Commonwealth Bank predicts a stabilisation in the rate of construction industry insolvencies, following a significant rise of over one-third last year. 

Mike Vacy-Lyle, the bank's business banking head, has shared this outlook based on ASIC insolvency statistics, saying that the dual pressures of rising labour costs and high input costs on property businesses, particularly those operating under fixed-price contracts. 

Despite these challenges, he says the trend in liquidations and insolvencies appears to be improving. 

“We are seeing a little bit of stability return,” Vacy-Lyle says, according to the AFR ($).

“I think that number will probably come off with time.”

Notably, the impact of these property company failures has not yet significantly affected the bank's profitability. 

“The extent to which those liquidations or insolvencies are resulting in bank losses right now...is still largely low, which indicates that the borrowing probably hasn’t been into that space, or the borrowing has been elsewhere,” Vacy-Lyle said. 

The Commonwealth Bank of Australia (CBA) holds a commanding 22.35 per cent share of the business deposits market, outperforming National Australia Bank (NAB), which recently lost a major institutional client. 

In lending, however, CBA remains second to NAB with an 18.3 per cent market share.

Recent data from ASIC up to the end of May reveals a deceleration in construction insolvencies relative to other economic sectors. 

While construction continues to account for the largest portion of insolvencies at 27.1 per cent, this is a slight decline from 28.1 per cent the previous year. Additionally, non-construction insolvencies have been growing faster since November.

For the year ending in May, there were 2,711 construction insolvencies, representing a 35 per cent increase from the same period last year. 

This is contrasted by a 40 per cent rise in overall insolvencies, which totalled 9,988.

Tim Reardon, chief economist at the Housing Industry Association, explained that the current insolvencies predominantly involve subcontractors within the business-to-business chain, making them less visible than the high-profile builder collapses of recent years. 

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

Reardon attributed these subcontractor failures to the cash flow challenges faced by builders over the past years, resulting in a ripple effect.

Reardon pointed out that builders typically face financial stress during market upswings when costs outpace customer prices, while subcontractors struggle during market slowdowns due to insufficient cash flow. 

He anticipated a resurgence in housing construction later this year, leading to more normalised patterns of work and insolvency. 

“We expect that the volume of new home construction will pick up in the second half of this year,” Reardon added.

ASIC releases weekly insolvency statistics to report on the level of company insolvency in Australia.