Debt update

TransUnion has tracked Canadian household debt for the year’s first quarter. The report has some interesting data.

The ultralow interest rates we have been experiencing since the great recession of 2009 have led to dangerous levels of household debt in Canada today.

In Canada two main credit bureaus track this type of information — Equifax and TransUnion. These organizations know how much consumer debt each Canadian is carrying because they get information from the credit grantors every month on all consumer credit cards and loans (mortgages are excluded).

If you have a credit card or any consumer debt, they know your balance, your credit limit and whether you have made any late minimum payments, among other things.

TransUnion publishes quarterly updates on where Canadians stand, and the latest one, the TransUnion Industry Insights Report 1st Quarter 2016, has some interesting data.

First, the average Canadian’s non-mortgage debt level rose to $21,348 in the first quarter of 2016. That’s up from $20,785 in the first quarter of 2015, an increase of 2.71%. The most significant increases were not in the oil-patch provinces, but in Ontario and Quebec, each with increases above 3%.

The details about debt delinquencies, however, paint a different picture. The national serious delinquency rates (the ratio of all accounts 90 or more days past due for all non-mortgage loan types) increased 3% to 2.52% in the first quarter of 2016 from 2.45% in the first quarter of 2015. The most populated provinces, Ontario and BC, experienced declines, whereas the largest increases occurred in Quebec and the two provinces most impacted by oil price declines, Alberta and Saskatchewan.

“When it comes to loan default rates, we are looking at two distinct groups: oil-sector provinces and the rest of the country,” says Jason Wang, TransUnion’s director of research and analysis in Canada. “We continue to see material delinquency increases in the oil provinces, and we suspect that it will continue over the next few quarters.”

The other interesting segment of the report focuses on the debt balances by type of borrower, from subprime to super prime. TransUnion separates Canadians into risk tiers according to their proprietary credit scores as follows: subprime (599 or lower), near prime (600-699), prime (700-779), prime plus (780-829) and super prime (830 or greater).

For credit cards, the national average balance in the first quarter of 2016 increased to $3,764 from $3,697 for the same period in 2015, an increase of 1.8%. Subprime borrowers, however, saw their credit card balances increase by 5.7% over the same period. Those in the prime or better categories actually reduced their balances.

It seems people with lower credit ratings carry larger balances than those with higher scores. The reason is they are carrying and increasing their balances month to month, whereas those with higher ratings tend to pay the balance each month.

The delinquency rates for credit cards overall show a worrisome trend. The national average rate rose 14% to 2.06% in the first quarter of 2016 from 1.81% in the first quarter of 2015. According to TransUnion, however, the 2016 rate now stands at a normal level last seen in 2014.

The first quarter reading in 2015 was the lowest since 2009, even though Canada was technically in a recession during the first half of 2015. The reason for that dichotomy, according to TransUnion, is that the defaults are a lagging phenomenon. The seeming improvement in early 2015 was a result of the recovering economy in 2014. As the oil slump began impacting more people during 2015, the national average delinquency rate increased during subsequent quarters, leading to the large increase.

Average consumer non-mortgage debt levels chart

Average credit card balance per consumer chart