trade credit risk study in asia pacific by coface

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: [email protected]

ww.coface.com.au

/

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.

3 CORPORATE CREDIT RISK MANAGEMENT IN CHINA

/

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

/ 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

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

5 2012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC

/

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

1 Survey background


/

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

/

Profile of Interviewed Companies in Asia Pacific

9

Sample sizes from SMEs to MNCs.


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)

2 Corporate Credit Risk Management Practices


/

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 2011

/

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


2012 2011

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

/

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.


2012 2011

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

/

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).


2012 2011

59%

24% 20% 21%

58%

49% 48%

0%

10%

20%

30%

40%

50%

60%

70%


% 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

3 Overdue Situation


/

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 16 2012 SURVEY OF CORPORATE CREDIT MANAGEMENT IN ASIA PACIFIC

APAC

Japan (42%)

India (56%)

Hong Kong (57%)

China (77%)

Australia (83%)

Taiwan (77%)

Singapore (68%)

/

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.


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%


Amount (dollars) of the overdue compared to last year

increased

decreased

maintained

2012 2011

/

Average Overdue Days


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.

2012 2011

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

/

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%


2012 2011

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%

/

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


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

/

What caused financial difficulties of buyers


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.

4 Sector Analysis


/

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


Ranking in Asia Pacific Region

/

Average Overdue Days (APAC by sector)


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%

/

Overdue Ratio of past 6 months (APAC by sector)


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%

5 Credit risk mitigation strategy


/

Effective Ways to Act Against Overdue


74%

10%

6% 7%

3%

2012

APAC

/

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.


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

6 Summary & Coface Country Risk Assessment


/

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.


/

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.


/

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


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)

/

Europe still in recession in 2013


/ 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


/

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


Contact COFACE in Australia Level 10, 68 York Street, Sydney

Level 18, 600 Bourke Street, Melbourne

Tel. 02 8235 8600 Email: [email protected]@coface.com

www.coface.com.au

36 CORPORATE 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.

mailto:[email protected]�

trade credit risk study in asia pacific by coface

Economy & Finance