‘Zombie’ Businesses Exposed as One in Two Deferred Loans Resume
(15 October 2020 – Australia) The Australian Banking Association (ABA) reports that 41 percent of small and medium business (SME) loans that were deferred are now being repaid again.
The new ABA data, based on input from seven of Australia’s largest banks, reveals almost half of deferred mortgage and business loans are now being repaid again as Australians recover from the pandemic.
At the start of Q3 2020 the number of loans with paused repayments hit a peak of 500,000 mortgages and over 200,000 small business loans. Australian banks provided loan repayment ‘holidays’ to one in eleven mortgage holders and one in eight small business owners. As of the start of Q4 2020, almost half (45 percent) of deferred mortgages are making regular loan repayments and repayments resumed on 82,000 SME loans as the total number of deferred loans fell to 439,000.
Separate data from CreditorWatch confirmed that coupled with this shift, for the first time since loan deferrals hit their peak in early Q2 2020, the number of businesses declaring insolvency and entering administration increased by eleven percent in September despite temporary changes to bankruptcy laws. The number of defaults also expanded by 23 percent as ‘zombie’ businesses made hard decisions to cease operations in response to the withdrawal of government stimulus such as JobKeeper.
“This is a good sign for the economy. It shows that more Australians are getting back on their feet and resuming their loan repayments. These loan deferrals have helped hundreds of thousands of Australian families and small businesses survive the pandemic. Right now, it’s really important that people contact their bank to figure out the path ahead” said ABA CEO, Anna Bligh.
“Banks will work with customers to figure out a tailor-made solution. That might include restructuring a loan, or in some cases, granting an additional four month deferral. If you are in financial difficulty, please call your bank, they can help you find a way through. Don’t tough it out on your own” Ms Bligh added.
“What we don’t want to see is businesses that are doomed to fail continuing to operate and taking healthy companies down with them. The long term trend is that zombie companies will continue to survive on government support, and so, the next six months are crucial in determining what position we start our economic recovery from” stated CreditorWatch CEO Patrick Coghlan.