Liquidations decline

2012-09-27 00:00

INDIVIDUALS and businesses are keeping their heads above water financially, mainly as a result of the low interest rate environment.

This is the view of economists and business analysts after the release of the latest data for liquidations, insolvencies and civil cases for debt.

The numbers

Statistics South Africa said the number of liquidations declined by 20,2% year on year in August. They declined by 13,5% year on year between January and August.

It is estimated that the number of insolvencies declined by about 6,1% year on year in July, while the number of insolvencies between January and July decreased by 17,2% year on year.

The number of civil judgements recorded for debt declined by 12,3%, while the number of civil judgements recorded for debt for the three months ended July 2012 decreased by 20,3% year on year.

Standard Bank economist Sibusiso Gumbi told The Witness yesterday that while many households still had relatively high exposure to debt in relation to the accommodative monetary policy environment, households “are not about to fall off the cliff” in financial terms.

He said a distinction should be made between financial vulnerability — which is on the rise — and actual stress.

Surviving tough times

Gumbi said the extent of unpaid debt of private citizens had yet to reach runaway levels.

“It is worth noting, however, the recent uptick in household indebtedness, particularly in the context of conditions which would favour a consolidation of household balance sheets …

“Indeed, an uninspiring domestic economic growth outlook, combined with the increasingly dovish tone expressed by monetary authorities of late, suggests that an accommodative monetary policy stance is likely to persist. Individuals are unlikely, at least from an interest rate perspective, to be pushed over the edge into default at this stage.”

Forecast

Saijil Singh, lead analyst at credit insurer Coface South Africa, said that although indicators like civil cases for debt, liquidations and insolvencies had been on the decline, the riskier macro-economic environment would limit this positive trend.

“We expect this trend in civil judgments, liquidations and insolvencies to continue decreasing in the coming months. But considering the slowdown of the global markets, this trend may be erratic in the near future,” Singh said.

Business rescue

Adam Harris, director of the litigation department at corporate law firm Bowman Gilfillan, noted that the recently-introduced business rescue laws have helped to save many businesses from liquidation.

“Business rescue aims at avoiding liquidations and job losses by providing businesses with protection against creditors who may want to file for liquidation.

“It is an opportunity to reorganise and restructure distressed but viable companies in order to avoid liquidation,” he explained.

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