As the pandemic unfolded, economic observers cautioned that the losses induced by the crisis were likely to erode firms’ equity positions. In addition, replenishing cash positions was said to involve a substantial rise in corporate indebtedness.

In contrast to these concerns, the article shows that the overall financial health of surviving firms did not deteriorate significantly throughout 2020. This finding reflects the beneficial impact of policy support – both generic and targeted – as well as the corrective actions taken by firms themselves. In particular, businesses demonstrated a significant ability to cut their costs in tandem with the decline in revenues. The residual pressures on liquidity positions were subsequently eased by the mobilisation of private savings (notably through advances on current accounts), subordinated loans (including those granted by regional investment companies), bank credit and – to a limited extent – equity injections. The article further highlights, and rationalises, the low number of bankruptcy procedures in the recent period.

Finally, the analysis also offers a novel perspective on the role of the banking sector in supporting the real economy throughout the pandemic. This question is important, since considerable policy action had been taken to support the capacity of the banking sector for that purpose. The analysis reveals that banks have not only supplied additional credit to firms, but have also offered concessions on legacy debt contracts.