UAE insolvency ratio lower than in Western Europe

The real insolvency ratio in the UAE is about 5-10 per cent, which is lower than most of the developed Western European countries, according to an executive of a global credit insurance company.

Massimo Falcioni, CEO of Euler Hermes for GCC, said insolvency claims ratio is “around 37 per cent… but insolvency claims does not mean that they are not paying. It means there is a delay in payment. Real insolvency is 5-10 per cent.”

According to Creditreform Economic Research Unit, insolvency in France was 28.3 per cent, followed by 17.3 per cent in Germany, 11.4 per cent in Scandinavia and 10.6 per cent in Britain in 2011-12.

Falcioni said this delay in payment is impacting companies because their working capital waiting for payment gets hit. And this delay is rising especially in Saudi and UAE because many companies in the UAE are trading outside the country in regions like Europe, where there is a prolonged recession, Brazil and African countries.

Euler Hermes is a credit insurance company that offers bonding, guarantees and collections services for the management of business-to-business trade receivables. Euler Hermes claims to have a 50 per cent market share of credit insurance in the GCC.

Commenting on the impact of insolvency on Euler Hermes, Falcioni said: “Properly managed risk will not impact our business… We have a lot of information that we gather in the field by meeting customers before we give credit. We give credit only to those who merit for which we have transparency of information so that we can assess and calculate the probability of default.”

He said construction and building material companies are the most sensitive with regards to insolvency. “Risk is everywhere. There are no risk-free sectors; all the sectors are sensitive but building materials companies’ margins are very low and competition is very strong.”

Debt collection

Commenting on debt collection, Euler Hermes CEO for GCC Falcioni said debt collection in the region in the past year was quite difficult because some of the companies which went bankrupt ran away from the UAE.
He said the debt collection is done not only in the region but also outside because of the nature of the companies’ work as they are involved in trade and exports.

There are much more over dues registered so delay in payments is increasing, he said, adding that thanks to the services of experts like Credit Insurance, this kind of issue is manageable.
 

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