Payment Trends and Credit Ratings in Singapore

With a technical recession on the cards and an approximate 2% decrease in growth forecasts, Singapore’s economy joins the global gloom from its previous relatively optimistic outlook at the beginning of 2008. It is argued that this outcome was inevitable given the country’s dependency on external demand. Therefore given that the economic tremors felt worldwide have reached the city state when will local businesses feel their fare share of trouble?

The following report investigates payment patterns and credit ratings of a sample of 48,000 local companies and businesses utilizing data that covers the year 2007 to the end of the 3rd quarter of 2008.  

Overall outlook for Singapore’s businesses
The following graphs were based on data accumulated by D&B Singapore based on a sample size of over 48,000 local companies and businesses that belong to Construction, Retail, Whole sale, Manufacturing and Service Industries .

Payment trends

From the graph above we see the trend lines for “prompt” or payments that were within credit terms and “slow” for payments that did not meet their given credit terms. The terms offered to each entity would range from 7 day terms to 90days or above.

As illustrated, we see that from a peak in the 1st quarter of 2008, the dispersion of prompt payments from slow payments has been reducing steadily over the 2nd and 3rd quarters of 2008. As a projection, we can safely assume the trend would continue with the same direction with an eventual majority in slow payments.

Credit Ratings

The above graph illustrates the percentage of companies and businesses that received “low”, “average” or “high” credit risk ratings over each quarter. It is immediately observable that the majority of companies and businesses in the sample received a “low credit risk” rating and the 3rd quarter of 2008 showed the highest percentage of low risk entities.

However, it should be noted that the above is not in contrast to the payment patterns chart seen previously. This is mainly due to the fact that besides payment history, each entity’s financial standing, Management capabilities and years of operation are also considered when assigning an appropriate rating.

What can be inferred from both graphs is that despite decreasing levels of liquidity, the majority of entities in the sample have the capability to be self sustaining. However, the duration of this capability would require a more stringent monitoring process.

Performance by industry
The following is a break down of payment patterns and credit ratings from of entities that belong to Construction, Retail trade, Wholesale trade, Services and Manufacturing industries.

Construction Industry

With its strongest performance over the latter quarters of 2007 the construction industry demonstrates the poorest numbers in terms of payments trends and credit ratings. When observing payment patterns we see that majority of the entities in the sample made slow payments. Additionally, it is seen that the number of prompt payments is seeing a slow decline over quarter 2 and quarter 3 of 2008.

In terms of credit ratings however it is observable that the number of high risk entities is exhibits a decreasing trend overall.

Manufacturing

This trend of increasing “slow” payments is demonstrated in Retail, Wholesale and Services Industries as well. Which concurs with the previous observation that majority of the companies in the total sample still remain financially buoyant, but are beginning to see lower levels of liquidity.

It is also apparent that the majority of entities belonging to the Construction, Retail and Manufacturing sectors have already begun demonstrating slower payment patterns and therefore maybe the first to face liquidity issues.