Consumer debt still a concern: Moody’s

TORONTO The percentage of money that Canadian consumers owe relative to their disposable income may have levelled off last year — but the amount borrowed and the way it was borrowed continue to cause concerns, according to Moody’s Investors Service.

“Canadian consumers continue to repay their debts, but remain highly vulnerable to an employment shock, posing significant asset risk to banks in an adverse economic scenario,” says a report from the credit-rating agency, released Thursday.

The level of Canadian consumer debt that’s outstanding “stabilized” at 174 per cent of disposable income in the last three months of 2018, the report says.

Furthermore, unemployment is hovering near a 40-year low at

The proportion of riskier uninsured mortgages continues to rise.

5.8 per cent, helping to keep borrowers from defaulting on their loans, according to Moody’s.

However, the credit-rating agency notes that higher interest rates helped increase the amount of that disposable income going toward paying down debt, hiking it to 14.5 per cent in the fourth quarter of 2018 from 13.7 per cent in 2013.

Mortgage payments rose to 6.6 per cent of disposable income in the fourth quarter, up from 6.1 per cent five years ago.

“Meanwhile, the proportion of riskier uninsured mortgages continues to rise, increasing asset risk for the largest eight Canadian mortgage lenders,” the report adds.

There are also signs that some consumers, facing higher mortgage costs, are agreeing to “longer term manufacturer-subsidized auto loans” with lower payments.

“As vehicles depreciate each year, longer-term loans result in higher rates of ‘negative equity’ where the value of the vehicle is less than the amount of loan principal,” the report says.

The latest from Moody’s comes as the Canadian economy has shown some signs of stalling.

Job growth surprised to the upside in February, but economic growth slowed to 0.1 per cent for the fourth quarter of 2018.