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01 Nov 2016

Personal insolvency still increasing


3 min


September qtr. 2016 hinges off two major trends.

The Australian Financial Security Authority released its personal insolvency statistics for the third quarter of 2016, so once again we dig into the numbers and see what they have to tell us.

After a large jump in personal insolvency activity in the June quarter, the number of administrations continued to grow this quarter. The year-on-year comparison of the September quarter also shows a modest 1.1% increase from 2015.

A quick review of the comparative statistics against 2015 shows that in 2016:

  • Bankruptcies fell 3.5%

  • Debt agreements rose 7.3%

  • Personal insolvency agreements rose by 18.2%

  • Total personal insolvencies rose by 1.1%

Two major trends continue to drive the personal insolvency landscape:

  • Large increase in personal insolvencies in the ‘mining states’ of Western Australia, Northern Territory, and Queensland.

  • A move away from bankruptcies towards personal insolvency agreements and debt agreements.

Let’s look at these two trends in more depth.

Mining boom ending
In our March 2016 update on personal insolvency statistics, we noted that the end of the mining boom was inflating the number of personal insolvencies in Western Australia, Northern Territory, and Queensland. This trend has continued and this quarter we have seen further increases in:

  • Western Australia—29.3%

  • Queensland—2.7%

  • Northern Territory—38.7%.

Interestingly, drilling into the statistics further, shows that the majority of the increase in Western Australia and Queensland was in regional areas, while in the Northern Territory the increase was disbursed equally in Darwin and regional areas. It should be noted that the small population in the Northern Territory can lead to periodic deviations that are not necessarily indicative of underlying trends.

We expect this trend to level off over the next twelve months. Looking further ahead, while conditions for the mining industry will remain difficult, commodity prices appear to be stabilising.

In the states whose economies are less reliant on the resources industry, we see this trend reversed. There were decreases in total personal insolvency activity in NSW (-4.7%), Victoria (-7.8%), and South Australia (-1%) compared to the same quarter last year.

Alternatives to bankruptcy
While the total number of personal insolvencies grew this quarter, there was a fall in the number of bankruptcies. Debtors have increasingly been choosing alternatives to bankruptcy (debt agreements and personal insolvency agreements).

Debt agreements continued in their popularity, growing a further 7.3% year-on-year to reach an all-time record number of appointments. This is the fifth consecutive quarter showing growth in debt agreements.

Especially surprising is the increase in personal insolvency agreements, which increased 18.2% year-on-year. This is the first increase in personal insolvency agreements since June 2015. It’s too early to tell whether this is just an anomaly, or the start of a reversal in the downward trend in personal insolvency agreements.

Looking ahead
After a large year-on-year increase last quarter, personal insolvency appointments have returned to steady growth. Looking forward, there are no obvious signs of economic recovery in the mining states, and the reserve bank appears reluctant to further cut interest rates.

With circumstances remaining largely the same, we expect personal insolvency appointments to continue their current trend of slow, but steady growth, in the number of appointments.

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