Canadian Consumer Credit Trends - Equifax · PDF fileCanada Overview - GDP The growth of the...

Canadian Consumer Credit Trends Q3 2015

Prepared by: Equifax Analytical Services

Equifax Canadian Consumer Credit Trends © 2015 Equifax Canada Co. All rights reserved. 2

About Equifax Inc.

Equifax is a global leader in consumer, commercial and workforce information solutions that provide businesses of all sizes and consumers with insight and information they can trust. Equifax organizes and assimilates data on more than 600 million consumers and 81 million businesses worldwide. The company’s significant investments in differentiated data, its expertise in advanced analytics to explore and develop new multi-source data solutions, and its leading-edge proprietary technology enable it to create and deliver unparalleled customized insights that enrich both the performance of businesses and the lives of consumers.

Headquartered in Atlanta, Equifax operates or has investments in 19 countries and is a member of Standard & Poor's (S&P) 500® Index. Its common stock is traded on the New York Stock Exchange (NYSE) under the symbol EFX. In 2015, Forbes named Equifax one of the World’s 100 Most Innovative companies; Bloomberg BusinessWeek nominated it as one of its Top 50 companies; its CIO was named one of the top 100 by CIO magazine; the company ranked 16 th in the Fintech 100 list; and it was recognized as a top 20 company to work for by the Atlanta Journal-Constitution and was named a 2015 InformationWeek Elite 100 Winner. For more information, please visit www.equifax.com.

The graphs contained in this report are for informational purposes only. Equifax Canada Co. makes no representation, claim, warranty, or guarantee in respect of the information contained herein.

© 2015 Equifax Canada Co. All rights reserved.

Contributors Regina Malina, Senior Director, Decision Insights

Regina’s background is in statistical analysis, campaign management and research with over 15 years of experience across various industries. Before joining Equifax as Director of Modeling and Analytics, she held senior analytics and customer and data insights roles at various organizations including Bank of Montreal, Loyalty One, and Intact Insurance (formerly ING Insurance). Regina brings knowledge from many industries including retail, financial, pharmaceutical, CPG and insurance. In her past roles, she developed statistical solutions, oversaw analytical and measurement projects, and assisted in the specification of best CRM practices related to campaign management, business intelligence application and data mining, ensuring optimal targeting for marketing communications. Regina holds a Master of Science degree in Statistics.

Tara Zecevic, Vice President, Decision Solutions

Tara has over 17 years of progressive experience within the financial services sector with a strong consultative approach to crafting solutions in both established and emerging markets. Tara’s career has spanned marketing solutions, sales and product management for fraud, analytic and decisioning solutions. Tara has an Hon. B. Sc. and Certificate in Human Resources from University of Toronto. She currently sits on the Credit Canada Debt Solutions board and is also a member of the IAFCI, CSRSA and Credit Association.

Introduction

Introduction

Methodology

Key Consumer Credit Indicators

Introduction This report is part of the quarterly series of Equifax reports on Canada’s consumer credit industry, including national credit cards, revolving and installment loans, as well as personal, retail, sales, auto finance and mortgages.

Equifax is one of the most reliable sources of Canadian consumer credit data available. This report will help companies dealing with consumers assess where the market is trending in terms of indebtedness and creditworthiness.

Methodology

Data for this report, including scores, are sourced from the Equifax Canada data warehouse, which stores the majority of credit transactions that occur in Canada. There are over 25 million unique consumer files. Transaction volumes for data are estimated at 105 million per month.

Information provided in this report was adjusted to ensure that quarterly data reflects the results as of the last month of each quarter.


Executive Summary In the first half of 2015 Canada was showing the signs of mild recession. Reduced interest rate and depreciation of Canadian dollar will support the economy as it adjusts to a new reality of low oil prices.

Trend in consumer interest in new credit reversed course for the first time in nine consecutive quarters. This change is driven by several factor. While strong activity is still observed in the Auto sector, Bank and National Credit Cards sectors saw a material decrease. Regionally, all regions are increasing, with the most notable change in the Eastern region. As the risk profile of consumers with higher scores seeking more credit continues to deteriorate in 2015, we will continue to monitor these results in subsequent quarters to confirm if this is a new trend.

