Coface Asia Corporate Payment Survey 2022: Asian companies face increasing credit risks despite shorter payment terms
HONG KONG SAR – Media outreach – June 29, 2022 – Coface’s 2022 Survey of Corporate Payments in Asia, conducted between November 2021 and February 2022, provides insight into the evolution of payment behavior and credit management practices of approximately 2,800 companies in the Asia region -Pacific in another pandemic year. Respondents came from nine markets (Australia, China, Hong Kong SAR, India, Japan, Malaysia, Singapore, Thailand and Taiwan) and 13 industries located in the Asia-Pacific region.
No deterioration in payment terms despite the impact of COVID except in China
Improving economic conditions in 2021 contributed to a notable decline in the duration of late payments across Asia-Pacific, from an average of 68 days in 2020 to 54 days in 2021, the lowest level in 5 year. The share of respondents experiencing late payments remained stable at 64% compared to 65% the previous year. Among the nine economies covered, payment delays have shortened the most in Malaysia and Singapore. However, China is the only country to have recorded an increase in late paymentsand was also the country with the longest average payment term.
However, the survey highlighted some concerns. The share of respondents who mentioned an increase in the amount of delinquencies increased to 35% in 2021, compared to 31% the previous year. Additionally, more companies reported ultra-long overdue payment (ULPD) rates of more than 10% of annual revenue, with this increase largely driven by China where the already high share of 27% in 2020 is increased to 40% in 2021. The proportion of ULPD increased slightly in Australia and India, while it stabilized or decreased in the other six economies, with a significant drop in Hong Kong. The vast majority of ULPDs are never paid for, and therefore, cash flow risks tend to increase when these ULPDs represent more than 2% of a company’s annual revenue.
At the sector level, the increase in companies experiencing ULPDs of more than 10% was particularly marked in the metals sectorfor which it increased by 14 pp to almost 23%, the largest recorded among the 13 sectors. Other sectors such as construction, ICT, transport and textiles also face significant cash flow riskswith more than 30% of companies that have experienced ULPDs reporting that such delays accounted for more than 2% of annual revenue.
Economic expectations: sustained optimism but great concern about rising material prices
Overall, optimism remains intact, with 71% of respondents expect economic growth to improve in 2022. However, this optimism was uneven across the region. Singapore is more optimistic compared to the Asian average, with 83% (+17pp) anticipating higher growth. Businesses in Japan and Thailand, where the recovery was relatively subdued in 2021 and therefore with a greater possibility of a stronger recovery in 2022, also showed higher confidence, both up 14 pp at 75% and 80%, respectively. By contrast, this share was only 44% in Malaysia, showing a significant decline (-29pp) from last year amid growing political uncertainty, with the possibility of a snap general election in 2022. .
Rising commodity prices are increasingly mentioned by respondents when asked about the effect of COVID-19 on their sales performance and cash flow. More than half (54%) of companies cited rising commodity prices as a key driver, up significantly from 31% in 2020. Commodity prices rose sharply in 2021, particularly in the crude oil, and were considerably higher following the conflict in Ukraine. . This has intensified cost pressures for companies around the world, including in Asia-Pacific, which has increased the risk of developing cash flow problems.
Margins of Asian companies increasingly under pressure
Businesses today face a complex environment characterized by supply chain disruptions, geopolitical tensions and runaway inflation. Supply constraints persisted in 2021, in part due to new outbreaks of COVID-19 and new lockdowns. Nevertheless, the world has gradually reopened and private demand has rebounded. This has widened the gap between demand and supply for many commodities and commodities, causing prices to rise significantly. Pressures on the global supply chain eased slightly at the start of 2022, but were reignited by the Russian-Ukrainian conflict. Given the predominant role of the two countries in global commodity markets, the conflict has led to a further spike in commodity prices, pushing up inflation and, consequently, wages as well. Consequently, it has weighed on business profitability by increasing production costs.
After benefiting from moderate inflationary pressures until 2021, Asian countries are now experiencing rapidly rising inflation, particularly in food and energy products. In some Asian economies, the growth rate of the consumer price index (CPI) exceeded the central bank’s target. This was the case in Thailand, where the CPI posted an annual increase above the central bank’s upper target range of 3% for the fifth consecutive month in May. The inflation target was also exceeded in Australia, India and the Philippines. After experiencing deflation for 10 months in 2020/2021, Japanese inflation rose above the Bank of Japan’s target of 2.5% in April. Faced with this soaring cost of living, some countries have decided to raise wages to help consumers cope with the situation. In Japan, South Korea and Singapore, data revealed average wage growth has accelerated since 2021. In Southeast Asia, Malaysia introduced a steep 35% minimum wage hike in May 2022. A minimum wage increase is also expected to be implemented in the Philippines in June and in Vietnam the following month.
“Improving economic conditions in 2021 contributed to a notable decline in the duration of late payments across Asia-Pacific. However, businesses in the region are facing increasing credit risks, a greater number companies reporting an increase in the amount of delinquencies, they were also experiencing more ultra-long payment delays of more than 10% of annual revenue, especially in China and, to a much lesser extent, in Australia and India.said Bernard Aw, Coface Asia-Pacific economist.
To find here the Coface Asia Corporate Payment Survey 2022 conducted by Coface.
COFACE: FOR COMMERCE
With more than 75 years of experience and the most extensive international network, Coface is a leader in trade credit insurance and adjacent specialist services, including factoring, single risk insurance, bonding and bonding services. ‘information. Coface’s experts work at the pace of the global economy, helping approximately 50,000 clients in 100 countries to create successful, growing and dynamic businesses. Thanks to Coface’s insight and advice, these companies can make informed decisions. The Group’s solutions strengthen their ability to sell by providing them with reliable information on their business partners and protecting them against the risk of non-payment, both domestically and for export. In 2021, Coface employed ~4,538 people and recorded a turnover of 1.57 billion euros.
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