Australian businesses dipping into savings, but arrears still low

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SYDNEY—Australian businesses are dipping into savings to cover day-to-day running costs and repay debts amid higher-for-longer rates, but arrears remain low for now, the head of business banking at the country’s largest lender said. Like households, businesses built up cash buffers during the pandemic, and strong post-Covid demand supported business profitability. Recent Australian regulator data cited by UBS showed overall bank deposits fell in May, with an uptick in household savings being more than offset by contracting business and government deposits.

The Australian Prudential Regulation Authority data suggests that some businesses could be facing tougher trading conditions. Both consumers and businesses are feeling the pressure of a higher interest-rate environment, with some businesses using savings to run their operations, said Michael Vacy-Lyle, Commonwealth Bank of Australia’s group executive for business banking. “There has been less deposit growth in the nonretail space because of the fact that businesses are using cash," he said, referencing the APRA data.

“They’ve used cash to reduce debt, and they’re using cash to fund their working capital at the moment." Companies relying on savings could signify financial stress, but the dynamic isn’t a big red flag for now. A drop in business deposits generally reflects normal seasonal moves, Vacy-Lyle said, adding that arrears on business loans were still low. In its most recent financial stability review in March, the Reserve Bank of Australia found that most larger listed companies in Australia held cash buffers slightly higher than before the pandemic.