Corporate bankruptcies alarm: Turkey may see a six-year high

Why Is This Event Important?

In recent years, increasing corporate bankruptcies in Turkey have raised concerns about economic stability. Slowing growth, high inflation, and shrinking profit margins are seriously threatening the financial resilience of companies. According to Allianz Trade’s "Global Bankruptcy Outlook 2028" report, the number of bankruptcies is expected to increase by 31% to 2,800 by 2026. This situation places Turkey as the third country with the highest expected increase in bankruptcy rates. As economic pressures mount, questioning the sustainability of businesses becomes vital, making it essential to understand the situation and develop solutions.

Weaknesses in Turkey's economic structure are causing companies to struggle to maintain their financial health. High inflation and rising costs negatively impact businesses' cash flow, leading to a loss of competitive advantage. In this context, identifying and managing the risks faced by companies emerges as a critical step to prevent future bankruptcies. For example, the increase in companies' foreign currency debts, combined with exchange rate fluctuations, further exacerbates bankruptcy risk. Companies need to reassess their financial strategies considering such external factors.

In addition to economic uncertainties, social impacts are also noticeably increasing. Rising bankruptcies have transformed from merely an economic issue into a social crisis. The negative effects on families' economic situations, unemployment rates, and societal trust indicate that bankruptcies deeply affect not only businesses but also individuals. In this context, collaboration between the government and the private sector has become essential to enhance the overall welfare of society.

It should not be forgotten that not only companies but also individuals are affected by these economic fluctuations. Bankruptcies leave families in financial distress while negatively impacting individuals' psychological well-being. This situation creates a general climate of distrust and anxiety in society. The stress caused by economic uncertainties can lead to an increase in psychological problems and social unrest. Particularly concerns about the future of the young workforce become a factor threatening social peace. Therefore, understanding the effects of this process on society and developing appropriate strategies is critically important.

Finally, the effects of this wave of bankruptcies manifest not only economically but also culturally and socially. The closure of businesses can affect social dynamics in local communities, as many people's social relationships are shaped around their workplaces. Thus, the social upheavals created by bankruptcies raise questions about the overall resilience of society. Businesses need to act in solidarity and collaboration to navigate through this process.

Local Context and Historical Perspective

In recent years, Turkey's economy has followed a fluctuating course under the influence of external and internal factors. The COVID-19 pandemic that began in 2020 has inflicted deep wounds across many sectors, leading to business closures. Although economic recovery in 2021 and 2022 provided a brief improvement, high inflation and rising costs have once again brought bankruptcies to the forefront in 2023. According to Allianz Trade's report, the expected number of bankruptcies in Turkey in 2025 is 2,131, which is projected to rise to 2,800 in 2026, reflecting this historical trend.

Historical data shows that the majority of corporate bankruptcies in Turkey are concentrated in the retail, construction, and industrial sectors. The sensitivity of these sectors to economic fluctuations increases financial management errors and raises bankruptcy risks. Particularly, the construction sector is under serious threat due to high financing costs and rising material prices. Although past economic crises have paved the way for companies to improve their crisis management skills, it is clear that these strategies are inadequate under current conditions. For example, despite many firms going bankrupt during the 2001 crisis, some managed to survive and continue to grow on more solid foundations.

This situation highlights the complexity of the fluctuations in Turkey's economic history. As of 2023, Turkey's foreign exchange reserves and external debt situation play a critical role in determining how companies will operate internationally. Especially, fluctuations in exchange rates, combined with the depreciation of the Turkish lira, increase the financial burdens on many businesses and trigger bankruptcy risks. Therefore, it is crucial for companies to manage their foreign exchange positions and reassess their foreign trade strategies.

Moreover, Turkey's political and economic stability directly affects the confidence of foreign investors in the country. High inflation and uncertain economic policies emerge as negative factors in investors' decision-making processes. This situation leads to a decrease in investments across the country and consequently slows down economic growth. Therefore, Turkey's economic stability has become an important issue not only at the local level but also internationally.

Local dynamics are also of great significance in this context. Although international factors are influential, the roles of local governments and communities in this process cannot be overlooked. Economic support programs and grant aids from local governments can provide significant relief to businesses facing bankruptcy risks. Such support is critical for both protecting local employment and ensuring economic stability. Particularly, the effectiveness of these supports can contribute to strengthening local economies and enhancing societal solidarity.

Affected Sectors and Individual Precautions

The expected 31% increase in bankruptcies by 2026 raises alarm bells, especially for the retail, construction, and industrial sectors. These sectors are among the most affected areas due to high financing costs and shrinking consumer demand. Particularly, the retail sector is struggling to maintain profit margins in the face of rising costs. Companies need to develop a more robust financial management strategy to avoid being adversely affected by such unfavorable conditions. Additionally, the rise of digitalization and e-commerce presents new opportunities for firms in this sector while also increasing competition.

Individually, it is crucial for companies to take proactive steps in managing cash flow, reducing costs, and increasing profitability. In this process, reassessing commercial relationships and strengthening the resilience of dealer and supplier networks is necessary. Particularly, strengthening the supply chain can ensure that businesses survive in sudden crisis situations. Furthermore, effective management of receivables is essential for sales volume growth to empower the business. Otherwise, unexpected bankruptcies may become inevitable.

Individual precautions also involve enhancing financial literacy and management skills within businesses. Through training programs and seminars, the financial decision-making abilities of managers should be strengthened, equipping them with skills to generate quick solutions in crisis situations. Additionally, integrating businesses into the digital transformation process can help reduce costs and open up to new markets. For example, expanding online sales channels with e-commerce platforms is an effective method for businesses to increase their customer base.

Finally, participating in social responsibility projects can enhance companies' contributions to society while strengthening their brand image. Such projects contribute to both businesses and society being in solidarity during economic crisis periods.