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Enquiries related to credit options reached 18-month highs in March, signalling improved business conditions as companies return to pre-pandemic trading levels.
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Credit enquiries reach 18-month high as conditions normalise
14 April 2021
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CreditorWatch on Tuesday released the results of its March Business Risk Review, highlighting a bump in credit enquiries off the back of an insolvency spike in February, as debtor court cases waned over the same period.
“While the number of external administrations rose in early 2021, on an annual basis, these have now fallen over 13 consecutive months,” said Patrick Coghlan, CEO at CreditorWatch.
“The average number of external administrations over the last six months is 14 per cent lower than for the six-month period to September 2020.”
However, external administrations are expected to rise in the wake of the end of JobKeeper and other targeted COVID-19 subsidies, according to the review, despite reports of improved business conditions.
“This is a metric to watch given the economic forecast for 2021,” Mr Coghlan said. “We expect to see a rise in the number of administrations, especially with JobKeeper having come to an end.”
Congruent with the firm’s administration forecast, payment default figures are also up for March, rising by 13 per cent for the quarter.
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“The number of payment defaults has fallen for the past five consecutive months, which gives off conflicting signals,” Mr Coghlan said. “With government stimuli recently ending, we’ll be watching closely as we enter a post-JobKeeper economy to see how this changes.”
While reports of payment defaults rose in March, defaults across all industries are expected to slow, with the review forecasting an outlook of low default probability, with the construction sector emerging as an example of the diminishing default probability, said Harley Dale, chief economist at 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 home owner grants.”
Businesses in the healthcare and social assistance; arts and recreation services; agriculture, forestry and fishing sectors are among those least likely to default on their credit payments, according to the review.
Among the sectors showing signs of improved payment times are manufacturing, at -15 per cent; electricity, gas, water and waste, at -28 per cent; retail, at -23 per cent; and accommodation and food services, at -57 per cent.
Meanwhile the transport, postal and warehousing, public administration, safety, scientific and technical services are among those most likely to default.
The sectors showing signs of repayment concern are healthcare and social administrative assistance, at 140 per cent; administrative and support services, at 49 per cent; construction, at 29 per cent; and professional, scientific and technical services, at 25 per cent.
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