6 Oct 2021

Company credit defaults rise as lockdown hits Auckland businesses hard

6:40 am on 6 October 2021

A sharp drop in demand for credit in the immediate response to the Covid-19 lockdowns has proven to be temporary but it is a different story for businesses.

small business, people and service concept - man or bartender serving customer at coffee shop

Businesses offering food services are among the worst affected by a downturn in cashflow during alert level 3 and 4, an expert says. Photo: 123rf

The latest Centrix Outlook which looks at how consumer and business credit performed in September indicates there was an overnight fall of 30 percent in demand for credit in mid-August.

Centrix managing director Keith McLaughlin said credit demand had fully recovered in regions operating under alert level 2, with a 16 percent increase in Auckland at alert level 3.

However, he said there had been a 13 percent rise in company credit defaults, with a high number of business closures, while company registrations were down 11 percent.

"Unsurprisingly, we see higher rates of credit defaults in rental and property services, accommodation, food services and transport, as closed borders and restricted movement impact business cashflow," McLaughlin said, adding the number of defaults was trending higher.

"And when you couple that with a number of businesses that closed during the month of September, there's a record 13,400 businesses closed in September. It's really quite frightening."

He said most of the defaults and closures were in Auckland.

McLaughlin said there was unlikely to be a turnaround in the number of defaults given the uncertainty around when businesses would be able to reopen and begin generating revenue to pay their bills.

"So without that certainty, it's quite difficult to approach a credit provider or a lender and say, give me some time to sort this out.

"So I think certainty and clarity around what the future holds is what the businesses need more than anything else."

Despite the situation, McLaughlin said there was reason for optimism.

"Credit is a leading indicator of consumer confidence and the strong rebound in the credit market demonstrates that consumers remain confident."

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