Delinquency expected to rise

According to a new report, credit delinquency could be on the rise

By Neil Sharma

04 Jul. 2018

According to a new report, credit delinquency could be on the rise.

Equifax Canada’s Q1 2018 National Consumer Credit Trends Report states that slowing credit growth and rising interest rates may stem the tide of falling delinquency rates. While consumer debt jumped to $1.828trln during the first quarter of this year from $1.821trln in Q4 2017, and $1.729trln exactly a year ago, loans and mortgages are Canada’s biggest debt drivers.

In fact, mortgages loans increased 5.9% from Q1 of 2017.

“While credit performance has stayed on a healthy trajectory, there are some early indicators that have started to shift,” said Regina Malina, Equifax Canada’s lead research analyst and author of the report. “The proportion of consumers paying their credit card balances in full each month has dropped recently. As unemployment holds at current levels and interest rates are likely to rise, we suspect delinquency rates to move modestly higher by year-end.”

Vancouver had the lowest delinquency rate of the country’s major cities at 0.68%, while Toronto was third-lowest at 1.12%.

“The story of Toronto and Vancouver are in line—even though they’re unique with prices compared to other places in Canada—with the provinces they’re in,” said Malina. “The debt numbers are fairly decent, but what makes their debt numbers sustainable from our perspective is they have low unemployment rates stabilizing over period of time, people have confidence and they’re able to keep their jobs with higher incomes. It reflects the economies of the regions.”

The national delinquency rate was 1.08% in Q1, down from 1.15% a year earlier, and also the lowest first quarter level since 2009. However, Saskatchewan and Newfoundland—where delinquency is 1.49% and 1.64%, respectively—are two provinces Equifax intends to closely monitor.

“Of the areas impacted by the oil patch regions, recovery is not the same across the board. Alberta is recovering nicely, but Newfoundland and Saskatchewan are not doing as well.”

Peopled aged 65 and older have a stable delinquency rate, but it is declining slightly less than it is in other age cohorts. One worrying sign is that their debt is increasing.

“When we see debt increasing in the middle-aged group, it’s expected,” said Malina, “but when we see it for the 65+ group, it’s cause for monitoring to see that their ability to pay back debt is a positive story.”