Coface: No improvement for Asian corporate payments

Asian economies

Corporate payments across Asia Pacific generally showed no improvement last year and a marked deterioration in the region’s major economies of China, India and Singapore, reports credit insurer Compagnie Française d’Assurance pour le Commerce Extérieur, aka Coface.

The group’s annual survey on Apac economies questioned nearly 2,800 companies in eight markets: Australia, China, Hong Kong, India, Japan, Singapore, Taiwan and Thailand. The survey traced the evolution of corporate payments in 11 sectors of activity. 85% of companies offered sales on credit terms to their customers, as a solution to tackling their problems of liquidity.

Among the main findings of this year’s survey:
• Seventy per cent companies surveyed experienced overdues last year, reporting no improvement on 2014.
• Fifty-six per cent believe the global economy is unlikely to pick up in 2016.
• Deterioration was reported in India, China and Singapore, while other countries were stable in terms of payment experience.
• The riskiest sectors are construction, industrial machinery/electronics, automotive /transportation and metals.

Around seven out of 10 companies experienced overdue payments in 2015. Reasons cited included “customer financial difficulties” (52%),
“fierce competition impacting margins” (35.6%) and “lack of financing resources” (26.4%).

In India, 84% of respondents faced overdue issues. There was a marked percentage increase in respondents (32%, vs. 24% in 2014) with more than 2% of their annual turnover involved in ultra-long overdue issues.
Coface noted that the problem of non-performing assets is likely to reduce the lending capacity and profitability of banks, which means that some companies could suffer from tightening bank credit controls. The slower than expected implementation of economic reforms in India is clouding the medium term outlook.

China’s overall corporate payment experience remained weak, with 80% of respondents reporting overdues in 2015 while 21% noted average overdue times of more than 90 days – the highest percentage among the regional countries surveyed. In addition to the unsolved issues of high leveraging and overcapacity in many sectors, downwards pressure on the renminbi (RMB) and stock market volatility are further concerns for the Chinese market in 2016.

Singapore saw a sharp increase in respondents (35%, vs. 23% in 2014) with more than 2% of their annual turnover involved in ultra-long overdue issues. In addition, more companies (14% vs. 10%) reported average overdue times of more than 90 days and increases in overdue amounts (49% vs. 35%). Singapore, as the Asian base for the world’s leading players in the commodities market, is now also faced with a backdrop of low commodity prices and mounting global uncertainties.

“Asian companies have been facing significant financial stress from overdue issues, compounded by the squeeze on profit margins owing to industrial overcapacity, subdued demand and keener business competition in recent years,” said Jackit Wong, Asia Pacific economist of Coface. “It is not expected that non-payments will improve in 2016.”

Overall company payment experience remained fairly stable in Japan, where the so-called ‘Abenomics’ policy appear to be losing steam. This is evidenced by the weaker cyclical indicators from retail sales, industrially produced exports in the first quarter and the 0.3% year-on-year decline in the core consumer price index. Coface remains cautious and expects the Japanese economy to grow by 0.5% in 2016 – the same as in 2015.

Companies in Hong Kong adopted a more prudent approach to credit in 2015, with fewer respondents offering sales on credits (69.4% vs. 76.8% in 2014) and a slight decrease in average credit terms. As a result, overall company payment experience in Hong Kong stabilised. With the continued growth of economic integration between Hong Kong and China, it is widely perceived that any economic ‘shock’ from China has a level of impact on Hong Kong’s economic growth. Hong Kong’s externally-oriented economic growth is expected to slow to 1.5% in 2016, down from 2.4% in 2015.

Taiwan’s overall company payment experience improved. Fewer respondents (11.8%, vs. 21.2% in 2014) reported average overdue times of more than 90 days and there was a clear fall in the percentage of companies (10.2% vs. 15.1%) with over 2% of their annual turnover involved in ultra-long overdue issues. Economic recovery in the US and the eurozone will probably mitigate the adverse impacts from China on Taiwan’s highly export-dependent economy. Coface expects a modest improvement in economic growth in 2016 to 1.2%, from 0.8% in 2015.

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