Small business appears to be at the front end of the struggle to meet rising debt repayments with the number of credit defaults rising back up to pre-pandemic levels, according to the latest data from Centrix.
Business credit defaults were up year-on-year across all sectors in July 2023 as previous arrears began to convert to defaults being lodged, said Centrix managing director Keith McLaughlin.
“It’s clear business owners in construction, retail trade, hospitality, property/rental and more are all feeling the pinch of this current economic climate,” he said.
“There has been a climb in credit defaults across the board in July 2023. This has the flow-on effect impacting employees and their finances, contributing to an overall challenging financial situation for Kiwi households across the country.”
Year-on-year, defaults were up in the property/rental sector (+35 per cent), retail trade (+20 per cent), hospitality (+16 per cent), construction (+16 per cent) and transport (+10 per cent).
Credit demand was also up across all sectors, with the exception of property/rental. It is important to note that a credit default is a lag indicator – the arrears position occurs several months prior to a default being lodged.
Company liquidations were up 36 per cent year-on-year, although this was off a low base and total liquidations remain below pre-pandemic levels.
More broadly Kiwis seem to be coping with higher interest rates so far, with the level of mortgage arrears and consumer credit defaults both down slightly on a monthly basis.
Mortgage arrears fell slightly in June 2023 with the proportion of loans in arrears at 1.29 per cent.
This is down from 1.32 per cent in May 2023 and well off a recent pre-pandemic peak of 1.55 per cent.
There are 19,400 mortgage accounts past due, up 34 per cent on a year-on-year basis, as more consumers face the challenges of rising interest rates and the current economic climate.
The highest mortgage arrears were recorded in the Opotiki district (2.92 per cent), followed by the Waitomo district (2.79 per cent) and the Far North district (2.73 per cent).
New mortgage borrowing in June 2023 was down 13 per cent year-on-year, but the rate of decline is easing, which could signal the housing market may be near the bottom of this downturn cycle, McLaughlin said.
Non-mortgage lending is up 8 per cent year-on-year, driven by strong growth in vehicle loan finance. Overall new household borrowing was down 12 per cent year-on-year.
Consumer arrears fell slightly month-on-month in June 2023 to 11.4 per cent of the credit active population (down from 11.7 per cent in May 2023), with the number of people behind on repayments now 414,000.
The current arrears level is 5 per cent higher year-on-year, tracking slightly above pre-pandemic levels after coming off historic lows.
Looking at the active credit community, 4.6 per cent of consumers were currently 30-plus days past due, while 2.7 per cent were 90-plus days in arrears.
Demand for new vehicle loans fell off dramatically in July after reaching a peak of activity in June.
“This could be the result of consumers taking the opportunity to avoid being impacted by the changes to the Government’s Clean Car Discount from July,” McLaughlin said.
New credit card activity continued to strengthen with applications up 13.5 per cent year-on-year as more consumers turned to short-term lending options to help with the current economic environment.
“Consumer arrears are an indicator of financial stress, with the current cost of living crisis not impacting every Kiwi equally,” McLaughlin said.
“While arrears have been rising across all age groups, it appears the younger generations are struggling the most. For example, consumers under the age of 25 are among those hit hardest by the soaring cost of living and are more likely to experience issues with their cash flow. On the flip side, consumers aged 50 or more are faring better with lower levels of arrears than pre-pandemic.”