Valuable lessons from credit crisis

Valuable lessons from credit crisis

While experts seem to agree New Zealand's economic recovery has hit a speed-bump it seems Kiwi businesses have at least learned some valuable lessons from the credit crisis.

Recent figures from debt collection agency Baycorp show businesses are starting to get back on track with debt trending down this year while consumer debt is slightly up.

Baycorp CEO Geoff Harper says the figures could be the result of the weaker businesses either pulling back to a cash basis of trading or closing when the effects of the economic turndown really started to bite.

"It would seem with some of the weaker businesses now out of the market the debt collection figures are reflecting an environment populated by stronger businesses acting in a way that better understands the environment in which they are operating," Mr Harper says.

"This is supported by the fact that residential debt is still rising - albeit at a slower rate than in previous years - with consumers still having a hard time paying off their bills on time."

Mr Harper says the trend is also probably a sign that businesses are smarter now.

"Businesses have changed their habits with evidence of increased growth in credit checking and businesses updating their terms of trade. There's also evidence of company's simply not granting credit in instances where in the past they may have.

"The recession certainly has helped to drive home a few truths around the principles of good credit management, something we have been advocating strongly for many years. Interestingly for us, this has meant we have had to work very hard to support our clients and collect debt from transactions that originated before and in the early stages of the recession."

Mr Harper says it's not clear what the likely impact of the tax cuts and the GST increase will be on the debt management of both business and consumers.

"There's a school of thought that people will use the extra income to pay off their debts faster and yet others think the higher rate of GST will negate that effect.

"I guess a lot will depend on how the GST increase is managed by retailers and whether or not the increased GST is reflected in higher prices or absorbed in lower margins. What does seem clear is there has been no sales surge pre the increase in GST. "

Mr Harper concurs there has been a softening in the economic recovery.

"Negative attitudes still remain and whereas collection rates did improve earlier in the year they are now down slightly again. This seems to reflect the fact that consumers don't want to address their debt issues in the short term because they don't have confidence about the medium term outlook."

Other points from Baycorp's quarterly review of the debt markets:

* Average debt sizes in most industry types have risen with the average debt load $2,158 up from $810 only 12 months ago.

* Generally the market and economic recovery is showing signs of improvement at a slower pace than expected

* Defaults have increased across all demographics in 2010 but the biggest increase has been among Baby Boomers where they are up 17.4 per cent on 2009.

* Average debt size has decreased for all age groups younger than 55 and increased for those older than 55.

* Cash was more abundant in the first part of the calendar year and has seen some contraction in the last few months.

ENDS

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