Consumer credit – What's the latest?

In an economic environment characterized by elevated interest rates and high inflation numbers, consumers continued to depend on credit as a means to respond to financial pressures during the fourth quarter of 2022, according to TransUnion.

Credit participation saw increases across every province, with Ontario leading the way (3.2%). Canada’s total outstanding credit balance grew by 6.8% annually to $2.3 trillion, reaching a new record high for the second straight quarter.

Annual increases were also registered in average credit card balances (7.2%) and mortgage balances (4.5%).

“Whether it’s Gen Z consumers opening credit cards, homeowners taking out home equity lines of credit, or consumers continuing to turn to unsecured personal loans, more and more borrowers are looking to a range of credit products to cope with the financial pressures of today and better position themselves for the evolving financial landscape,” TransUnion said in the latest edition of its Quarterly Credit Industry Insights Report.

Bank card originations grew by 22.5% year over year to $1.7 million, pushing the total of cardholding Canadians to 26 million.

By demographic, credit adoption is growing the fastest among younger consumers, especially among Gen Z-ers (those born in 1995 or after). The greatest growth in average non-mortgage balances was also registered among Gen Z consumers.

“Much of the growth in Gen Z is attributable to more of these consumers reaching credit-eligible adult age each year,” TransUnion said, while adding that millennials are also seeing a greater presence in the credit market (up by 4% annually).

With the Bank of Canada’s recent freeze in its rate-hiking campaign, TransUnion said that some relief from high inflation might become apparent in the near future.

“Overall credit market health remains at pre-pandemic levels,” said Matt Fabian, director of financial services research and consulting at TransUnion Canada. “Lenders are beginning to increase their provision for credit losses, but they’re not stopping their growth trajectory since delinquency levels are still below what they were prior to 2020. Canada is still in a good environment from a performance perspective, but lenders would do well to monitor trends closely.”