Almost half of SMEs at risk of credit default as profits sink and costs rise

Non-performing loans could spike as profitability erodes.

Changing market conditions are putting the creditworthiness of Singapore’s SMEs at risk. According to a study released by DP Information group, the number of High Risk SMEs increased to 45% this year from 43% in 2013, a notable increase from just 39% in 2012.

High Risk companies are those with a DP Investment Grade from 7-8. These firms are at higher risk of defaulting from their creditors.

“SMEs with weak credit ratings can have a domino effect on the entire business ecosystem. This arises when weaker SMEs fail to pay their vendors on time, which in turn leads to other companies experiencing weaker cashflow. This can result in an increase in non-performing loans, which will restrict the ability of SMEs to access funding from lenders,” noted the report.

The number of Investment Grade SMEs inched up marginally to 23% in 2014 from 22% in 203 and 21% in 2012.
Meanwhile, the number of High Yield SMEs dropped to 32% in 2014, from 35% in 2013 and 40% in 2012.