Bad debts top $20bn as banks struggle in crisis
Scott Murdoch and Teresa Ooi | April 16, 2009
Article from: The Australian
THE bad debts of Australian banks have hit nearly $21billion as the major institutions face a sharp rise in corporate and business borrowers striking trouble as a result of the worsening economic slowdown.
Research by Restructuring Works, an adviser to distressed corporates, shows debt provisions by the banks during the past year were four times than the historic average of just $4 million a year.
The rush of corporate failures has been headlined by the demise of Babcock & Brown and Allco, but a number of smaller businesses face an uncertain future as the cycle collapses.
The biggest increase in bad debts for the banks occurred in the fourth quarter of last year, when the majors had to use $7.8billion worth of cash to cover their losses.
Restructuring Works director Cliff Sanderson said there had been a 30 per cent increase in the number of companies declaring insolvency, but worse was to come as the global slump crippled domestic demand and depressed economic activity.
"The companies that have hit the wall in the last year" were large corporations that had big valuations, but the number going into insolvency was "not huge", Mr Sanderson said.
"The effects of this will hit middle and small business" over time, he said.
It was the same after the 1987 crash, he said -- the bad loans at the banks did not peak until in the mid-1990s.
Company directors were slow to identify the early signs of distress, and just 6 per cent companies that appointed administrators survived to trade again, Mr Sanderson said.
Investment bank Goldman Sachs JBWere said this week the market and the economy had recorded 17 years of expansion, leaving little experience among directors and bankers to deal with economic stress.
"I think directors either don't see the early signs of distress or they don't want to," Mr Sanderson said.
"They don't seem to recognise it early enough, and when they do they are reluctant to act."
Meanwhile, businesses that employ at least 500 workers are taking more than 62 days -- double the standard 30-day payment terms -- to settle accounts, a report finds.
This was an increase of 2.8 days on the December quarter, when businesses tended to settle their bills in less than two months, researcher Dun & Bradstreet said.
The report analyses payment data from more than 300,000 companies across all industries.
The slowing of the economy has also brought on an increase in the number of customers falling behind on mortgage repayments.
Bank of Queensland chief executive David Liddy said last week it had experienced a "slight blowout" in 90-day arrears, but commercial lending arrears had remained steady.
"Certainly as unemployment increases we're going to see a little bit more stress in those areas, but I'm confident the way our book is structured that we'll come through this very cleanly," Mr Liddy said.
Small businesses with less than 20 employees are the best payers, settling their bills within 54 days, the report says.
Chief executive Christine Christian said poor payment behaviour indicated that firms were still feeling pressure from the global financial crisis.
"Our findings continue to show that Australian companies are holding on to their cash for longer periods in an attempt to manage their cashflow and improve liquidity," she said.
