The tide is well and truly turning for asset quality on business lending, and things seem sure to worsen from here.
The latest NCI Trade Credit Risk Index compiled by National Credit Insurance Brokers surged over the March 2023 quarter (see chart).
Unsurprisingly, the industry generating the most claims on credit insurance (and also collections activity) for the firm was building and construction, along with hardware, plumbing, electrical, steel and timber.
“Collections activity has increased by 50 per cent over six weeks, and claims have more than doubled,” Kirk Cheesman, managing director of NCI told Banking Day.
“There is a lot more to wash through,” he said.
But, he cautioned, this episode would be “an ‘event’, rather than the mass hysteria some are talking about.
“Since mid 2022, businesses have become less patient about debts. And from mid-February, the ATO has begun to issue ‘pay up’ notices in line with normal times.”
Last week, CreditorWatch, drawing on ASIC data reported that external administrations jumped three-fold from January to March, to a still surprisingly low level of only 1000 or so in March.
“The food and beverage sector has always been at higher risk of insolvency according to CreditorWatch data,” the firm pointed out. One per cent of businesses in this sector are always going broke.
But, they said: “the construction sector ranking second does highlight that the wash on impacts of insolvency are quite large. For every construction sector insolvency, there is a large number of companies, individuals, and banks that are impacted.”
NCI Trade Credit Risk Index consistently turns up one more surprise. While not at all prominent and the numbers are not large, a steady stream of firms in the finance sector are going to the wall.
Primarily mortgage brokers, insurance brokers and financial planners, one assumes. And the odd finance company here and there.