10 Mar 2021

Business failures may rise as pandemic hits financially vulnerable firms

10:14 am on 10 March 2021

The number of business failures may rise as the effects of the pandemic catch up with financially vulnerable firms.

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Photo: nito500/123RF

Credit reporting firm Centrix's latest report showed the level of arrears across all credit types rose by 10 percent in February, the highest in more than a year.

A broad range of government relief measures for businesses to cushion the impact of Covid-19 resulted in fewer business failures, but the numbers have been picking up in recent months, and that is expected to continue.

"I think over the lockdown period there has been a greater reluctance to take collection proceedings against people who are in financial strife - it's just part of the 'be kind' mantle," Centrix managing director Keith McLaughlin said.

"I think we are now in a period of some stability, then normal commercial decision making will apply and that will be when some of these things come to a head."

The data also showed the numbers of overdue mortgage repayment increased for the fourth consecutive month, with 17,000 accounts now in arrears.

McLaughlin expected the situation to deteriorate and defaults would occur when the mortgage deferral scheme wound down at the end of the month.

"Those that are still on it are the ones who are struggling to come off [which] is our concern."

At the same time, the average credit score of new credit applicants reached an all time high.

"Interest rates are very low, property prices are going up, investors are moving into the market, people are reinvesting in their homes by doing extensions, alterations, or buying new property and they tend to be the people who have disposable income and naturally they would have a higher score."

The high demand for credit demand was a leading indicator of consumer confidence in the economy at the moment, he said.

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