Trade Credit Risk study in Asia Pacific by COFACE

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A survey of corporate credit risks management in Asia Pacific region was conducted in the fourth quarter of 2012 by Coface, a leading global credit insurance group. The survey revealed that corporate payment experience in the region generally worsened. Companies in Australia, China and India suffered more non-payment. Sectors of building & construction, IT, ISP & data processing, textile, clothing & shoes and household electric & electronic appliances are at higher risk. Companies in the region are less optimistic about recovery of global economy in 2013.

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Trade Credit Risk study in Asia Pacific by COFACE

  1. 1. Corporate Credit Risk Management in ASIA PACIFIC COFACE in Australia Level 10, 68 York Street, Sydney Level 18, 600 Bourke Street, Melbourne Tel. 02 8235 8600 Email: au_info@coface.com ww.coface.com.au
  2. 2. / Who Is Coface?  Coface is the 3rd largest credit insurer worldwide, offering companies around the globe solutions for trade receivables management.  Direct subsidiaries in 66 countries and able to provide credit insurance and credit management services in 97 countries via CreditAlliance network.  Each quarter, Coface publishes its assessments of country risk for 158 countries, based on its unique knowledge of companies' payment behavior and on the expertise of its 350 underwriters.  35, 000 clients in credit insurance worldwide  The manager of the French government export guarantees. 3CORPORATE CREDIT RISK MANAGEMENT IN CHINA
  3. 3. / Coface Global Offer in Credit Insurance Availability in 97 Markets 3 This view shows the difference between the countries where we offer credit insurance directly and countries where we offer credit insurance by using partners or fronters. CORPORATE CREDIT RISK MANAGEMENT IN CHINA
  4. 4. /2012 Survey of Corporate Credit Management in Asia Pacific Coface ’ s Presence in Asia Pacific Region China (Shanghai, Beijing) • Coface (Shanghai) Information Services Co. Ltd. South Korea (Seoul) • Coface Services Korea Co., Ltd. India ( Mumbai, Bangalore and New Delhi) • Coface India Credit Management Services Pvt. Ltd Thailand (Bangkok) • Coface Services (Thailand) Co., Ltd. Singapore – direct license • Singapore Branch Malaysia (Kuala Lumpur) • Coface Services (M) Sdn Bhd Vietnam (Ho Chi Minh City) • Coface Services Vietnam Co Ltd Australia (Sydney, Melbourne) – direct license • Australia Branch Hong Kong (Regional Office) – direct license • Hong Kong Branch Japan ( Tokyo, Osaka) – direct license • Japan Branch Taiwan (Taipei) – direct license • Taiwan Branch Indonesia (Jakarta) • Coface Indonesia Representative Office 4
  5. 5. 2012 Survey of Corporate Credit Risk Management in Asia-Pacific 1. Survey background 2. Corporate Credit Risk Management Practices 3. Overdue situation 4. Sector Analysis 5. Credit risk mitigation strategy 6. Summary & Coface Country Risk Assessment 52012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC
  6. 6. / Survey Background  Objectives:  To understand the general status of corporate credit risk management practice  To understand payment experience of companies  To analyze trade credit risk of different sectors  To compare the payment situation and credit risk management practices across the Asia- Pacific  About this survey:  Survey took place from October to December 2012  Total number of interviewed companies: 2,274 companies  (Australia) 84 ; (China) 1021; (HK) 412; (India) 312; (Japan) 205; (Taiwan) 215; (Singapore – 1st year) 45 2012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 6
  7. 7. 1 Survey background 72012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC
  8. 8. / Profile of Interviewed Companies in Asia- Pacific 8 2012 • Samples from different countries across the region and reflects the industry concentration of each location 2012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC
  9. 9. / Profile of Interviewed Companies in Asia Pacific 9  Sample sizes from SMEs to MNCs. 2012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 40% 26% 12% 22% APAC less than 10 10 to 50 50 to 100 more than 100 0% 10% 20% 30% 40% 50% 60% 70% 80% AU CN HK IN JP SG TW Company size of interviewed companies total estimated sales revenue (million EUR)
  10. 10. 2 Corporate Credit Risk Management Practices 102012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC
