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Consumer and commercial credit bureau illion has released a new report that suggests credit stress resulting from inflation and rising interest rates has not yet peaked.
In its Australia’s Credit Stress Barometer report for September 2023, released today (17 October), illion found that credit stress had continued to rise throughout the first half of 2023 and warned that the “pain will only grow if interest rates remain high for the foreseeable future”.
According to the company, its Credit Stress Barometer utilises a metric showing the percentage of consumers at risk of defaulting on their agreement. The forward-looking prediction of this default risk utilises a trend line, showing the changing nature of credit stress, both directionally and in magnitude.
The barometer is created by modelling the risk of credit default from a range of consumer data, including:
- Current and historical credit performance.
- Current and historical credit demand.
- Financial exposure to different types of credit products.
- Demand for credit in various industry risk sectors”.
The September report revealed that the credit default risk of Australian consumers had risen 11 per cent in the year to June 2023, with the current trend suggesting that “credit stress is continuing to climb with no clear improvement in sight yet”.
The credit bureau found that the rate of deterioration in the second quarter of 2023 – 5 per cent – was “outstripping that seen over 2022 – 4 per cent”.
Causes of the accelerating credit stress included substantially higher overdue repayments on “revolving and consumptive credit (credit cards, consumer loans, and student loans)”, a rising trend in overdue home loan repayments, greater demand for consumptive credit, higher rent obligations and “substantially lower saving balances”.
Barrett Hasseldine, the head of modelling at illion, stated: “illion’s Credit Stress Barometer shows that in the quarter from April to June, credit stress rose 11 per cent year on year, which means that in 2023, Q2 has seen a similar rise to Q1.
“There is no real evidence yet that a turnaround in credit stress is in sight. In fact, the current trend suggests that credit stress is continuing to climb, with no clear improvement observed as yet.”
The Credit Stress Barometer also revealed a “large rise in credit card and home loan delinquencies”.
Credit delinquency rates across consumptive and productive credit were “rising substantially”, according to the company, noting that credit card arrears were up 30–40 per cent year on year in Q2 2023, while home loans were rising steadily, and were 15 per cent higher in June 2023.
illion revealed that savings balances had also been depleted, falling year on year by an average of 25–30 per cent in “most months” to June 2023, which it said “suggests that many household budgets are ‘hand to mouth’, with limited scope currently for generating surplus funds”.
Monthly demand for revolving credit was found to have “grown substantially” over the last two years, with a 15 increase of new accounts opened in June 2023 when compared to June 2022, or 80 per cent up on January 2021, “suggesting a need for flexible credit”.
Mr Hasseldine concluded: “Many households in Australia have limited scope for generating a surplus and we see the number of households like this increasing as credit stress continues to rise.
“High rates could be with us for some time and credit stress may continue to build for as long as these rates are high.”
[Related: 1.5 million mortgagors ‘at risk’ of stress in July: Roy Morgan]
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