Impact of the COVID-19 crisis on Spanish firms’ financial vulnerability

This paper analyses the impact of the COVID-19 crisis on the financial vulnerability of the Spanish corporate sector. The simulations conducted show that the crisis significantly increased firms’ liquidity needs in 2020, although the measures adopted by national and international authorities eased access to credit under favourable conditions, which substantially mitigated the short-term liquidity risks. However, the sharp fall in profitability levels, coupled with debt growth, appears to have resulted in a marked increase in the proportion of vulnerable firms (i.e. those with negative equity or high debt levels), which would be more pronounced among SMEs and the sectors hardest hit by the pandemic. The projections for the period 2021-2023 indicate a gradual decline in these percentages, in keeping with the expected recovery in activity. The results also suggest that, as a result of the crisis, the proportion of firms at risk of becoming non-viable on account of persistent losses through to 2023 would rise by between 2 pp and 3 pp, while the proportion of those that will remain viable but struggle to repay their debts out of their expected future earnings (overindebted firms) would rise by between 3 pp and 4.7 pp. In addition, the simulations show that the unsustainable debt of firms that have become overindebted but remain viable would stand between €9 billion and €18.6 billion, depending on the scenario considered, with the bulk of this amount accounted for by SMEs.