Auckland and Northland businesses are showing increased signs of debt stress as Auckland’s alert level 3 lockdown continues to wind on.
Auckland business debt defaults are up 18 per cent this year compared to 2019 in pre-Covid times and Northland business debt defaults are up 12 per cent, according to credit bureau Centrix.
Keith McLaughlin. Centrix managing director, said the rise was a “stark reminder” of the ongoing challenges business owners across many sectors in Auckland are facing.
“Auckland and Northland have recorded increased levels of debt stress compared to the rest of New Zealand. As alert level 3 remains in place in Auckland – and following Northland’s snap lockdown – uncertainty is hampering small business as they try to operate under restricted conditions.”
McLaughlin said the Government’s recent traffic light announcement had given Kiwis a target to aim for to begin reopening, allowing them a small amount of certainty to start planning.
“The question is whether this certainty is enough for many small businesses – especially those in Auckland – who are continuing to feel the crunch from the ongoing lockdown.”
McLaughlin also pointed to recent research from the Auckland Chamber of Commerce in which a survey found 20 per cent of owners did not expect their business to survive Covid.
Rental and property services businesses were showing the highest percentage of debt defaults – around 30 per cent higher than in pre-Covid times, followed by financial services and transport businesses.
But on the flipside information services businesses had seen a 40 per cent drop in debt defaults.
Businesses in the education and training, arts and recreation services, mining and public administration had also seen a drop in their percentage of debt defaults.
The average default amount is around $4000. Debt defaults were up 3 per cent in October alone compared to October last year while new company registrations fell 13 per cent.
McLaughlin said demand for credit like mortgages, credit cards and personal loans had risen and flattened off since the start of this lockdown on August 17.
While the rest of the country had returned to pre-lockdown levels Auckland remained at 85 per cent of its pre-lockdown level.
“We are also seeing an increase in financial hardship, which has risen 15 per cent during lockdown, and jumped 8 per cent in just the last month.”
Lending from the non-bank and auto finance sectors had bounced back to pre-lockdown levels.
“There continues to be growth in non-bank consumer loans as well as auto loans.”
Demand for homeloans had bounced back after the initial drop-off caused by the August lockdown but were not back to pre-lockdown levels.
“Mortgage applications increased in October as confidence remains high in the property market outside of Auckland.
“New mortgage lending, however, remained flat in August and September. Whether this is a result of the lockdown delaying settlement, a signal that demand continues to outstrip supply, or an early sign of banks tightening lending criteria, remains to be seen, ” McLaughlin said.
Credit card applications remain low compared to historical levels.
“While some economic indicators remain strong, inflation is on the rise, the housing market is softening and the Reserve Bank has made its first move to tighten monetary policy. This all points to a more constrained credit market as we head into the festive season.”
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