No grounds to panic over Canadian debt: analysts
OTTAWA Those looking for evidence of an imminent debt crisis in Canada won’t find it in the latest credit card data.
A new report on asset-backed securities from Fitch Ratings, which analyzes credit card payments, indicates consumers are coping with record debt levels and concluded the “stable performance” should continue. Though charge-offs, or receivables that have been written off as noncollectable, hit a twoyear high in May, the year-to-date average is little changed from 2018.
Meanwhile, delinquencies of more than 60 days actually declined in the second quarter, and the monthly payment rate increased, says the Aug. 2 report. Ian Rasmussen, senior director at Fitch Ratings, said he and colleagues had been concerned about the rise in housing and consumer debt. “But we saw that debt related to housing started to level off a little bit,” he said. “It remains an area to watch but not to the same level it was a couple of years ago when we saw a straight increase in debt balances.”
The charge-off rate reached 3.18 per cent in April, the highest in two years, according to Fitch data, which looks at pools of credit card debt that have been securitized by, for example, Toronto-Dominion Bank’s Evergreen Credit Card Trust and Royal Bank of Canada’s Golden Credit Card Trust. However, the charge-off rate has averaged 2.93 per cent this year, versus 2.94 per cent in the same period last year.
The other key measure to watch is monthly payment rates, says Rasmussen. The rate in the second quarter rose to 45.9 per cent, up from 42.4 per cent in the prior quarter, and little changed from 46.1 per cent a year earlier.
“Typically in Canada, consumers are using cards much more for rewards-based usage, than to carry balances,” he said. But a drop in those levels “would signal that consumers are more interested in paying a balance on the cards, and the reason that would change is that they’re having more difficulty paying off their balances each month.”