Delinquencies on the decline despite all the warnings
Serious delinquency rates “remained steady” in Canada as credit growth moved higher at the beginning of the year, according to TransUnion.
Delinquencies fell 5 basis points in the first quarter to 5.36 per cent, though they varied by region, the credit reporting company said Wednesday. Rates increased in Saskatchewan and fell in Ontario. Serious delinquencies are defined as 90 or more days past due on credit cards and 60 or more days on other products.
The total number of Canadian consumers with access to credit grew 1.3 per cent to 28.9 million, while balances rose 4.2 per cent to $1.85 trillion, TransUnion said. Non-revolving products such as auto and installment loans were the biggest contributors to the growth, as average balances grew 7.2 per cent.
“I’m optimistic the average consumer balance is still growing but the rate of growth has slowed a lot, since even a year ago,” Matt Fabian, director of research at TransUnion Canada, said in a phone interview. “At the same time, we’re continuing to see delinquency rates either stable or drop a little bit. All that points to the fact that credit consumers in Canada are pretty responsible and they’re managing their debt well.”
Fabian said he’s a “little bit cautious” on the outlook, given some of the looming economic headwinds. Potentially slowing growth, along with rising rates could create shocks to the system, resulting in pockets of delinquencies. “We haven’t seen it yet, so that’s a great sign.”
Statistics Canada said Wednesday retail sales posted the biggest gain in 10 months in March, rising 1.1 per cent on the month.
One emerging trend is the decrease in home equity lines of credit and a corresponding increase in unsecured lines of credit, which Fabian said was due to new mortgage qualifying rules that have been partly responsible for a moderation in the country’s housing market.
The number of HELOC originations fell 10.6 per cent in the final three months of 2018 on a year-over-year basis, and average origination limits declined 2.3 per cent, TransUnion data show. The number of line-of-credit originations, meanwhile, jumped 22.4 per cent in that period, and average limits increased 14.3 per cent.
Unsecured lines of credit are a “substitute product,” Fabian said. Delinquency rates on them “are really low, so risk is minimal,” he said, and lenders “have an opportunity to target consumers, probably their best consumers for these kinds of offers.”
Fabian said the only red flag was the delinquency rates for installment loans, up 14 basis points year-over-year, possibly reflecting the increase in lending to riskier segments and higher originations by alternative lenders.