The number of companies that hit the wall in March jumped a staggering 64% compared to last year, with 1095 companies entering administration during the month.
The new data from the Australian Securities and Investments Commission was released just a few hours before Westpac Bank revealed it has increased its provisions for bad debts from $541 million to $1.6 billion in response to the worsening performance of business borrowers.
The sharp jump in bad debts mirrors similar results posted by NAB and ANZ last week.
“While the larger impairments associated with the impacts of the global financial crisis appear largely behind us, we are seeing more pressure across our business customers and expect consumer stress to grow as unemployment rises,” Westpac chief executive Gail Kelly said this morning.
The number of companies entering administration in March increased 37% on February’s figures, which supports predictions from the banks that SMEs have only just started to feel with full force of the downturn.
Insolvency experts say the pain is spread across a number of industries, although manufacturing, pubs, property, and entertainment appear to be bearing the brunt of the fall in consumer spending.
Martin Green, principal with business reconstruction and insolvency firm BRI Ferrier, says credit continues to be the big problem for businesses.
“Quite often they don’t get you in early enough to give you a chance to save the business and save jobs,” he says.
“Under the Howard government, credit was readily available and there was pressure on banks to get money out into the market place. I don’t think they were prudential in every case.
“With the current credit squeeze, people are finding it hard to borrow, and when they are being asked to pay back funds they are struggling because of falling sales.”
But Green says it’s not just struggling businesses that are getting hit by the banks.
“To some extent those businesses that are doing well are to some extent being gouged by the banks; just because they can.”
He expects insolvencies to increase, particularly as the housing sector starts to struggle after the first home buyer grant is wound back.
“I think the cycle starts in building, property and developers and just works its way through the economy.
“I don’t think we’ve seen an end to this. This is much worse than just a normal cycle. You’ve got to look at the economy and say, where’s the strength?
NAB’s latest survey of SME business conditions also points to more trouble ahead. Its SME business conditions index fell another eight to 12 index points, with just 19% of SMEs reporting good or very good conditions and 31% reporting poor or very poor conditions.
Small SMEs (annual turnover between $2 million to $3 million) were the best-performing segment at -10 index points, followed by mid-sized SMEs (turnover between $3 million to $5 million ) at -11 index points, and large-sized sized SMEs (turnover between $5 million to $10 million) at -13 index points.
The health and business services sector reported the only positive readings among SMEs.
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James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
