Amid persistent economic challenges marked by high inflation and
interest rates, Canada's credit market continued to expand during
the first quarter of 2024. The TransUnion Credit Industry Indicator
(CII) remained stable year-over-year (YoY) at 106. The CII
demonstrated the aggregated effect of higher consumer credit demand
being met with restrained lender risk appetite, consumers
leveraging credit and slight negative pressure from rising
delinquency rates.
The CII is part of the quarterly TransUnion
Credit Industry Insights Report, and maps consumer credit market
health.
During this quarter, credit participation –
measured as the number of credit-active consumers –grew 3.75% YoY,
with a historic record of 31.8 million Canadians now holding one or
more credit product(s). New-to-Canada consumers remain a strong
driver of this growth trend, with originations within this group
increasing by 33% YoY, representing 11% of new origination
volumes.
Additionally, younger Canadians, specifically
Generation Z (born 1995 - 2004) consumers, are driving the surge in
credit participation, while exhibiting a 30% YoY growth in
outstanding balances. Balance growth in this cohort was primarily
driven by card and personal loan products, which increased by 18%
and 11% respectively during Q1 2024.
Concurrently, credit participation among
Millennials (born 1980 – 1994) grew 5% YoY. This generation is now
the largest share of consumers by age participating in Canada’s
credit market, holding 27% of credit accounts – surpassing the
share of Baby Boomers (born 1946 - 1964) for the first time.
Millennials hold the largest share of debt ($911 billion of the
$2.38 trillion credit market) – approximately 38% of all debt,
likely due to higher credit needs in their lifecycle as they grow
older.
“Inflationary pressures may lead consumers to
turn to bankcards or personal loans to help make ends meet, and
Millennials and Gen Z consumers are no exception,” said Matthew
Fabian, director of financial services research and consulting at
TransUnion Canada. “Lenders need to carefully monitor credit
performance in the coming year, particularly among younger
consumers and those at lower income levels who may be more
vulnerable to the current economic strains of elevated inflation
and interest rates. A portion of consumers in these segments are
likely to still see some challenges despite anticipated interest
rate relief later in the year.”
Continued macro pressures have led to
performance deterioration
The impact of the current higher cost of living
varies across Canada’s provinces in turn influences payment
capacities and delinquency rates. Furthermore, specific regional
economies can be more susceptible to economic shifts in
unemployment and productivity, which further places strain on
consumers.
For example, Alberta led all provinces in Q1
2024 with a 2.21% serious consumer-level delinquency (more than 90
days past due), followed by New Brunswick (2.16%) and Manitoba
(2.11%). Even though the serious consumer-level delinquency rate in
Ontario is relatively lower at 1.82%, it saw the highest YoY
increase in serious consumer delinquencies – 26 basis points (bps),
followed by Manitoba and Quebec (24 bps).
Table 1: Total Consumer-Level 90 Days
Past Due by Province
|
Q1 2023 |
Q1 2024 |
YoY change (bps) |
Canada |
1.57% |
1.76% |
+20 |
AB |
2.08% |
2.21% |
+13 |
NB |
2.11% |
2.16% |
+5 |
MB |
1.87% |
2.16% |
+24 |
NS |
2.02% |
2.06% |
+3 |
SK |
1.89% |
2.00% |
+11 |
NL |
1.91% |
2.00% |
+9 |
PEI |
1.71% |
1.86% |
+15 |
ON |
1.56% |
1.82% |
+26 |
BC |
1.60% |
1.69% |
+8 |
QC |
1.06% |
1.29% |
+24 |
“Despite these rising delinquency levels,
Canada’s commodity-producing provinces remain best positioned to
weather growth headwinds,” said Fabian. “These regions generally
experience more volatile economic conditions, given their
additional dependency on commodity prices and seasonality. Cost of
living increases are not uniform and impact regions differently
across Canada. While we see delinquency rates rise faster in some
areas, future economic growth and lower interest rates are expected
to offset this in the long run.”
When viewed nationally, consumer-level serious
delinquency rates on non-mortgage balances increased by 19 bps YoY,
to 1.75%. When looking at individual credit products,
consumer-level delinquencies increased YoY for all products with
the exception of personal loans.
Table 2: Consumer-level serious
delinquencies across products – Q1 2024
Product |
Consumer-level 90+ DPD |
YoY Change (bps) |
Credit Card |
0.91% |
+14 |
Auto Finance |
0.57% |
+4 |
Personal Loans |
1.33% |
-2 |
Lines of Credit |
0.28% |
+9 |
Mortgage |
0.15% |
+4 |
In addition to rising delinquencies, more
accounts are rolling forward into later stages of delinquency – 11%
more did so than in the same quarter in 2023. Moreover, the volume
of charge-offs (where debt is deemed unlikely to be collected by
the creditor) increased approximately 2% as consumers faced
increasing pressure to make their due payments.
Payment stress evident in consumer
behaviours
Historically high interest rates have led to
higher payment obligations across non-mortgage credit products.
During times of economic uncertainty and stress, consumers
generally tend to prioritize mortgage payments over other products,
as demonstrated by TransUnion’s payment hierarchy study. Given the
higher payments that many consumers now face on their mortgages,
some consumers are making lower payments on other non-mortgage
obligations, including credit cards, where consumers can pay less
than their full outstanding balance each month. In
recent periods, the amount consumers pay over the minimum required
payment due on credit cards has decreased, driving up revolving
balances. As a result, the aggregate excess payment (AEP)1 to
outstanding balance ratio has declined by 187 bps YoY.
The percentage of cardholders making only the
minimum payment due has grown by 1.3% (up 8 bps YoY). As fewer
consumers are paying down their card balances, revolving balances
are growing.
“We have observed that when consumers are faced
with mortgage payment shock, the impact on credit card delinquency
is two to three times that of mortgage delinquency,” Fabian said.
“Non-mortgage debt held by homeowners is now well above 2019
levels, with at least 50% of outstanding mortgages yet to be
repriced.”
Given that specific pockets of consumers are
experiencing elevated interest rate and inflation sensitivity,
lenders have access to tools that can predict early signs of
vulnerability.
“Lenders are best positioned to fuel smart
growth by identifying resilient consumers at origination and by
predicting and helping consumers who are likely to miss a payment,”
Fabian said. “Proactively monitoring risk levels and identifying
early warning signals of default can help lenders identify
vulnerable consumers before they exceed limits or miss payments,
and in turn help fund sustainable growth within the resilient
consumer segments.”
1 TransUnion developed a metric called the
Aggregate Excess Payment to better gauge how much in excess of the
minimum payment was made. The variable was calculated by
subtracting the total minimum due from the total payments made
across all of a consumer’s credit cards.
About
TransUnion® (NYSE:
TRU)
TransUnion is a global information and insights
company with over 13,000 associates operating in more than 30
countries, including Canada, where we’re the credit bureau of
choice for the financial services ecosystem and most of Canada’s
largest banks. We make trust possible by ensuring each person is
reliably represented in the marketplace. We do this by providing an
actionable view of consumers, stewarded with care.
Through our acquisitions and technology
investments we have developed innovative solutions that extend
beyond our strong foundation in core credit into areas such as
marketing, fraud, risk and advanced analytics. As a result,
consumers and businesses can transact with confidence and achieve
great things. We call this Information for Good® — and it leads to
economic opportunity, great experiences and personal empowerment
for millions of people around the world.
For more information visit: www.transunion.ca
For more information or to request an interview,
contact:
Contact: Katie
DuffyE-mail: katie.duffy@ketchum.com Telephone:
647-772-0969
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