Business stress at record high

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Dissolve released their quarterly and year end corporate insolvency and restructuring Business Stress Report yesterday and it makes for sobering reading.

According to Dissolve, last year was the worst on record for corporate insolvencies. This has not resulted in higher bad debt/impairment charges for the banks on 2010, but the level is still highly elevated compared to pre-2008 conditions.


Remember that the majority of the “improvement” in bank earnings for the previous financial year has come from a reduction in bad debt provisiioning costs, not through growth in underlying earnings.

Here are the key findings and some comments from Dissolve:

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According to ASIC latest figures, January-November 2011 recorded 9,718 corporate insolvencies which already exceeds the previous high of 9,601 being for calendar year 2010.

November itself was not a highest ever, which may indicate that insolvency numbers are plateauing.

The cost of All Bank New Asset Impairment Charges (or “Bad Debts”) for Australian Banks in the period from January to September 2011, is $15.7 billion. That is a decrease from the same period in 2010, which was $18.1 billion, but still well above the average pre-GFC level of $3 billion.

An analysis on a state-by-state basis for calendar year 2011 reveals significant problems for Tasmania (up 82% on the average of the previous five years) and Western Australia (up 70%). There is a more moderate increase in insolvencies for Victoria (up 21%), South Australia (up 36%) and Queensland (up 38%). New South Wales is only up 9%.

Interestingly, there has not been a significant increase in Queensland insolvency numbers since the floods in January 2011. For the 11 months to November in 2011 there have been 1,895 Queensland insolvencies compared to 1,826 for the same period in 2010, being an increase of only 4%.

Overall, the figures show that there has been a move from a smaller number of large insolvencies immediately post GFC to record numbers of insolvencies in 2011 but of a smaller value.

Find the full report below:
Business Stress Report January 2012