Predicting a ‘sharp’ rise in Alberta, Sask. debt defaults

TransUnion, a leading U.S. credit agency, is predicting consumers in oil-dependent provinces will face “sharp” increases in credit and loan product delinquencies in the coming quarters.

“Based on an historical analysis of the last oil crash and recent payment behaviour trends, we expect materially higher delinquency rates in Alberta and Saskatchewan in the second half of 2015,” said Jason Wang, director of research and industry analysis in Canada for TransUnion, adding if lenders don’t get proactive there could be double-digit delinquency rate increases in Saskatchewan, and as much as a 60 per cent rise in some parts of Alberta.

Wang co-authored a study on the impact of lower oil prices which shows 26 per cent of Alberta’s gross domestic product is dependent on oil.

Saskatchewan is second at 16 per cent of GDP.

TransUnion says the first sign of cash flow problems is when consumers reduce their credit card payments.

A statement with $1,000 may only require a minimum payment of $25 but consumers usually pay more of that balance to avoid interest while many users pay off their balances in full every month.

TransUnion looked at Fort McMurray and found that the number of residents there who pay no more than twice the minimum amount due on their credit card balances had increased by 10 per cent from last summer. Consumers in the rest of the country did not exhibit similar behaviour.

“In short, this is a first sign of emerging liquidity constraints. As a result of the slump in the oil industry, many consumers in Alberta may be facing challenges meeting their monthly payment obligations,” said Wang.

Mark Kelly, a trustee in bankruptcy and partner with Hardie & Kelly Inc., said the impact is already being felt. “We have seen a significant increase in the number of individuals seeking relief from their debt over the last four months,” he said.

Kelly said some Albertans end up at his door because of job loss but in many cases it’s the accumulation of debt over the last few years.

TransUnion said part of the problem might be that almost six years later, balances for outstanding credit cards are 21 per cent higher than 2008 levels.

“What’s particularly important to understand is that balances are much greater today than they were in the 2008 and 2009 period. Thus any delinquent accounts will place a greater burden on the economy,” said TransUnion’s Wang.

Kelly says housing not been a major factor in bankruptcies or consumer proposals so far this year but Calgary Real Estate Board reported Wednesday it is now expecting a 22 per cent decline in sales for 2015.

The outlook is for downward pressure on home values but CREB is still expecting prices for 2015 to be about flat from where they were a year ago.

“Further job losses are expected in the second half of the year. These employment changes, combined with … slower than anticipated recovery of oil prices, are expected to keep housing demand relatively weak for the rest of 2015,” said Ann-Marie Lurie, chief economist for the board.