Increased debt agreements means personal insolvency activity is on the rise.
The Australian Financial Security Authority released their personal insolvency statistics for the March 2016 quarter a few weeks ago. Let’s have a look at what the numbers tell us.
Total personal insolvency activity increased by 1.9% compared to the December 2015 quarter, and increased by 2.0% compared to one year ago, the March 2015 quarter.
A breakdown of the statistics compared to the December 2015 quarter shows:
- Bankruptcies fell 1.4%.
- Debt Agreements rose 7.1%.
- Personal insolvency agreements fell 7.3%.
A breakdown of the statistics compared to one year ago, the March 2015 quarter shows:
- Bankruptcies fell 5.8%.
- Debt Agreements rose 15.6%.
- Personal insolvency agreements fell 9.5%.
There appear to be a few factors driving these statistics.
Mining Boom Ending
When we break the statistics down by state, only three states experienced a year-on-year rise in personal insolvencies in the March quarter:
- Western Australia rose 26%.
- Northern Territory rose 11.8%.
- Queensland rose 8.9%.
All other states saw small decreases.
It looks like falling commodity prices and the end of the mining boom are beginning to flow through to an increase in personal insolvencies in the states that most rely on mining to drive their economies.
Popularity of Debt Agreement
The small growth in total personal insolvencies in the March 2016 quarter was driven by large increases in the number of debt agreements being entered into. Debt agreements accounted for more than 41% of total insolvencies, the second highest proportion ever (after September 2015). The March quarter also saw a record number of debt agreements in Western Australia.
Unpopularity of Personal Insolvency Agreements
Personal Insolvency Agreements recorded their third consecutive quarter of decline to reach a new low. The March quarter represents the lowest quarterly total since 1986 and continues the steady decline in the popularity of PIAs.
Last quarter I predicted that the number of personal insolvencies had bottomed out, and that numbers would increase over the next 12 to 24 months. This quarter takes the first steps to bearing out that prediction.
Little has changed in the macroeconomic landscape to make us revise that prediction. While recent inflation figures may lead to further cuts in interest rates, we expect this will at best provide a short reprieve before wider economic issues continue to push personal insolvencies higher.
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-march-quarter-2016