Equifax Quarterly Commercial Insights: June 2024
- Overall business credit applications decreased by -1.6% (vs June quarter 2023)
- Business loan applications reduced marginally, down -0.2% (vs June quarter 2023)
- Asset finance applications fell by -8.1% (vs June quarter 2023)
- Trade credit applications increased +3.0% (vs June quarter 2023)
SYDNEY – July 2024 – Lower business confidence saw the overall commercial credit market shrink in Q2, according to the latest data from Equifax, the leading provider of credit information and analysis in Australia and New Zealand.
According to the Equifax Quarterly Commercial Insights - June 2024, commercial credit demand fell by -1.6% in Q2 2024 compared to the same quarter the previous year. A significant drop in demand for asset finance (-8.1% vs the same period in 2023) was the main driver of this decline, with end of financial year asset finance applications falling to the lowest levels since the beginning of the Covid-19 pandemic. In the same period, demand for business loan applications decreased marginally (-0.2%) and trade credit applications increased (+3.0%).
Scott Mason, General Manager Commercial and Property Services, Equifax, said: “Usually in Q2 we would expect to see a lift in asset finance applications, as businesses take advantage of the end of financial year period to make major purchases. This year, however, we’ve seen a notable decline in asset finance applications, suggesting that businesses are avoiding large credit contracts due to cash flow concerns and tighter margins.
“Taking a longer-term view, we can see that overall commercial credit demand in the June quarter has been slowly but steadily declining over the past three years. This suggests an ongoing depression in business spending and is another sign of falling business confidence,” Mr Mason said.
Hospitality and construction industries struggle with insolvency
Insolvency rates at the total market level increased by +34% in the June quarter 2024* vs the same period in 2023. Factors including increasing operating costs, shrinking consumer spending and a tougher lending market contributed to insolvencies reaching the highest levels since Covid-19 in Q2.
The construction and hospitality industries continue to experience the highest levels of insolvency, with rates up 23% for construction and 45% for hospitality in Q2 2024 (vs Q2 2023). Insolvency rates for these sectors have grown faster than any other industry over the past four quarters.
“These insolvency figures align with our credit demand data, which shows that asset finance demand was particularly low in Victoria and Queensland. This was due to lower enquiries from borrowers across a number of sectors - including hospitality and construction.
“We know that the construction industry has been facing serious headwinds for some time now. Most recently in Victoria, we’re seeing tight competition, decreasing demand and higher operating costs all contributing to major feasibility challenges. Queensland is dealing with an increasingly tight labour market, partially driven by large infrastructure projects, which again is putting pressure on some operators.
“These are not factors that can be resolved quickly and, based on the market conditions and the trends we’re seeing in our data, the construction industry is likely to remain highly impacted by insolvencies for the foreseeable future,” Mr Mason said.
Interestingly, Equifax data shows that the quality of credit applications continues to increase despite shrinking demand, with business loan applications quality currently at a 10 quarter peak.
“The increasing credit quality of commercial borrowers shows it’s not all doom and gloom. It suggests that the businesses that are able to weather the storm will come out the other side stronger and better positioned for long-term success,” Mr Mason said.
Business credit demand June 2024 vs June 2023:
Overall business credit applications declined (-1.6%) in the June quarter 2024. WA (+4%) and SA (+6%) experienced increased commercial credit demand. All other regions saw demand fall compared to Q2 2023. TAS saw the largest decrease in business credit applications (-11%), followed by VIC (-5%), NT (-4%), NSW (-1%), QLD (-1%) and ACT (-1%).
Business loan applications increased marginally (+0.2%) in Q2 2024 compared to the previous year. SA (+11%) and WA (+6%) led the increases in demand, with businesses in the services sectors (Financial, Professional Services, etc.) contributing to increased volumes in these states. ACT (+4%) and QLD (+1%) also experienced increased demand, while NSW was flat (+0%) and TAS (-13%), VIC (-5%) and NT (-5%) saw declines.
Trade credit applications rose in Q2 2024 (+3.0%). ACT (-11%) was the only region to experience a decline in demand. NT (+13%) saw the greatest increase in demand, followed by SA (+8%), WA (+7%), QLD (+6%), TAS (+6%), VIC (+1%) and NSW (+1%).
Asset finance demand fell -8.1% in the June quarter. NT (-18%) and TAS (-18%) experienced the biggest decreases in demand, followed by QLD (-10%), VIC (-9%), ACT (-9%), NSW (-7%), SA (-7%) and WA (-5%).
* Note: based on insolvency data to 23 June
IMAGE 1: Overall Commercial Credit Demand – June 2024 Quarter
IMAGE 2: Equifax Commercial Credit Demand Index by categories of credit – June 2024 Quarter
IMAGE 3: Business Loan Applications State Overview, 2024 Q2
IMAGE 4: Asset Finance Applications State Overview, 2024 Q2
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NOTE TO EDITORS
The Equifax Quarterly Commercial Insights (formerly Business Credit Demand Index) measures the volume of credit applications that go through the Equifax Commercial Bureau by financial services credit providers in Australia. Based on this, it is considered to be a good measure of intentions to acquire credit by businesses. This differs from other market measures published by the RBA/ABS, which measure new and cumulative dollar amounts that are actually approved by financial institutions.
DISCLAIMER
Purpose of Equifax media releases:
The information in this release does not constitute legal, accounting or other professional financial advice. The information may change, and Equifax does not guarantee its currency or accuracy. To the extent permitted by law, Equifax specifically excludes all liability or responsibility for any loss or damage arising out of reliance on information in this release and the data in this report, including any consequential or indirect loss, loss of profit, loss of revenue or loss of business opportunity.
