According to Restructuring Works, a business specialising in corporate restructuring, its latest Business Stress Report reveals that Australian Banks are continuing to suffer extremely high bad debt costs.  The Banks have reacted to this by taking possession of assets in record numbers and by conducting a much higher proportion of the insolvency work “in-house” rather than appointing an external Receiver.

Key findings from the report:

The latest Business Stress Report has analysed in detail the cost to Australian Banks of their “impaired assets” and how Banks have reacted to the significant increase in bad debt costs.  The key findings are:

• The annual cost of All Bank New Asset Impairment Charges, which equates to bad debts, by Australian Banks for the year to September 2009 has increased to $33.1 billion.  That compares to an average of around $4.4 billion per year for the years 1995 to 2008.
• The number of times Banks have moved to take possession of assets has increased to 1,342 for the year to November 2009 which is almost triple the average of 523 from the previous five years.
• When Banks need to take possession of assets they still appoint external Receivers in the majority of cases.  However, the number of “in-house” Bank appointments has increased five-fold to 505 in the year to November 2009.  This indicates a strong trend for Banks to conduct a far higher proportion of the management of their bad debts “in-house” rather than appointing an external Receiver & Manager.

Other key findings of the latest Business Stress Report are:

• The number of companies entering some form of insolvency administration was 9,544 for the year to November 2009.
• The number of companies entering some form of insolvency administration in the month of November 2009 was 747. That figure is a slight drop from the previous month but it has been relatively stable around 750 to 850 since the peak of 1095 in March 2009.

Comments

Restructuring Works Director Cliff Sanderson says “Corporate insolvency numbers have increased post Global Financial Crisis but that increase has been less than expected.  Hence, there has been a lot of discussion in the insolvency world about Banks “nursing” their problem loans and mention of the lenient attitude of the ATO during the last year.”

There are three parties that can initiate an insolvency appointment:  A Secured Creditor (commonly a Bank), an Unsecured Creditor (commonly the ATO, Workers Compensation Insurers or Trade Creditors) or the Directors.

Sanderson continued: “Our analysis shows that whilst it may be true that Banks are nursing many bad debts, at the same time, Banks have been taking possession of assets far more often than they used to.  Similarly, Directors have been initiating appointments more often. On the other hand, the number of insolvencies that have been initiated by Unsecured Creditors is virtually unchanged when comparing pre and post GFC.

Sanderson concluded: “So the group that has been tolerant and helping nurse companies that are in financial difficulty is in fact the Unsecured Creditors – Trade Creditors and the ATO – whilst the Banks have been very active in pursuing debts and have not been backward in taking possession of assets.