North, and the US as being of a “low risk” of credit default.
The level of insolvencies in the UK, which has 25% fewer insolvencies on a pro-rata basis than Ireland, appears to have a strong impact on the UK credit risk rating.
The largest insurer Euler has assessed in its UK rating the risk of London exiting the EU, but has given only a 10% probability of this coming about.
The rapid growth performance of the Irish economy over the past few years is gradually returning Ireland and its businesses to a lower risk rating.
But this process has still some distance to go.
In the meantime, businesses exporting from Ireland are taking a more cautious approach to expanding overseas than they did in the Celtic Tiger years, as shown by the fact that an increasing number of firms seek out export credit insurance.
It is important for the development of the economy that exporting firms are encouraged, but it is even more important that this is not achieved at the expense of more insolvencies.
A survey by the Irish Exporters Association at the end of last year showed there was a 27% surge in the volume of exports covered by export credit insurance.
That compares with a 4% increase posted for the same period by exporters across Europe, as reported by Berne Union, the International Union of Credit and Investment Insurers, which includes those three largest insurers.
However, most other OECD countries have government-supported export credit guarantee schemes.
Regrettably, this is not the case for Irish exporters.
There are volatile economic developments and increasing geopolitical hotspots in Russia, Ukraine, Syria, Libya, and Somalia, where insurance corporations do not provide cover.
It is therefore inevitable that the issue of the Irish Government re-entering export credit support will come back onto the agenda sooner, rather than later.
There is strong competition between the three major insurance underwriters on the Irish market, and their many brokers.
This has helped bring back the cost of export-risk protection to a range of between 0.2% and 0.5% of the sales ledger.
Many businesses found that their insurers withdrew trade credit insurance during the financial crisis.
The Berne Union acknowledges there is a need to rebuild its members’ reputation for short-term credit, particularly among SMEs hardest hit by the financial crises.
In particular, the insurers have promised to be more proactive in the market, devising simplified procedures and certainty of cover.
Here, Euler Hermes has been a first mover in terms of delivering on this promise with its ‘Simplicity’ product that offers short-term cover for 60% of exporters’ sales ledger, with an easy online application offering a good service at low cost.
With global growth likely to come more and more from the emerging major economies, which come with a much higher level of volatility, export credit insurance is likely to be the new normal for most Irish exporters.
John Whelan is a leading international trade consultant.
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