A major Corporate Payment Survey covering eight markets in the Asia Pacific Region, including Australia, has revealed a steady increase in overdue payments.
Coface, a global leader in credit insurance and risk management, surveyed 2,795 corporates in the APAC region regarding corporate payments in 2016.
The survey focussed on eight key markets including Australia, China, Hong Kong, India, Japan, Singapore, Taiwan and Thailand.
It covered 11 sectors namely: automotive and transportation, chemicals, construction, household electronics, industrial machinery and electronics, IT-telecoms, metals, paper-wood, pharmaceuticals, retail and textile-clothing.
Overdue payment risks appear to be continuing to increase, across the region, notes Coface, with the average number of overdue payment days lengthening last year.
Of the companies surveyed, 64% experienced overdue payments.
And 12.5% reported average overdues exceeding 120 days, the highest level in the last four years. This was an increase of 4.3% over the previous year.
According to Coface’s experience, roughly 80% of ultra-long overdues will not be paid at all.
The riskiest sectors are construction, industrial machinery & electronics, IT-telecoms and metals.
Carlos Casanova, Economist for Asia Pacific at Coface said 2017 is set to be another challenging year, riddled with increasing global uncertainties linked to China’s deceleration.
“This will be compounded by the fiscal challenges experienced by commodity exporting countries and monetary policy tightening in the US,” he said.
“Taking all of these factors into consideration, overall company payment experience in the eight selected regional economies is likely to remain weak.”
The most noticeable increase in non-payment risks was noted in China, followed by Thailand and India.
Low level of ultra-long overdue amounts in Australia
More companies in Australia (14%) and Japan (9%) reported ultra-long overdue amounts exceeding 2% of their annual turnover, but these still represent a relatively low level.
Improvements were observed in Singapore and Hong Kong, while Taiwan remained stable.
Construction remained the riskiest APAC sector in 2016. The percentage of respondents registering ultra-long overdues exceeding 2% of annual turnover, at 33%, was the highest amongst all sectors in Coface’s survey.
Industrial machinery and electronics was the next most vulnerable sector in 2016. However, the percentage of respondents registering ultra-long overdues exceeding 2% of annual turnover remained high in 2016 (32%). This points to fat tail risks for the sector with 2017 likely to be another difficult year.
While metals remain one of the riskiest sectors, its performance in 2016 was boosted by a recovery in commodity prices.
The metals sector will probably continue to face challenges in 2017, says Coface.
Headwinds originating from the economic slowdown in China, combined with uncertainties surrounding monetary and fiscal policies in the US, are likely to weigh on the region’s economic outlook, Coface predicts.
This is dampening confidence for both private investment and consumer home purchases.
Also, household debt remains high in some APAC economies (such as Australia, Thailand, Singapore, Malaysia and South Korea).
This could reduce the capacity for home purchases, especially if interest rates increase.