Australia's central bank warns business failures could increase amid COVID-19

0 Comment(s)Print E-mail Xinhua, October 9, 2020
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SYDNEY, Oct. 9 (Xinhua) -- The Reserve Bank of Australia (RBA) warned on Friday that business failures will rise substantially when various support measures cease, as vacancy rates for office and retail commercial properties have already risen.

In its latest Financial Stability Review, the RBA analysed the resilience of Australian businesses and households during the COVID-19 pandemic.

According to the report, the relatively low business failure rate to date is due to the support policies, including loan repayment deferrals, rent reductions and temporary insolvency relief.

"The firm-level analysis indicates that the support policies have significantly increased business cash flow and reduced the number of business failures by around 4,600 firms so far," it said.

And even with all the support policies, the RBA found at least 10 percent to 15 percent of small businesses in the hardest-hit industries still did not have enough cash on hand to meet their monthly expenses.

"Business failures will rise substantially when loan repayment deferrals and income support come to an end," it said, noting this will have flow-on effects to financial institutions, other businesses and their employees.

The RBA pointed out some commercial real estate also posed significant risks for lenders and leveraged investors, as vacancy rates were rising, especially in the retail sector.

"Given the deterioration in rental conditions already underway, office and retail property prices could fall sharply," it said.

Meanwhile, the central bank said households' finances had been largely cushioned from the impact of the pandemic by support measures.

However, with unemployment having increased and many employees working reduced hours, the share of households experiencing financial stress has increased and will increase further.

The assessment of Australia's financial system came after the RBA flagged further monetary policy easing to support jobs, incomes and businesses after Tuesday's monthly board meeting.

Economists are expecting the central bank to cut the national interest rate from 0.25 percent to 0.10 percent as soon as November. Enditem

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