Credit enquiries full steam ahead – but where’s the tipping point?

Credit enquiries are at their highest levels in 18 months, according to the latest CreditorWatch Business Risk Review. This indicates business conditions are normalising as companies begin trading at pre-COVID levels.

Other data, including higher than expected economic growth of 3.1 per cent in the December quarter and a falling unemployment rate, also indicate Australia’s post-COVID economic recovery is both sustainable and in full swing.

Nevertheless, the end of government measures such as JobKeeper that artificially supported the economy during the worst of the pandemic is yet to take effect across the broader business sector.

Positive signs ahead

According to the March CreditorWatch Business Risk Review, growth in credit enquiries has been accelerating over the last six months whilst debtor court cases have bottomed out over the same period.

“While the number of external administrations rose in early 2021, on an annual basis these have now fallen over thirteen consecutive months. The average number of external administrations over the last six months is fourteen per cent lower than for the six-month period to September 2020,” said Mr Patrick Coghlan, CEO, CreditorWatch.

“This is a metric to watch given the economic forecast for 2021. We expect to see a rise in the number of administrations, especially with JobKeeper having come to an end,” he adds.

Payment default figures on the up

In line with administration figures, payment default numbers are also on the rise, increasing by 13 per cent in the March 2021 quarter.

“The number of payment defaults has fallen for the past five consecutive months, which gives off conflicting signals. With government stimuli recently ending, we’ll be watching closely as we enter a post-JobKeeper economy to see how this changes,” Coghlan says.

Defaults: Industry deep dive

CreditorWatch recently crunched the numbers around the likelihood of defaults among different industries. Defaults suggest a business is in financial stress and complement trends in administration figures.

“Construction is one industry worth calling out when it comes to the upcoming propensity for default,” said Mr Harley Dale, Chief Economist, CreditorWatch.

“The number of administrations in this sector fell from 24 per cent of all insolvencies in the December 2020 quarter to 15 per cent of all insolvencies in January 2021, with a probability of default of 4.49 per cent,” he said. This indicates payment conditions in the construction sector have improved, with the industry still being supported by the $25,000 homeowner grants.

Across the board, there is a low probability of default, with businesses in the healthcare and social assistance, arts and recreation services and agriculture, forestry and fishing sectors among the least likely to default. Transport, postal and warehousing, public admin and safety and professional scientific and technical services are among the industries that are most likely to default.

Best and worst performing sectors for payments

Sectors where payment times are improving include:

  •  Manufacturing (-15%)
  • Electricity, gas, water and waste services (-28%)
  • Retail (-23%)
  • Accommodation and food services (-57%)

Sectors where rising payment times are a concern include:

  • Healthcare and social administrative assistance (+140%)
  • Administrative and support services (+49%)
  • Construction (+29%)
  • Professional, scientific and technical services (+25%)

What’s the outlook?

Overall, expect voluntary administrations, court cases and default numbers to continue to rise next month as the withdrawal of government stimulus measures starts to reveal its true impact on the economy.

Data are accurate as of April 1 2021. ASIC data subject to change.

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