One third of nation at risk of default

ONE-THIRD of the country – including battlers’ suburbs and some of the wealthiest urban areas – has entered the danger zone for financial distress, despite signs that economic conditions are improving.

Dunn & Bradstreet found that 33 per cent of postcodes had fallen into the “high-risk” category of financial distress, with Victorian suburbs facing the highest risk of defaulting on debts.

This is up 30 per cent on the same time last year.

The company’s Geographic Risk Indicator (“GRI”) maps data on individuals who have had a history of not paying their bills.

A high-risk suburb has more individuals who have previously defaulted on their bills, and the assumption is that they are more likely to default on their bills in the future.

Those suburbs categorised as a high risk are 340 per cent more likely than average to include households that have experienced previous negative credit defaults.

The GRI reveals that 33 per cent of suburbs are rated a high risk, with Victoria having the most significant percentage of such postcodes, 46 per cent.

This is followed by Western Australia with 35 per cent and NSW with 30 per cent.

The research, released exclusively to The Australian Newspaper, lists the Melbourne outer suburb of Frankston North as the postcode with the highest risk of default, followed by two of Sydney’s most exclusive eastern suburbs, Bellevue Hill, the home of Ros Packer, and Woollahra, the address of former premier Neville Wran.

Of the 50 most financially stressed suburbs, 29 are in the first-home owners belt, which includes the outer Melbourne suburbs of Chirnside Park, Cranbourne and Carrum Downs and Sydney’s western suburbs Mount Druitt and Auburn. These areas have seen a sharp rise in credit obligations since the increase in the first-home owners grant.

Last week’s GDP figures showed the economy had gained pace, driven by increased spending on equipment and by households, which helped to make up for falls in private investment.

There are concerns about the next phase in the economic downturn as interest rates start to rise towards the end of the year and the Rudd government’s stimulus package starts to wear off.

Dunn & Bradstreet chief executive Christine Christian said the rising risk of loan defaults underlined the potential for the global financial crisis to become a personal credit crisis in many Australian homes.

“If you scratch the surface, there are still problems in the economy,” Ms Christian said. “As a country, we have amassed a lot of debt. Each person has $160 of credit for every $100 earned. If unemployment rises or interest rates increase, we will see a significant fallout.”

D&B defaults analysis reveals the path to financial difficulty often begins with defaults on small, non-bank credit obligations before escalating to more significant defaults.

news.com.au article