The share of small unlisted firms making losses remains at above average levels, with about 40% of firms with assets under $1 million reporting losses in 2010 and 2011, according to figures from the Reserve Bank.
This is well above the 25% average over 2006 to 2008.
Releasing its Financial Stability Review, the central bank said while Australian businesses were better placed to deal with any downturn because they had had deleveraged during the GFC, it remained unclear how the European sovereign debt crisis and anaemic growth in the US would play out in the short-to-medium term.
“While the latest market strains have not been on the same scale as 2008-09, it is difficult to tell at this stage whether this will be another temporary bout of market uncertainty, of the kind seen several times in the past few years, or the beginning of a more serious market dislocation,” the RBA said.
“Much will depend on the ability of governments, especially in Europe, to resolve the sovereign debt problems affecting some countries.”
The report said while the share of all unlisted firms making losses has returned to the pre-crisis average, the share of small unlisted firms making losses “remains above average.”
“Partial credit bureau data suggest that profitability in the unlisted (generally smaller) business sector has improved since 2009 but remains below pre-crisis levels, especially for the smallest firms,” the report says.
“The median after-tax return on assets among the limited sample of firms that have already reported 2011 results was 4.7%, compared with a pre-2009 average of about 6.7%.”
“Survey evidence indicates that small business profitability remains below average and industry liaison also suggests that stress among this segment has been increasing.”
The report said the business sector was “experiencing mixed conditions” with mining and related sectors continuing to benefit from the resources boom, while other sectors such as retail face pressures from “subdued domestic household spending and the high exchange rate.”
Most non-mining industries have seen their profits decline as a share of gross domestic product in the past year, particularly manufacturing and construction, the RBA said.
Nonetheless, the RBA says the business sector is “in a stronger financial position overall than it was several years ago” because it has reduced its debt levels over the past few years.
It also said the rate at which incorporated businesses are entering external administration has been “relatively stable over recent years, despite a pick-up in June and July.”
“Queensland and New South Wales continue to have above-average rates of corporate failure. In contrast, after rising over the past couple of years, the failure rate for unincorporated businesses has moderated since late 2010.”
But registered liquidator Cliff Sanderson, of Dissolve, disputes the RBA’s take on administration numbers, reiterating his forecast that 2011 will be the worst on record for external administrations.
“2011 is certainly worse than previous years,” Sanderson says.
He adds it’s unfair to single out Queensland and NSW as hot spots for administrations, given Tasmania and Western Australia have recorded bigger jumps in external administrations this year.
