Company insolvencies overall are around their longer-run average, but the RBA's October Financial Stability Review singles out hospitality and construction as the sectors where failures remain elevated.

For most Australian businesses, the Reserve Bank of Australia's (RBA) latest health check is reassuring. For two industries, it is not.

The October 2026 Financial Stability Review (FSR), released on 1 October, found that company insolvencies are "around their longer-run average". But it also found that insolvencies remain elevated in hospitality and construction. In construction's case, the RBA linked this partly to the "typically thin margins of some businesses".

The finding arrives at a delicate moment. Two days earlier, on 29 September, the Monetary Policy Board raised the cash rate target by 25 basis points to 4.60 per cent, the fourth increase of 2026. Here is what the RBA has said about the two sectors, what the broader business picture looks like, and where the evidence runs out.

Two sectors, two different stories

Construction

Construction has drawn attention from more than one RBA official. The FSR attributed elevated insolvencies in the sector partly to the "typically thin margins of some businesses". Earlier, at the Regions Rising summit in Canberra on 14 September, Assistant Governor (Economic) Sarah Hunter noted that construction has higher business closure rates, while also saying there were no signs of systemic stress.

Construction also sits at the centre of the housing debate. Governor Michele Bullock told her 29 September media conference: "we have a structural under supply of housing." She added: "It's possible the housing downturn may make that worse." In Canberra on 18 September she had told the House of Representatives Standing Committee on Economics: "Fundamentally, there is a structural undersupply in the housing market, which has underpinned prices over recent years."

The Board's statement noted that housing prices have fallen in most capital cities and that new housing loans have declined noticeably. The RBA material reviewed here does not directly link those housing trends to construction insolvencies, so this article does not draw that connection as fact.

Hospitality

The FSR identified hospitality as the other sector with elevated insolvencies. Beyond that, the material reviewed for this article does not set out the RBA's explanation for hospitality's difficulties, the number of failures or how they compare with earlier periods. Those gaps are worth stating plainly rather than filling with assumptions.

What can be said is that the broader consumer backdrop is subdued. The Board's 29 September statement said consumer spending is easing gradually and output growth has slowed. The FSR noted that real household disposable income per capita declined slightly over the first half of 2026, though it remains higher than its 2023 and 2024 averages. Bullock, discussing the effect of higher rates on mortgage holders, said "they've got less cash flow, and they've got less money to spend on things."

The wider business picture: mixed, not dire

Set against the troubles in two sectors, the RBA's broader read on businesses is more positive:

  • Insolvencies overall: "around their longer-run average", according to the FSR.
  • Business investment and debt: the Board's statement described growth in both as strong.
  • Business credit: the RBA's Financial Aggregates showed business credit up 0.9 per cent in August and 10.9 per cent over the year to August 2026.
  • Loan security: over 50 per cent of business non-performing loans were well secured as at June 2026.
  • Bank resilience: banks' common equity tier 1 capital ratio was 12.4 per cent in June 2026, and under the RBA's stress scenario banks could absorb losses while continuing to extend credit.

The FSR's media release summarised the system as showing "a good degree of resilience, but global and operational vulnerabilities continue to mount".

Costs that bite small margins

Thin margins leave little room to absorb rising costs, and several cost pressures have featured in recent RBA commentary. Bullock said on 29 September: "fuel prices, fertiliser prices, transport prices, all these things now are permanently higher." The Board's statement said higher fuel prices were partly passing through to other goods and services.

Hunter, speaking about the regions, noted: "the importance of fuel, and particularly diesel to the regional economy, we don't underestimate that". She also said: "the availability of labour in the regions is more challenging than it is in the cities".

These comments were not made specifically about hospitality or construction insolvencies. They describe the general cost environment in which businesses with tight margins are operating.

On the inflation side, headline inflation from the monthly Consumer Price Index was 4.0 per cent over the year to the August month of 2026. Underlying inflation was about 3.5 per cent for the past six months, according to Bullock, and the trimmed mean was 3.6 per cent in the June quarter. Both are above the 2–3 per cent target.

What to watch next

Several scheduled RBA events over the coming weeks may add context, although none is guaranteed to address these two sectors directly:

  • 13 October, 11.30 am AEDT: minutes of the September Monetary Policy Board meeting.
  • 15 October, after 3.00 pm AEDT: the RBA Annual Report 2026.
  • 18 and 19 October: an interview and a fireside chat with Assistant Governor (Financial Markets) Christopher Kent.
  • 21 October: an appearance by Deputy Governor Andrew Hauser at the Citi ANZ Investment Conference.
  • 28 October: the September Consumer Price Index.

The contents of these releases and appearances are not yet known.

The bottom line

The RBA's October Financial Stability Review shows a business sector that is broadly holding up, with insolvencies around their longer-run average and business credit growing strongly. The exceptions are hospitality and construction, where insolvencies remain elevated; in construction, the RBA pointed partly to the "typically thin margins of some businesses", and Hunter noted higher closure rates without signs of systemic stress.

As Hunter put it in Canberra, "for many members of the community, it's a tough time". The RBA has not, in the material reviewed here, quantified sector failures or forecast how they will evolve. The RBA said its next forecast update is due in November, with the next cash rate decision at 2.30 pm on 3 November 2026.