No improvement in Asia Pacific corporate payments: India, China, Singapore lead deterioration

HONG KONG - An annual survey of corporate payments in eight Asia Pacific markets - Australia, China, Hong Kong, India, Japan, Singapore, Taiwan and Thailand - by global credit insurer Coface has shown no improvement in 2015, with none likely in 2016. India, China and Singapore were the three countries with the strongest level of deterioration.

“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. It is not expected that non-payments will improve in 2016,” said Jackit Wong, Asia Pacific Economist of Coface.

The survey traced the evolution of corporate payments in 11 sectors of activity Respondents in 85% of companies said they offered sales on credit terms to their customers, as a solution to tackling their problems of liquidity.

• 70% of the companies experienced overdues, reporting no improvement on 2014;
• 56% believe the global economy is unlikely to pick up in 2016;
• Deterioration was noted 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

Approximately seven out of 10 companies experienced overdue payments in 2015. The main reasons were “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.

“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 reforms is clouding the medium term outlook,”  the Coface report says.

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 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% in 2014) reported average overdue times of more than 90 days and increases in overdue amounts (49%, vs. 35% in 2014).

“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,” the report says.

On Japan, Hong-Kong and Taiwan, corporate payments stabilised but slower growth is expected. Coface said it remains cautious on Japan, 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.
 
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% in 2014) with over 2% of their annual turnover involved in ultra-long overdue issues.

Coface says construction was the most at risk sector in the Asia Pacific region in 2015, and that the outlook for the construction sector in 2016 is likely to remain weak.

Industrial machinery & electronics had the highest percentage of respondents (78%, vs. 70% in 2014) experiencing overdue issues in 2015.

The automotive and transportation sector saw a worrying deterioration in overdue issues during 2015 compared to 2014. More companies reported an increase in overdue amounts (35%, vs. 31% in 2014) and suffered from ultra-long overdue issues (23%, vs. 14% in 2014).

“Nevertheless, demand will probably benefit from the rise in the middle income class and the regional environment of low interest rates,” Coface said. “There were no improvements for the metals sector in 2015 and it will probably continue to face challenges.”   www.coface.com (ATI).