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Business bankruptcies stabilizing in Alberta

Business bankruptcies stabilizing in Alberta

Posted on: 9/14/2018 | Author: ATB Financial's Economics + Research Team

We may be out of the recession, but thousands of businesses across the province are still struggling with rising costs and lacklustre demand. Insolvencies are on the rise, but not as much as one might expect.

In the second quarter of 2018, businesses filed a total of 41 insolvencies. That’s up from only 31 in the first quarter of the year and represents the third highest level in a quarter since the downturn of 2014. On average about 30 businesses declared bankruptcy each quarter over the last four years.

But it’s not all bad news. The number of business that filed proposals with their creditors dropped in the second quarter to only ten. (A proposal is an offer to creditors to settle debts under conditions other than the existing terms and is often the precursor to outright bankruptcy).

Given the severity of the recession—and the modest rebound we are seeing—it may seem surprising that business bankruptcies have not risen more. Part of the reason for this may be the low interest rate environment that many businesses (and consumers) have enjoyed. However, with more interest rate increases likely to come this year and into 2019, higher borrowing costs will start to strain businesses that are carrying debt. That could potentially push defaults and insolvencies higher.

The Owl will look at consumer bankruptcies on Monday of next week.

Business bankruptcies, graph

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