Businesses across Western Sydney and tracts of the Gold Coast are among the most likely to default on payments over the next 12 months, according to a new “regional credit rating” from credit risk assessment firm CreditorWatch.
In its new Business Risk Index, launched Wednesday, CreditorWatch says businesses across the Merrylands-Guildford region in Sydney’s west face a 7.76 per cent chance of defaulting before September 2022.
The northern stretch of the Gold Coast comes in just behind with a 7.74 per cent chance of defaults.
The Bringelly-Green Valley and Canterbury regions in Western Sydney rank third and fourth, respectively, while Qld’s Coolangatta faces the fifth-highest business default risk, at 7.45 per cent.
Western Sydney businesses have struggled to operate through harsh coronavirus lockdown restrictions and stay-at-home orders limiting movement in designated COVID-19 hotspots,
Hardship for Gold Coast businesses reflects the downturn in tourism through COVID-19 lockdowns and the state’s closed border with NSW,
Beyond those surface-level observations, CreditorWatch says its new predictive system uses Australian Securities and Investment Commission data on 1.1 million loan-taking businesses and a batch of in-house insights.
The firm says it looks past raw data on defaults, court actions and external administrations — all of which are sitting at subdued levels due to lockdowns, lender leniency and government financial support — to reach its conclusions.
“Defaults fell by seven per cent over the September 2021 quarter and are down by 25 per cent from a year ago. This data point will also rise over time, the question is when,” CreditorWatch said.
“This a good result, but the magnitude of the decline suggests an increase in defaults will occur in October.”
Optimism about easing restrictions across the eastern seaboard is being drowned out by other financial alarm bells, the firm notes.
“Increasing business to business trade payment defaults combined with weakening average credit scores in Sydney and Melbourne CBDs are early warning indicators of a future increase in business insolvencies ahead in these major city centres,” said James O’Donnell of Open Analytics, which designed the new CreditorWatch tool.
Nationwide, the Business Risk Index states food and beverage businesses face the highest likelihood of defaults through to September 2022 at 5.9 per cent, reflecting the lingering damage of lockdowns.
Arts and recreation services rank second, with 4.3 per cent of businesses at risk. Financial and insurance services registered a 4.1 per cent likelihood of defaulting.
The construction sector was flagged as the industry with highest percentage of payments in arrears, with 12.4 per cent behind on payments by more than 60 days.
The grim figure arrives after months of stop-start construction in the nation’s most populous states, leading to missed deadlines and cost blowouts for builders and developers.
Hospitality ranked second in terms of arrears, with 11.1 per cent behind on payments.
“However, in a less restricted economic environment, these kinds of industries can most certainly bounce back,” CreditorWatch chief economist Harley Dale said.
“Consumers will thrive being able to dine out again and socialise normally over a cup of coffee. This is a massive tick for the hospitality industry, a vital employer in the overall economy.”
As conditions return to ‘normal’, both in terms of business activity and insolvency proceedings, parts of regional Australia appeared to perform better than their metropolitan counterparts.
Victoria’s Swan Hill recorded the lowest likelihood of future business defaults at 3.67 per cent, while South Australia’s Limestone Coast region notched a 3.72 per cent chance.