RBA warns of insolvencies following extended foreclosure
In its latest Financial Stability Review, the central bank noted that companies in sectors affected by the pandemic or located in regions that have experienced prolonged lockdowns are more likely to reduce their reserves and some may face difficulties repaying their funds. the debt.
“Despite the strong political support, it is likely that not all businesses will recover and insolvencies will increase, albeit from a low level,” the bank said.
“Overall, there is only a small portion of households and businesses that are both vulnerable to cash flow cuts and heavily in debt. Lender NPLs are therefore expected to increase only modestly from the currently very low levels.
Overall, corporate profits increased in the first half of 2021. The Financial Stability Review noted that due to improving business conditions, many companies were well positioned to absorb labor expenses. labor costs when the JobKeeper grant ended in March.
“Overall liquidity has remained considerably higher than before the pandemic, with low interest rates supporting indebted companies,” the review says.
“In almost all industries, aggregate revenues had recovered to around or above their pre-COVID-19 level during the first half of this year.”
However, the RBA observed that results were mixed from company to company, reflecting the uneven impact of the pandemic. In particular, company-level data shows that a fifth of all businesses reported revenues for the March quarter of this year that were below 60% of their averages between 2014 and 2018.
Although only about half of companies reported revenues that met or exceeded their 2014-18 averages in the March 2021 quarter, that share has increased from around 40% since the middle of last year, reflecting improving trading conditions and broader economic recovery.
About 10% of companies were receiving JobKeeper payments when the program ended in March 2021. Many were located in Sydney and Melbourne and, based on the most recent available data (end of June 2019), in areas with ratios relatively lower median liquidity levels (the ratio of current assets to current liabilities).
The Reserve Bank stressed that the extended shutdowns in Sydney and Melbourne in recent months mean that some vulnerable companies will deplete their cash reserves.
“Some may find it difficult to service their debts, especially if their trading conditions do not improve when restrictions are relaxed and targeted policy support measures are removed,” the bank said.
“Vulnerable businesses can also find it difficult to maintain their current employment levels due to cash flow issues. In turn, this could decrease the ability of affected households to repay their own debts. “