Praneeta Mahajan
Hamilton, December 12, 2023
It is that time of year again when holiday gifting and celebrations begin.
But it is also when people can easily fall into debt traps as they try to make ends meet in the lead-up to the Christmas and the New Year period.
A recent report by Centrix said credit cards, Buy Now Pay Later (BNPL) and personal loan demand rose in November. Credit demand has a seasonal peak in November in the lead-up to Black Friday sales and the holiday season.
Credit Bureau of New Zealand Managing Director Keith McLaughlin said that the volume of credit enquiries for 2023 is similar to those observed in previous years, despite the cost-of-living crisis seeing households tighten their purse strings in general.
“Unfortunately, there will be a segment of the population that is stretching beyond their means, which in turn could spell trouble in 2024. Alongside increased demand, arrears continue to climb for mortgages, personal and vehicle loans, and credit cards,” he said.
Default risk rises
According to Centrix, the current economic climate impacts small and medium businesses harder than larger corporations, with increased credit defaults recorded year-on-year across most sectors. Traditionally, small businesses often leverage their homes as security to fund their business. We are observing a trend indicating higher levels of mortgage stress reported for sole proprietors compared to non-business owners.
Mr McLaughlin said, “Company liquidations remain high as businesses struggle with the current economic climate, which is impacting retail trade particularly hard at the moment. A trend of small and medium business credit defaults rising year-on-year also points towards challenges for many heading into summer. Business credit defaults, liquidations and closures are always tough. Business owners must get into the habit of credit checking potential customers, business partners and suppliers to ensure they aren’t unknowingly extending funds to entities with bad credit risk.”
Consumer arrears accumulate
Consumer arrears climbed slightly to 11.78% of the credit active population in October (up from 11.70% in September 2023) with the number of people behind on their payments rising month-on-month to 431,000 (up from 427,000). The current arrears level is up 6.1% year-on-year, which is tracking closely to levels seen in 2018 after coming off historic lows during the Covid-19 years.
There are 156,000 consumers currently 30+ days past due. Within this subsection, 103,000 consumers are recorded as 60+ days past due and 83,000 were 90+ days past due.
Mr McLaughlin said, “As always, we encourage anyone who is struggling with meeting their repayment obligations to get in touch with their credit providers to work out a plan for payments moving forward, and potentially seek help with budgeting, there are plenty of free services available such as ‘MoneyTalks.’ Otherwise, this could lead to an individual’s credit score being negatively impacted for years, which could have long-term consequences as they make financial decisions in the future.”
Mortgage arrears challenge
Mortgage delinquencies rose in October 2023, with the proportion of home loans in arrears climbing to 1.29% (up from 1.25% in September 2023). There are 19,200 mortgage accounts past due, up 25% year-on-year. As loans continue to be refinanced with higher interest rates due to the current economic climate, this activity could continue well into 2024. Vehicle loan arrears climbed in October to 5.8% (up 19% year-on-year), and credit card arrears also rose to 4.4% (up 8% year-on-year).
Company liquidation was 36% year-on-year in October 2023 (down from 40% year-on-year in September) as businesses continue to battle the current economic climate.
Notably, liquidations for retail companies were 73% year-on-year as reduced spending continues to hit the pockets of businesses across the country. Both construction (+58%) and property/rental (+31%) have seen liquidations increase year-on-year in October as well.
Additionally, business credit defaults are up 24% year-on-year.
Liquidations for retail companies are up 73% year-on-year as the bite of reduced spending continues to hit the pockets of businesses across the country.
Praneeta Mahajan is an Indian Newslink reporter based in Hamilton.