  11. 11. / 62% 90% 80% 45% 86% 93% 76% 93% 86% 67% 76% 84% 94% 87% 82% AU CN HK IN JP TW SG APAC Offered credit sales to your customers in the past 12 months Credit Sales – Popular in Asia-Pacific 11  More companies offered credit terms in APAC in 2012  Almost all Taiwanese companies continue offering credit terms to their buyers while less Hong Kong companies offer credit sales in the region.  Sharp rise of companies in Australia and India offering credit sales is observed 2012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 20122011
  12. 12. / 50% 11% 29% 5% 5% 51% 13% 24% 6% 7% 0% 10% 20% 30% 40% 50% 60% market competition your customers are suffering from tight liquidity and ask for your credit facilities you have more confidence in your customers 3rd party risk mitigation in place (credit insurance / guarantee / sblc / factoring) others Main reason of offering credit terms (APAC) Main Reason of Offering Credit Terms 122012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 20122011  Market competition is still the main reason offering credit sales but more companies express their buyers are suffering from tight liquidity. Even the confidence level decreases, companies still need to offer credit terms in order to win more business
  13. 13. / 46% 31% 17% 4% 3% 44% 34% 17% 3% 2% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 30 days 60 days 90 days 120 days More than 120 days Average credit terms offered during the last 12 months - APAC Average Credit Terms Offered  Average credit terms maintains at 2011 level with a small increase of companies offering 60 days credit terms. 132012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 20122011 73% 67% 51% 49% 42% 44% 34% 42% 48% 22% Average credit terms offered by companies 30 days 60 days 90 days and more  Companies in Japan and Taiwan are most aggressive in offering long credit terms (90 days or more) to their buyers
  14. 14. / Weight of Credit Sales in Turnover  Companies in Australia, Japan, Singapore and Taiwan tend to have more credit sales businesses (76% to 100% of credit sales in total sales). 142012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 20122011 59% 24% 20% 21% 58% 49% 48% 0% 10% 20% 30% 40% 50% 60% 70% AU CN HK IN JP SG TW % of credit sales of total sales during last 12 months <30% 30%-75% 76%-100% 28% 38% 34% 31% 38% 31% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% less than 30% 30% - 75% More than 75% APAC
  15. 15. 3 Overdue Situation 152012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC
  16. 16. / Overdue Situation  2% increase of companies experienced overdue (unpaid after due date as indicated in the commercial contract) in 2012  More companies in Australia, China and Taiwan report overdue 162012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC APAC Japan (42%) India (56%) Hong Kong (57%) China (77%) Australia (83%) Taiwan (77%) Singapore (68%)
  17. 17. / Overdue Amount Compared to Last Year  14% more companies reported their overdue amount increased in 2012 compared to 2011, which reflects a deterioration of general payment situation in the region  More companies in China, Hong Kong, Singapore and Australia reported their overdue amount had increased in 2012. 172012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 29% 26% 44%43% 23% 34% 0% 10% 20% 30% 40% 50% increased decreased maintained APAC 34% 56% 42% 24% 22% 43% 20% 0% 10% 20% 30% 40% 50% 60% AU CN HK IN JP SG TW Amount (dollars) of the overdue compared to last year increased decreased maintained 20122011
  18. 18. / Average Overdue Days 2012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 18 36% 33% 17% 5% 4% 5% 36% 35% 15% 5% 4% 5% 0% 5% 10% 15% 20% 25% 30% 35% 40% less than 30 day 30-<60 days 60-<90 days 90-<120 days 120-<150 days 150 days or more APAC  71% of companies keep their average overdue days below 60 days which is quite stable compared to 2011.  More than 85% of companies in Japan and Taiwan are able to keep their average overdue days shorter than 60 days.  Less than 70% of companies in Hong Kong, India and Singapore could keep their average overdue days shorter than 60 days. 20122011 40% 35% 33% 31% 23% 14% 11% 29% Singapore India Hong Kong China Australia Taiwan Japan APAC Percentage of companies with average overdue days more than 60 days
