Drop in Delinquency Rates Continues as Canadian Payment Patterns Improve
Toronto - Delinquency rates in Canada continued to decline through the first half of 2015, according to TransUnion's (NYSE: TRU) Q2 2015 MarketTrends report. Delinquency rates (the ratio of all accounts that are 90 or more days past due) declined to 2.58% in Q2 2015, a 7% drop over the course of the last two years (down from 2.69% in Q2 2014 and 2.78% in Q2 2013).
Both installment loans and lines of credit played instrumental roles in pushing the overall delinquency rate down consistently since Q2 2013. Installment loan delinquency rates have decreased from 3.92% in Q2 2013 to 3.65% in Q2 2014, and then to 3.12% in Q2 2015.
Delinquency rates of lines of credit, the most popular non-mortgage credit product, have dropped from 0.90% in Q2 2013 to 0.81% in Q2 2014 before settling in at 0.74% at the end of Q2 2015. Lines of credit constitute 35% of all non-mortgage debt.
"Delinquency rates of all credit products are relatively low, but even so we have observed a pronounced improvement in some of the most popular credit products such as lines of credit," said Jason Wang, TransUnion's director of research and industry analysis in Canada. "This is a positive sign that Canadians are both increasingly aware of the importance of making payments on time, and have the capacity to do so. The recent interest rate cuts may have in part made it easier to manage lines of credit, which typically carry variable rates."
Payment Patterns Indicate Healthy Market
Another indication that Canadians are performing well on their credit products is through improving payment patterns. TransUnion developed a key indicator of consumer credit health utilizing its CreditVision advanced data solution, which provides additional insights into the health of the Canadian credit market.
The percent of Canadian consumers who pay two times the minimum due on a credit card or less has declined from 11.8% in Q2 2014 to 11.1% in Q2 2015. Declines were observed in all major provinces, including Alberta.
However, Alberta may be an outlier in this regard as TransUnion's recent oil study projects many consumers in this province will experience rises in their delinquency rates through 2016.
"Although it seems a good sign that -- at the end of Q2 -- only approximately one in 10 Albertans with credit cards appear to be struggling with their payments, there may be a shift in the coming quarters," said Wang. "Based on our research focusing on the immense and persistent oil price drop, we have observed deteriorating payment patterns in certain oil towns, and believe Alberta may be the first province to see a marked decrease in payment ratio, meaning more consumers in this area will have difficulty meeting their monthly credit card payments."
Debt Levels Marginally Rise
Debt levels for Canadians rose slightly in Q2 2015 compared to a year earlier, according to TransUnion's report. Average balances per consumer (excluding mortgages) increased 0.71% from $20,880 in Q2 2014 to $21,028 in Q2 2015.
While major cities such as Toronto and Ottawa experienced the largest yearly increases, Albertans continued deleveraging trends, showing signs of the oil plunge impact. Both Calgary and Edmonton were the only major markets to experience yearly balance decreases.
"As we've noted the last few quarters, the major cities in Alberta are experiencing some deleveraging with consumers more aware not to take on credit risk, largely due to declining oil prices," said Wang. "One positive is that we have not yet seen increases in the overall delinquency rate in Alberta, though we do expect this to change in the next several months."