"The businesses that are probably going to fail already have," exec says
The construction industry is probably through the worst of the company collapses that have shaken the sector in recent months, according to a Commonwealth Bank executive.
Banks have highlighted the financial perils in the construction sector this year, and CBA, which is the lender to stressed home builder Metricon, said Wednesday that the industry remained “challenged” and it expected a rise in stressed exposures, The Sydney Morning Herald reported.
However, CBA group executive for business banking Mike Vacy-Lyle said Thursday that he was hopeful the major collapses in construction were now in the past. Vacy-Lyle said construction companies were adjusting to the pressures they faced.
As inflation skyrocketed, the construction sector saw a series of company collapses as builders faced surging materials costs, but were unable to pass these increases on to clients because of fixed-price contracts, the Herald reported.
“That is a story that’s been with us now for up to 18 months,” Vacy-Lyle told the Herald. “We are probably midway to the back end of that story. So the businesses that are probably going to fail already have, and the ones that are stressed, we know about.”
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Vacy-Lyle pointed to changes in how some construction companies sourced materials. In response to the global supply chain crisis, more Australian businesses were buying from domestic suppliers – although Vacy-Lyle acknowledged that this could be difficult for some products such as timber.
A CBA survey found that 86% of construction businesses expect their costs to keep rising over the next year, and construction companies were more likely than others to make plans to increase efficiency or reduce debt.
CBA’s earnings results, released Wednesday, showed that the bank had $11.2 billion in total exposure to the construction industry, the Herald reported.
