Canadian debt expected to rise in 2020 says TransUnion Canada

And there are likely to be higher rates of delinquencies study warns

Canadian debt expected to rise in 2020 says TransUnion Canada
Steve Randall

There could be some challenges ahead in 2020 as the growing Canadian credit market meets with slower economic conditions.

A new report from TransUnion Canada shows that the consumer credit market is set for marginal balance growth next year while weakness in the economy could create issues.

The firm’s third quarter data shows that non-mortgage consumer debt grew 0.24% year-over-year to an average of $30,038. Meanwhile, the total number of consumers with access to credit continued to grow, up 2.9% to over 29.5 million.

The outstanding credit card balances passed a milestone of $100 billion.

Overall non-mortgage delinquency rates increased by 26 basis points year-over-year to 5.54% suggesting that some Canadian consumers are feeling the pressure of rising interest rates and a softer economy.

“While the Canadian economy has slowed, key measures like inflation and unemployment remain healthy and continue to bolster the market. However, a potential slowdown in the Canadian economy, combined with soft wage growth, heightened global economic uncertainty and potential further interest rate increases, may cause some challenges,” said Matt Fabian, director of financial services research and consulting for TransUnion Canada.

2020 vision

Looking ahead to the new year, TransUnion Canada is forecasting a relatively small increase in average consumer debt to $31,531, up 1.02% year-over-year.

However, there is an expected rise in serious delinquencies in the early part of the year before correcting later for most credit products.

The overall delinquency rate for Q4 2019 is expected to be lower than in the third quarter but are then likely to rise by a modest 3 basis points by the end of 2020.

Among the key trends that the report identifies for 2020 are credit card delinquency rate rises, potential regional shocks, and renewed strength in the mortgage market.

The credit card rise is predicted as those who are struggling and have cards, auto loans, and mortgages, are most likely to default on credit cards first.

The current forecast is for consumer-level delinquency (the proportion of consumers with card credit who would go seriously delinquent on at least one of those cards) to rise 8 bps from 2.90% in Q4 2019 to 2.98% at the end of 2020.

Regional issues

The energy and agricultural sectors could both see further challenges that will impact consumers in regions that rely on them in 2020.

“Depending on the severity and length of factors like trade restrictions, the outcome of trade agreements and pipeline bottlenecks, some regions could experience delinquency rate increases of up to 50 basis points depending on various scenarios, similar to what occurred in Alberta and Saskatchewan following the last oil price drop. Typically, as these economic shock events occur, we tend to see some unemployment increases followed by a rise in delinquency as incomes and capacity to service debt become constrained,” said Fabian.

Mortgage market

TransUnion Canada is forecasting further growth in the mortgage market following a rise of 4.5% year-over-year in origination volumes in the third quarter of 2019. Average mortgage balances, despite the qualifying rules, also increased modestly, up 1.3%.

For 2020, this growth is expected to continue as demand increases and the market further acclimatizes to the new rules. This could see average balances arising 3.6% to $285K by the end of 2020 but delinquencies are expected to remain low and stable with a modest 2 bps increase to 0.51%.