Client insolvencies delayed during the pandemic are beginning to climb

Marble CEO says advisors' clients who were previously comfortable now are at increased risk

Client insolvencies delayed during the pandemic are beginning to climb

Now that consumer pandemic support from the federal government and financial institutions is easing, Canada is beginning to see an increased number of insolvencies, which were delayed during COVID’s height.

Karim Nanji, CEO of Vancouver’s Marble Financial, said Canadians have $1.75 debt for every dollar of disposable income because they like to borrow to pay their daily expenses as well as finance their futures with mortgages, cars, vacations, and rental properties.

“One-third of Canadians could not walk into a financial institution, like one of the major banks, and qualify for a loan,” he told WP, “because they’re either carrying too much debt, don’t have enough income, have a poor credit score, or have poor financial health or literacy.”

Equifax and TransUnion data showed delinquencies were increasing in Q4 of 2019 as part of a general ten-year growth trend with salaries lagging and debt accumulating as the cost of living increased.

Once COVID hit, Nanji said the general credit health score improved because people got “free money” from federal subsidies and lenders’ deferral programs. When work and socializing costs declined, they had more disposable income to meet obligations, so the number of insolvencies decreased year-over-year in 2020.

“People weren’t filing for bankruptcy because they were on a deferral program and the collectors weren’t collecting because of the optics,” he said. But, in March 2021, the Office of the Superintendent of Bankruptcy showed that insolvencies increased by 22.8% from February. It was the largest month-over-month increase in more then ten years and the largest single month of new filing activity since the pandemic began. Nanji expected the upward trend to continue as banks and lenders end deferral programs.

“Lending has increased again, but people are falling of the back end, as well,” he said. “We’re starting to see the bottom drop as the subsidy is starting to decrease. Canadians are starting to realize they just can’t carry that debt anymore.”

Nanji said that’s going to be challenging for financial advisors because clients who were financially comfortable before COVID may now be living on the edge, leaning more on credit, and unable to get the approvals or rates they used to qualify for.

“It’s not just the 50% who can’t get any loans now,” he said. “It’s impacted everybody from all areas of the spectrum.”