Canadians showed signs of some vulnerability in the latest quarter as the consumer credit market continued to adjust to economic uncertainty. There are early warning signs of a potentially weakening market, with overall non-mortgage delinquency rates increasing by 26 basis points (bps) YoY to 5.54% in Q3 2019. While overall delinquency rates were still below levels of even three years ago (5.62% in Q3 2016), this recent upward trend indicated that certain segments of consumers have started to feel the pressure of current debt levels in the face of a slowing economy and rising interest rates.
90+Day Delinquency Rate YoY Changes for Non-Mortgage Loans
In Q3 2019, overall levels of non-mortgage consumer debt remained broadly stable – up just 0.24% to $30,038 YoY. The total number of consumers with access to credit continued to grow, up 2.9% to over 29.5 million over the same period.
During the quarter, outstanding credit card balances passed the $100 billion mark, a significant milestone for what is the most widely held consumer credit product. In addition to being used to facilitate retail purchases, credit cards are often used by consumers to finance essential living expenses; the continued increase in card balances could be a sign of the growing pressure on personal finances.
Average Consumer Balance, by Product*
*Represents the average balance held by a consumer across each type of product (consumers can have multiple instances of same product)
“Consumers’ ability to manage their debt is directly impacted by their disposable income. While Canada is not expected to slip deep into a recession through 2020, any significant economic headwinds or downturn would likely put credit cards at a higher risk for increased delinquency rates relative to other major credit products. At the same time, we would expect balances to rise as consumers look to cards to help make ends meet,”
Matthew Fabian, Director, Research and Industry Insights
2020 Consumer Credit Forecast
TransUnion’s forecasting models provide forward-looking insights for consumer credit balances and delinquency rates, and incorporate dozens of credit, behavioural and macroeconomic variables. The 2020 forecast indicates that, despite some potential economic challenges, the outlook remains relatively positive for the Canadian consumer credit market, with continued opportunities for growth.
TransUnion Canada 2020 Consumer Credit Forecast
*Serious delinquency rates are consumer level and are measured as 60 or more days past due for mortgage and 90 or more days past due for all other products
At the end of 2020, TransUnion is forecasting that the average non-mortgage consumer debt balance will reach $31,531, a relatively minor increase of 1.02% annually. Serious delinquency rates are forecasted to increase in the early part of 2020 and then begin to correct for most credit products. Overall consumer non-mortgage delinquency rates are expected to drop in Q4 2019 from Q3 levels, and then increase a modest 3 bps by end of 2020. Each individual credit product is expected to see moderate increases in delinquency rates, though within manageable levels of 1–8 bps.