Company Insolvencies Return to Normal Levels Despite Sectoral Strains
The Reserve Bank of Australia's October 2026 Financial Stability Review reveals that company insolvencies have returned to their long-run average, signaling a stabilization in the corporate sector after a period of heightened failures. The Review, released on October 1, 2026, measures insolvencies as a share of operating companies rather than a raw count, providing a more accurate reflection of business failure risks. This approach highlights that insolvencies have declined over the past year and are now in line with historical averages, despite persistent stress in certain sectors like hospitality, construction, and transport.
However, the RBA anticipates a temporary spike in insolvencies in the September quarter due to the administration of a major builder. The Review emphasizes that this spike is expected to be a one-off event and not indicative of a broader reversal in the declining trend observed over the past year. The RBA's Governor, Michele Bullock, acknowledged the challenges businesses face, particularly with higher borrowing costs following the recent cash rate increase to 4.60 percent.
Despite these pressures, the corporate sector shows underlying strength. More small and medium-sized firms were profitable in late 2025 than before the pandemic, cash buffers remain robust, and aggregate corporate leverage is stable. The Review also notes strong growth in business investment and debt, suggesting many firms are still expanding. However, global vulnerabilities and operational risks, such as geopolitical tensions and advances in artificial intelligence, pose ongoing threats.
The broader financial system is described as resilient, with Australian banks well-positioned to continue lending even in a downturn. The RBA's forecast for subdued GDP growth of 1.4 percent over the year to December 2026 underscores the need for businesses to navigate elevated cost pressures and higher fuel prices. The next key date to watch is the Board's decision on November 3, 2026.