East-coast floods could stall Australia’s return to normailty

  • By Zilla Efrat

Banks are well and truly back into their regular cycle of collections, but the floods on Australia’s east-coast could change the picture.

The February 2022 CreditorWatch Business Risk Index (BRI) found that court actions continue to rise, sitting at 1,828 for February, the most in a month since March 2020 and a 70 per cent increase on February 2021.

The BRI also reveals that court actions have risen significantly over the past quarter when compared to the corresponding period last year – an early sign that enforcements and collections activities are returning to normal.

However, CreditorWatch cautions that it remains to be seen what level of hardship measures the banks will implement for east-coast flood victims and whether this will have a significant impact on court actions.

According to the BRI, credit enquiries were up 55 per cent from January to February, indicating that business confidence is returning, and companies are ready to invest in growth.

Credit enquiries totalled for 211,357 for February – the highest monthly number since November 2021 and second highest since July.

That said, CreditorWatch warns that some of these enquiries may be because cash reserves built up throughout the pandemic are being exhausted, leaving businesses reliant on debt funding to get back on their feet.

CreditorWatch also reports that external administrations increased 29 per cent from January to February. And, trade payment defaults jumped 35 per cent from January to February.

The net result, says CreditorWatch, is that trade activity remains subdued with the impending economic impacts of the east-coast floods expected to exacerbate this.

CreditorWatch expects insolvencies to dip as the support packages for flood-affected areas are delivered and banks offer “loan-payment-holidays” to affected businesses. However, over time, as rejected insurance claims, losses from uninsured businesses and loss of income begin to be felt, it says this will unfortunately see insolvencies rise in those regions as well as the rest of Australia.

There will, however, be benefits to some industries such as construction as the rebuilding phase commences.

CreditorWatch CEO Patrick Coghlan says that while the small pick-up in trade receivables in February is an encouraging sign, the effect of the east coast floods will decrease trade activity.

“The devastation of the floods in southern Queensland and northern New South Wales is yet to come through in our data, and it could take up to 12 months for us to see the full impact, but it will have a dramatic adverse effect on trade activity.”

“The extent of the destruction throughout towns and cities along the coast, as well as agricultural areas, will be felt deeply.”