Dec Qtr Personal Insolvency Statistics—the relationship with interest rates

Prediction: personal insolvency numbers have bottomed out.

Last month the Australian Financial Security Authority (AFSA) released the December quarter personal insolvency activity statistics.

An analysis of these statistics for the December 2015 quarter compared to the September 2015 quarter shows:

• Total personal insolvency activity decreased by 6.9%.
• Bankruptcy decreased by 4.7%.
• Debt agreements decreased by 10%.
• Personal insolvency agreements decreased by 6.8%.

An analysis of the statistics for the December 2015 quarter compared to the December 2014 quarter shows:

• Total personal insolvency activity increased by 1.5%.
• All states except for TAS, NSW, and SA experienced an increase in total personal insolvency activity.
• Bankruptcies were stable (0.0%).
• Debt agreements increased by 4.4%.
• Personal insolvency agreements decreased by 24.1%.

Compared to the previous five quarters data though, the current quarter data is as near as makes no difference to the average, indicating that the number of personal insolvencies is presently stable.

In the financial year to June 2009, total personal insolvency activity in Australia saw a shade under 37,000 estates, and a shade over the following year. That number has been in decline since September 2010 and in 2014-15 it decreased to just over 28,000. Over the past two years the rate of decline has gradually decreased, and data for the latest two quarters show no decline at all; if anything we can see a slight, but not statistically significant, increase.

We were interested to compare these numbers to interest rates during the same period. In 2008-09 interest rates were at 7.25% (RBA), and have reduced to the current low of 2%. The following graph shows the correlation between interest rates and personal insolvency numbers.

So what's our forecast for the next quarter?

My crystal ball is currently in for a service, so we have to make a call on this one. Our view is personal insolvency numbers have bottomed out. Interest rates are unlikely to decrease further, and many people predict interest rates might increase. In the last four to six weeks, we have experienced an increase in enquiries and we think the March quarter's statistics will begin to reflect this. We expect the volume of personal insolvencies will increase over the next 12-24 months.

For the detailed breakdown of AFSA’s statistics and accompanying commentary, visit AFSA's website: https://www.afsa.gov.au/resources/statistics/provisional-bankruptcy-and-personal-insolvency-statistics/quarterly-statistics/commentary-december-quarter-2015