  19. 19. / 47% 23% 17% 7% 6% 41% 22% 21% 8% 8% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% less than 0.5% 0.5% -<2% 2%-< 5% 5%-<10% 10% or more APAC Over 6 months Overdue in Weight of Turnover >2% of overdue as % of total annual turnover AU 43% CN 36% HK 49% IN 60% JP 14% SG 53% TW 11% APAC 37% 192012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 20122011  Debt aged more than 6 months overdue has high chance to turn into bad debt. Companies with more than 2% of their annual turnover are overdue debt for 6 months or longer could have liquidity problem and have high risk of non-payment to their suppliers.  37% of companies carry more than 2% of their turnover unpaid for more than 6 months, an increase of 7% comparing to the result of 2011. +7%
  20. 20. / 53% 20% 9% 7% 3% 3% 6% 0% 10% 20% 30% 40% 50% 60% customer’s financial difficulties customer’s management problem fraud and lack of morality (try to avoid payment) commercial disputes External Administration or Insolvency Changes in company structure others APAC Main Reason of Overdue 202012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 2011 2012  Although customer’s financial difficulties is still the main reason of overdue, more companies express their overdue is caused by management problem or fraud of their buyers.  Due diligence of buyers should be enforced before offering credit
  21. 21. / What caused financial difficulties of buyers 2012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 21 60% 36% 15% 6% 15% 7% 5% 0% 10% 20% 30% 40% 50% 60% 70% fierce competition impacting margins lack of financing resources impact of rising raw material prices heavy fixed assets investment over inventory level rising bad debts level others The main reason of overdue (under financial difficulties) - multiple answers  High competition is still the major reason contributing financial difficulties of buyers.  Lack of financing resources also cause more companies into difficulties, particularly in India, China and Australia.
  22. 22. 4 Sector Analysis 222012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC
  23. 23. / Risky sectors in Asia Pacific Most companies reported overdue Most companies reported increased overdue amount Most companies have average overdue days > 60 days Most companies have more than 2% of their turnover unpaid for more than 6 months Building & Construction 4 3 2 1 IT/ISP & data processing 5 1 2 Textile/ clothing/ shoes & other apparels 1 5 Industrial machinery & electronics 2 4 Paper & printing 2 3 2012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 23 Ranking in Asia Pacific Region
  24. 24. / Average Overdue Days (APAC by sector) 2012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 24 21% 24% 24% 26% 26% 29% 29% 30% 38% 40% 41% 43% textiles/clothing/shoes & other apparels chemicals industrial machinery & electronics steel, iron & other primary metals telecommunications & broadcasting FMCG household electric / electronic appliances pharmaceuticals transportation paper & printing building and construction IT/ISP & data processing Average overdue days less than 30 days 30-60 days more than 60 days APAC 29%
  25. 25. / Overdue Ratio of past 6 months (APAC by sector) 2012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 25 20% 30% 33% 34% 35% 35% 36% 39% 40% 43% 45% 61% paper & printing chemicals steel, iron & other primary metals transportation pharmaceuticals FMCG industrial machinery & electronics textiles/clothing/shoes & other apparels household electric / electronic appliances telecommunications & broadcasting IT/ISP & data processing building and construction The ratio of aged overdue debts over 6 months as a percentage of your total annual turnover less than 0.5% 0.5% - 1.99% 2% or more APAC 37%
  26. 26. 5 Credit risk mitigation strategy 262012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC
  27. 27. / Effective Ways to Act Against Overdue 272012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 74% 10% 6% 7% 3% 2012 APAC
  28. 28. / Use Of Credit Management Tools  Trade credit insurance and credit report are the mostly used credit management tools .  Japanese and Taiwanese companies have a higher percentage of using credit management tools, trade credit insurance, factoring and credit reports in compare with other markets. 282012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 18% 12% 28% 16% 39% 4% 24% 15% 36% 19% 34% 2% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Multiple answers 58% 60% 63% 67% 76% 80% 100% 66% Percentage of companies using credit management tools
  29. 29. 6 Summary & Coface Country Risk Assessment 292012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC
