Our business default rates improving

FEWER businesses in Geelong are defaulting on loans than those in metropolitan Melbourne, new analysis has found.

An analysis of business defaults by CreditorWatch found that on a scale of one to 100, where 100 is least likely to default on loans, Geelong was on average ranked in the mid-70s.

It found Geelong’s business default risk had reduced from a height of nearly 50 in December last year to nearly 60 by April. The analysis showed the risk of default was greatly heightened by the 2021 Covid lockdowns.

Data analyst James O’Donnell said while Geelong had seen greater risk of defaults recently, that was slowing.

“The decrease in the business risk index for Geelong measures the region’s default risk compared to the rest of the country, so the decline indicates default risk increasing over and above the national average,” Mr O’Donnell said.

“Importantly, despite the relative decline, Geelong is still fairing better than the largest population centres in Victoria, in particular Greater Melbourne and Melbourne CBDs, which have declined to a greater extent than regional centres in Victoria.”

Mr O’Donnell said there were higher numbers of defaults in hospitality and retail trade businesses, which were the most greatly impacted by Covid restrictions.

“Manufacturing and primary industry businesses in Geelong have been relatively insulated from Covid impacts and remain strong performers,” he said.

He said the “largest driver of defaults” included a reduction in cash flow coupled with rising costs.

Mr O’Donnell said businesses with a reduced trade turnover as a direct impact of Covid lockdowns were the hardest hit, particularly in areas with relatively high rental costs.

“In general, trade turnover has been significantly weakened by Covid, which has impacted many businesses,” he said. “Recent inflation and cost pressures will no doubt compound this issue in the near term.”

An analysis of the Surf Coast region risk found the index was around 70 about two years ago, but had reached around 50 this year, meaning the predicted insolvency rate for the next year is close to the Australian average.

The analysis found the main causes of the recent change could be attributed to an increase in the observed insolvency rate and a slide in the aggregated RiskScore rating.