Insolvencies on the way back up
I’ve just released the latest quarterly Business Stress Report and it shows that the number of corporate insolvencies is heading back up and the cost of those insolvencies to Banks remains very high. The key driver is the attitude of the ATO and Banks. Post GFC, both the ATO and Banks adopted a lenient approach and both have hardened their stance in recent months. Since late 2010, the ATO has been far more active in using its recovery powers including Director Penalty Notice , Garnishee Notices and Winding Up Petitions.
The statistics confirm what we have been hearing anecdotally, which is that Banks have also been hardening their approach and have been appointing Receivers and taking possession of assets more often than at any time since at least 1999 (which is as far back as the statistics go).
Key findings of the latest Business Stress Report are as follows:
- The quarterly cost of All Bank New Asset Impairment Charges (or “Bad Debts”) for Australian Banks in the Quarter to March 2011 is $5.1 billion. That is a drop from the post GFC peaks but still well above the average pre-GFC level of $1.1 billion.
- The number of companies entering some form of insolvency administration in the month of April 2011 was 812. That figure is the highest April number on record (since 1999). It is a 10% increase over the previous April number of 737 and a 23% increase over the average of the previous 5 years which is 657.
- Delving into the statistics reveals problems for Queensland and Western Australia – Queensland’s proportion of the National total insolvencies has increased from 14% in 2006 to 20% in 2011 and WA’s proportion has increased from 4% in 2007 to 7% in 2011.
- Banks have become far more active in taking possession of assets. The number of insolvency appointments initiated by secured creditors has risen from 6% of the national total in 2007 to 14% in 2011.
I always like a nice graph so have a look at this one that charts the new bad debts in Australian Banks:
So, yes, bad debts are off their peaks but they still remain very high.