  30. 30. / Summary  Credit sales continues to grow in the region with significant increase in Australia and India.  Market competition is the major reason of offering credit sales. Lack of financing or high financing costs makes buyers to request more credit from their suppliers to finance short term capital, notably in China and India.  Overdue situation in Asia Pacific region deteriorated in 2012 which could be observed from the increase of companies reporting overdue and the increase of companies reporting growth in overdue amount compared to 2011.  The increase of companies with high overdue ratio in their turnover also reflects the liquidity condition of companies in the region is not improving.  The sluggishness of US and European markets continues to hit the export of Asian markets which is the major reason of deterioration of corporate payment in 2012. 2012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 30
  31. 31. / Summary  Non-payment in Australia, India and China increased significantly in 2012.  The use of credit management tools increases from 61% in 2011 to 66% in 2012.  Japan and Taiwan companies have the highest usage of credit management tools (100% & 80% ). They also demonstrate the best credit control with the lowest overdue in sales turnover and the shortest overdue days even though they offer more and the longest credit terms compared to other countries.  Building & construction, IT/ISP & data processing, textile/ clothing/ shoes & other apparels, industrial machinery & electronics and paper & printing are the most risky industries in the region. 2012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 31
  32. 32. / Views On Global and Local Economy  Australian and Chinese companies are less optimistic on the recovery of global and local economy  Companies in Hong Kong, India and Taiwan are most optimistic on global economy.  Companies in India and Singapore are most optimistic on local economy.  Most of the companies in the region are less optimistic of global recovery in 2013. Much hope are given to local monetary policies, industry incentive program, local infrastructure projects and recovery of property markets 322012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 27% 18% 43% 46% 34% 42% 47% 31% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% AU CN HK IN JP SG TW APAC Will the slowdown of global economy end in 2013? > 50% < 50% 32% 32% 38% 48% 34% 49% 42% 37% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% AU CN HK IN JP SG TW APAC Will the slowdown of local economy end in 2013? > 50% < 50% (tend to be optimistic about global economy ) (tend to be pessimistic about global economy)
  33. 33. / Europe still in recession in 2013 2012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 33
  34. 34. /34 Country Risk according to Coface Available free at www.coface.com.au  Country Risk measures the influence of a country macroeconomic and institutional evolution on companies credit risk  Country assessment  Assesses the average risk of payment defaults by companies in a given country  To rate countries, Coface combines economic and political prospects of the country, Coface payment experience and business climate assessment  This assessment has 7 grades: A1, A2, A3, A4, B, C, D  Business climate assessment  Assesses overall business environment and more precisely whether corporate information is available and reliable and whether the legal system provides fair and efficient creditor protection  This assessment has 7 grades: A1, A2, A3, A4, B, C, D 2012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC
  35. 35. / Countries Assessments (as of Jan 2013) Asia Countries Assessments 2013 GDP forecast Australia A2 2.3 China A3 8.5 Hong Kong A1 2.2 India A4 6 Japan A1 0.7 Singapore A1 3.4 Taiwan A1 2 Malaysia A2 5 New Zealand A2 2.9 South Korea A2 3.9 Thailand A3 5 Indonesia A4 6.5 Philippines B 2.7 Viet Nam C 5.7 2012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC 35
  36. 36. Contact COFACE in Australia Level 10, 68 York Street, Sydney Level 18, 600 Bourke Street, Melbourne Tel. 02 8235 8600 Email: au_info@coface.como@coface.com www.coface.com.au 36CORPORATE CREDIT RISK MANAGEMENT IN CHINA Coface copyright, conditions of use : You may copy and publish the information with the consensus of Coface, provided that you do not make commercial use of it and that you indicate clearly that it originates from Coface. The information is given without guarantee and does not bind Coface in any way.

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