Healthy Canadian Consumer Credit Market Forecast to Continue in 2019

Newest TransUnion report shows continued balance growth and controlled delinquencies over the next year

Despite a potential slowdown in the Canadian economy over the next year, the Canadian consumer credit market is expected to see continued growth in consumer-level debt and no significant increases in delinquency rates. The just-released TransUnion (NYSE: TRU) Canada Industry Insights Report includes the latest data for the third quarter of 2018 as well as a forecast for 2019. TransUnion projects that average consumer debt balances will continue to increase for Canadians across mortgage, credit card and other non-mortgage related debt through 2019 and that serious delinquency rates will either decline or remain steady over the next year.

The continued low delinquency environment portends a healthy consumer credit market within the current economic climate. However, a potential slowdown in the Canadian economy in 2019, combined with soft wage growth, heightened uncertainty beyond Canadian borders and continued interest rate increases may cause some challenges. Canada’s GDP growth is widely expected to slow from an expected 2.2% in 2018 to 1.9% in 2019 (Source: Oxford Economics). This slowdown in economic activity may impact consumer spending and employment levels, which could put stress on consumers’ capacity to service debt. At this time, none of these factors are significant enough to negatively impact the outlook for the consumer credit market in 2019.

“The Canadian consumer credit market has performed extremely well over the past several years, with solid growth supported by strong economic fundamentals,” said Matt Fabian, Director of Financial Services Research and Consulting for TransUnion Canada. “Looking into 2019, we anticipate a continuation of these positive trends, which is good news for Canadian credit consumers. However, there are signals of a mild economic slowdown emerging, which presents an opportunity for Canadian consumers and businesses to plan and evaluate different potential scenarios that could impact their ability to continue to responsibly manage their debt.”

The Year Ahead: 2019 Forecast

TransUnion’s forecasting models provide forward-looking insights for consumer credit balances and delinquency rates, and incorporate dozens of credit, behavioural and macroeconomic variables. The 2019 forecast indicates that the outlook remains positive for the Canadian credit market, with continued opportunities for growth and balanced risk despite some potential economic challenges.

At the conclusion of 2019, TransUnion is forecasting that the average mortgage balance will increase by 3.4% over the forecasted year-end 2018 level to $274,533, and average non-mortgage debt balances will reach $30,687, a 2.8% annual increase. Serious delinquency rates are forecasted to decline or remain steady for most credit products.



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* Serious delinquency rates are consumer level and are measured as 60 or more days past due for mortgage and 90 or more days past due for all other products

Trends to Watch in 2019

1) Credit card delinquency rates at higher risk of an increase

Credit cards are the one major credit product that is forecast to have a slight increase in delinquency rates in 2019, with other products expected to have lower delinquency rates. TransUnion research studies have shown that, when faced with economic pressure, consumers often have a hierarchy around which debt payments they continue to stay current on and which they allow to go delinquent. The analysis shows that, for consumers with credit cards, auto loans and mortgages all in their wallets, credit card payments are generally the first product type that consumers will go delinquent on, preferring to keep payments like auto loans and mortgages in good standing if they are forced to choose. While Canada is not expected to slip into a recession in 2019, any significant economic headwinds would likely put credit cards at a higher risk for increased delinquency rates relative to other major credit products.

“Consumers’ ability to manage their debt is directly impacted by their disposable income,” said Fabian. “If we were to see an economic downturn and pressures on consumer income, we would anticipate credit cards to be the product that would be impacted first in terms of higher delinquencies. At the same time, we would expect balances to rise as consumers look to cards to help make ends meet. While current expectations are for continued positive economic growth in 2019, lenders are likely to monitor their portfolios closely in the event of any negative news."

2) Potential for regional shocks across Canada

TransUnion forecasts the possibility for regional economic shocks across Canada contributing to a slight rise in overall delinquency. These include the impact of steel and aluminum tariffs on manufacturing, continued decline in oil prices and overall industry disruption such as the recent news of the General Motors plant closure in Oshawa.

“While we see the impact of tariffs and localized shocks as having very little impact on overall delinquency across Canada, it would certainly be felt by consumers in those regions and some consumer credit portfolios may be regionally impacted,” said Fabian. “Depending on the severity and length of the oil price decline, some regions could experience delinquency rate increases of up to 50 bps, similar to what occurred in Alberta and Saskatchewan following the last oil price drop. Typically, as these economic shock events occur, we tend to see some unemployment increases lagged by a rise in delinquency as incomes and capacity to service debt are constrained.”

3) Mortgage balances to slightly increase

Stricter mortgage qualifying rules and stress tests have been successful in tightening entry into the mortgage market for many consumers over the past 12 months. As both consumers and lenders continue to navigate the new environment, TransUnion forecasts a slight increase in average mortgage balance per consumer, with new mortgage origination amounts reflecting the still-elevated home prices in many major metropolitan areas.

“The tighter mortgage rules will likely have some positive impact on rising delinquency rates when Canada faces the next economic downturn. Given that the Canadian market already enjoys very low delinquency in the mortgage space, the stress testing rules should help bolster this and reduce the impact of any shock,” Said Fabian.

4) Non-mortgage delinquency will continue to drop

A decrease in overall consumer non-mortgage delinquency is expected to persist through 2019 as consumers continue to do a good job of managing their credit obligations. But delinquency rates are sensitive to economic events including, but not limited to, interest rates, unemployment, inflation and wage growth.

“Core economic fundamentals are likely to remain relatively stable through the coming year, and we predict this will have a correspondingly positive impact on delinquency levels,” said Fabian. “Additionally, when we look at consumer payment patterns – particularly the ratio of how much consumers with a credit card balance are paying off in addition to their minimum required payments, we continue to see a healthy positive spread, which indicates that most Canadian consumers have some excess capacity to absorb shock.”

More information about the 2019 consumer credit forecast and details about the latest 2018 TransUnion Canada Industry Insights Report, including details about a variety of credit products, can be found here. Among the details are more information about balance and delinquency trends for auto loans, installment loans, lines of credit and mortgage loans. Please visit the following website to register for TransUnion's 2019 Forecast Industry Insights Webinar scheduled for Dec. 14 at 2 p.m. ET.

About the TransUnion Canada Industry Insights Report

TransUnion’s Canada Industry Insights Report is an in-depth solution that provides statistical information every quarter from TransUnion’s national consumer credit database which includes our full credit-active population, and is aggregated across virtually every active credit file on record. Each file contains hundreds of credit variables that illustrate consumer credit usage and performance. By leveraging the Industry Insights Report, institutions across a variety of industries can analyze market dynamics over an entire business cycle, helping to understand consumer behaviour over time and across different geographic locations throughout Canada. Businesses can access more details about and subscribe to the Industry Insights Report.

About TransUnion (NYSE: TRU)

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