Difficult times: A Bank of Montreal branch in Quebec. The bank is again putting aside more money amid analyst warnings of potentially bad loans as mortgage renewals, among other things, challenge cardholders. — Bloomberg
OTTAWA: Canadian credit card holders carried over C$4,300 (US$3,200) in balances on average in the second quarter, according to Equifax Canada, marking the highest level since the agency began collecting the data in 2007.
A high interest rate environment and rising unemployment are straining borrowers, especially younger Canadians, the credit bureau warned in a report released on Tuesday.
Consumer debt levels topped C$2.5 trillion last quarter, jumping 4.2% from a year earlier.
Credit card borrowing was the biggest contributor to rising debt as outstanding balances hit C$122bil.
The average balance per consumer kept growing even as spending slowed down. The non-mortgage balance delinquency rate reached 1.4%, surpassing peak pandemic levels in 2020.
The report’s authors flagged a drop in pay rates led by cardholders under the age of 35, who posted the sharpest decline in payments.
Canadians between 26 and 35 had the highest missed payment rate at nearly 2%.
Canada’s unemployment rate has risen to 6.4%, and it’s 14.2% for younger workers – the highest in more than a decade outside the pandemic.
While the Bank of Canada began lowering borrowing costs in June and is expected to keep cutting over the next year as inflation eases, its key policy rate of 4.5% remains near multi-decade highs.
Rebecca Oakes, Equifax Canada’s vice-president of advanced analytics, said stabilising inflation is “good news” for many consumers.
“Unfortunately, rising unemployment has offset some of the positives and is driving increased financial stress,” she said.
Mortgage holders are feeling the strain in particular, seeing a nearly 12% boost to their average credit card balance from last year.
This is nearly double the 7.7% increase non-mortgage consumers saw in the same time frame.
An oncoming wave of mortgage renewals at higher rates will be another challenge, as most mortgages in Canada renew after five years and rates were at rock-bottom levels leading up to and during the pandemic.
Equifax noted that at least 15% of renewals in 2024 had monthly payments rise by over C$300, up from 8% in 2019.
Still, mortgage balance delinquency rates remain lower than before the pandemic, and non-mortgage borrowers are also struggling.
The Bank of Canada said in a report in May that just over one in 10 Canadians without a mortgage has a credit card balance of 80% or more of their limit, from a low of just under 8% in 2021.
Canadian bank earnings on Tuesday also underscored that consumers and businesses have struggled to pay their bills amid the extended period of high interest rates.
Both Bank of Montreal and Bank of Nova Scotia set aside more money for possibly bad loans in Canada and the United States. — Bloomberg
