New Equifax Data Shows 41.4% increase in Insolvency Rates
Canadian businesses are struggling, as evidenced by a 41.4 per cent surge in business insolvencies in 2023 when compared to 2022, the latest data from Equifax® Canada’s Market Pulse Quarterly Business Credit Trends Report reveals.
This comes to no surprise to anyone with an understanding of just how much money corporate Canada owes.
Canadian Corporate Debt Levels are the Third Highest in the G7
According to Stats Canada, the total credit liabilities for corporate Canada reached just over $2 trillion in July 2023.
By the end of 2022, Canadian corporations had the third-highest debt-to-GDP ratio in the G7, after France (206%) and Japan (170%), according to Stats Canada.
How Much Interest are Businesses Paying?
While there are no public numbers, we can assume they are paying at least CORRA. (the lowest prime rate for AAA borrowers) — which is currently 5% in Canada.
Quick back of the napkin math tells us corporate Canada is paying at least $100 Billion per year to service their debt.
Business Sentiment Tumbling
In addition to increasing debt and interest rates, businesses are feeling less optimistic about the future, with Stats Canada business sentiment falling to record lows.
Banks Circling Their Prey
I reported yesterday, that bank lending to corporations (which makes up $700 B of the debt) has become increasingly expensive in recent years, as banks continue to charge a larger spread than ever.
In fact, businesses are being charged 46% more for financial products than they were in Q1 2017. This is AFTER interest rate increases. This is the bank’s cut.
Stagnant Profits
All of the pressures have the cumulative effect of keep corporate profits stagnant over the last 3 years.
While some might cheer this on as a success, low corporate profits mean low stock returns.
Low stock returns means investors will abandon Canadian companies for greener pastures.
