‘Canadian consumers are facing higher household debt burdens primarily tied to rapidly rising mortgage borrowing and disappointing productivity growth,’ said Managing Director Michael Dean. ‘That said, credit card portfolios have and are expected to remain largely unscathed.’
The reason why Canadian consumers credit cards are predicted to be able to withstand slower economic growth, is because the average Canadian household debt only consists of 5% in credit card, as compared to 20% in the United States. Low Canadian credit card debt has led to very strong portfolio performance on behalf of banks with net credit loss rates and delinquencies far lower than at their peak during the financial crisis. According to Fitch Director Herman Poon, Canadians pay off their credit cards at a much higher rate than Americans, exceeding 35%.
Although Canadian consumer debt is increasing, Canadian credit card usage remains reasonable when compared to the United States (2 active cards per household in Canada, compared to 6 in the United States). According to Dean ‘most Canadians have long cultivated a conscientious and responsible attitude toward the use of credit to strengthen their financial profile.’
Although Canadians have managed their credit card growth reasonably, another worry is whether Canadians have instead focused on accumulating debt through other loan products which seem to growing at record rates. In Equifax’s most recent report, auto loans and installment loans are up 6.8 per cent and 5.8 per cent respectively. Installment loans are loans with fixed monthly payments. That can include loans used to pay for cars, furniture or home renovations.
So while delinquencies continue to trend positively, Canadians are growing their consumer debt, excluding mortgages to an average $20,891 per person. As we know from the previous downturn, if Canadians over extend themselves through other credit products besides credit cards, it’s only a matter of time until it hits them on their credit cards as well.