ABSTRACT

Covid-19 and Corporate Sector Liquidity   [open pdf - 0B]

From the Key Takeaways: "[1] The Covid-19 [coronavirus disease 2019] shock is placing enormous strains on corporates cash buffers. Corporate financial statements from 2019 suggest that 50% of firms do not have sufficient cash to cover total debt servicing costs over the coming year. [2] Credit lines could provide firms with additional liquidity. On average undrawn credit stood around 120% of debt servicing costs at end 2019. However, access is uneven and banks may be reluctant to renew or extend them in the current environment. [3] Sticky operating expenses result in many firms running operating losses, placing an additional burden on cash buffers. Estimates indicate that following a 10% drop in revenues, operating expenses only fall by 6% on average. [4] Simulations suggest that if revenues fall by 25% in 2020, then closing the entire funding gap with debt would raise firm leverage by around 10 percentage points."

Report Number:
BIS Bulletin No. 10; Bank for International Settlements No. 10
Author:
Publisher:
Date:
2020-04-28
Series:
Copyright:
2020 Bank for International Settlements
Retrieved From:
Bank for International Settlements: https://www.bis.org/
Media Type:
application/pdf
URL:
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