Construction insolvencies will level out, CBA says

But while property was still doing it tough, the volume of liquidations or insolvencies was heading in the right direction, Mr Vacy-Lyle said.

“We are seeing a little bit of stability return,” he told journalists in a briefing this week. “I think that number will probably come off with time.”

In addition, failures of property companies – which along with cafes and small restaurants accounted for most insolvencies – had not yet hit the banks’ profitability, Mr Vacy-Lyle said.

“The extent to which those liquidations or insolvencies are resulting in bank losses right now – I’m referencing our third-quarter data – is still largely low, which indicates that the borrowing probably hasn’t been into that space, or the borrowing has been elsewhere,” he said.

CBA holds the biggest share of the business deposits market at 22.35 per cent, extending its lead on NAB after that bank lost a major institutional client in April. But it is still ranked second behind NAB in lending, with 18.3 per cent of the market.

There are signs relief is coming, but they are still small. Fresh ASIC figures to end-May published on Tuesday show insolvencies are at least slowing relative to other sectors of the economy.

Construction still makes up the largest single category of insolvencies at 27.1 per cent of the 9988 year-to-date total, but that is down slightly from the 28.1 per cent figure a year earlier.

In addition, non-construction insolvencies have been growing faster than construction since November. While construction-industry insolvencies rose faster year-on-year than overall insolvencies for the first four months of the financial year, they have since been slowing in relation to the rest of the economy.

The 2711 construction industry insolvencies for the year to end-May are up almost 35 per cent on the same 11-month period of last year. The total number of 9988 insolvencies, by contrast, is up almost 40 per cent on the 7156 of the same time a year earlier.

The construction insolvencies happening now were mostly subcontractors in the business-to-business chain rather than consumer-facing building businesses, making the failures less visible than in recent years, when there were many high-profile builder collapses, said Housing Industry Association chief economist Tim Reardon.

“What we have now is a shadow of the collapses experienced in 2022,” Mr Reardon said.

“The insolvencies are typically in subcontractor businesses and therefore have less consumer exposure. It is the ripple effect of cash flow challenges builders felt a couple of years ago that have followed through to subcontractors over the past year.”

Builders typically came under financial stress when the market was rising – as their costs rose faster than the prices they could charge customers – and subcontractors were challenged when the market was slowing and cash flow was insufficient to keep going, Mr Reardon said.

“With the roller-coaster rises of the past few years, that has caused more businesses than usual to experience cash flow shortages,” he said.

But there were signs of a pick-up in housing construction, which would lead to more normal patterns of work – and insolvency, Mr Reardon said.