Romanian companies owe debt nearly twice as large as own capital

The indebtedness rate of Romanian companies is the highest in Europe, after their equity increased by only 14% last year, compared to a 17% advance of their aggregate debt, according to the latest Financial Stability Report published by Romania’s National Bank (BNR) twice a year.

The indebtedness, measured as the ratio between debt and capital, increased to 196.3% at the end of 2018, remaining at one of the highest levels at European level and close to the 200% warning benchmark, BNR deputy governor Florin Georgescu said as he unveiled the report, local Ziarul Financiar reported.

The insufficient capitalization remains a significant structural vulnerability of non-financial companies in Romania, BNR said. At the end of 2018, approximately 260,000 companies (38% of the total) had equity levels lower than half of their social capital (due to accumulation of losses), the overwhelming majority (252,000, respectively 37% of the total) having actually negative equity.

Companies that do not comply with the legal requirements in this regard (keeping equity above 50% of social capital) deteriorate the overall capitalization of the entire sector, diminishing it by 23% (respectively RON 126 billion, or EUR 26 bln).

A bill on regulating the situation of undercapitalised firms is currently under debate in the lower chamber of the Parliament (Deputies Chamber).

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