Consumer debt continues to increase, driven largely by the Auto and Installment loan product categories. Low interest rates which resulted from two consecutive deceases of the overnight interest rate by the central bank continue to help consumers to responsibly maintain increasing debt levels and to contribute to GDP growth. Quebec and Eastern region are increasing their debt faster than other regions, but Quebec still maintains the lowest average debt and the Eastern region has the second highest. Average consumer debt increase in the Western region is driven by Manitoba and Saskatchewan.

Overall, bankruptcies and delinquency rates remain stable. These metrics are lagging indicators, which are expected to show more significant changes following changes in the metrics impacted more immediately by the economic situation, such as unemployment rates. With oil patch situation being a new reality, the impacts on the oil-producing regions are expected to become more obvious. The delinquency rate in Alberta started to decrease in 2015 after declining for over four years, with the most recent increase of 13.4%.

Close monitoring of key economic indicators is important as the outcomes and timing of the change within the current economic environment are still largely uncertain.


“In our interest rate

announcement earlier this

month, the Bank noted that

the resource sector is

continuing to adjust to lower

prices, and that these

complex adjustments will

take considerable time. Our

inflation-targeting regime will

help facilitate these

adjustments. Canada has

seen this movie before—

we’ve managed it well in the

past, and I’m confident we

will continue to manage it

well in the future.”

Commentary from Stephen Poloz

Calgary Economic Development

September 21st, 2015

Key Consumer Credit Indicators


Change in Consumer Credit Indicators (compared to the same period last year):

Average debt (consumer level, outstanding balances) 2.0%

Average debt (product level, outstanding balances) 1.5%

Consumer demand for new credit 2.7%

90 day+ delinquency rate 4.3%

Consumer bankruptcies 9.3%

Average loss per consumer resulting from bankruptcies

(excluding mortgage debt) 5.1%

As of the third quarter of

2015, average consumer

non-mortgage debt

reached $21,312, while

overall delinquency rate

is at an all-time low of

1.05%.

Canada Overview

Canada Real GDP

Unemployment Rate

Interest Rate

Macro Economic Environment The growth of Canadian economy was disappointing in the first part of 2015 being mainly impacted by a decrease in global oil prices. After GDP declined for two consecutive quarters, third quarter GDP grew due to positive results in exports and consumer spending. By mid-2017 Canadian economy is expected to return to full capacity and target inflation.

Export activity, a key factor in economic growth, relies on increased U.S. demand, a weaker Canadian dollar, and low interest rate. All of these factors are still true in the current environment. The lower Canadian dollar also continues to provide increased purchasing power for consumers.

The oversupply of oil globally continues to worsen. As the situation of lower oil prices may be here to stay, impacted provincial economies are adjusting to these changes and the challenges of this new reality. Oil-producing provinces (Alberta, Saskatchewan, and Newfoundland and Labrador) continue to slow down and reduce growth due to reduced investment in the oil sector, increased unemployment and a decrease in house prices.

The unemployment rate at the end of third quarter increased to 7% from 6.8% in the previous quarter. Higher unemployment levels in Alberta and Saskatchewan continue to increase.

The Bank of Canada kept its benchmark overnight rate at 0.5% in October 2015. The economy is expected to rebound with the support of the lowered rate and depreciation of the Canadian dollar. This is expected to help Canada to get closer to its targeted 2% inflation rate.

Inflation rate in Canada increased by 1% in September of 2015, slowing down from a 1.3% in the previous month. This decrease is mainly due to the falling gasoline prices, as the prices were increasing in most other sectors, more notably food, household operations, furnishings and equipment and shelter..

According to the advance estimates, US GDP increased 1.5% in the third quarter of 2015, largely due to the rise in consumer spending and disposable personal income. With rise job growth and inflation, the US benchmark overnight rate may be increased in the coming months.

Close monitoring of key economic indicators is important as the outcomes and timing of the change within the current economic environment are still largely uncertain.


Canada Overview - GDP

The growth of the Canadian

economy was disappointing in

the first part of 2015 being

mainly impacted by a decrease

in global oil prices. After GDP

declined for two consecutive

quarters, third quarter GDP grew

due to positive results in exports

and consumer spending.

Previous declining performance

of business investment and

exports in the resource sector

were among the main reasons

for Bank of Canada’s decision to

slightly reduce its forecasts for

2016 and 2017. By mid-2017 the

Canadian economy is expected

to return to full capacity and

target inflation.

9 Equifax Canadian Consumer Credit Trends © 2015 Equifax Canada Co. All rights reserved.

Source: Statistics Canada

Canada Overview – Unemployment Rate

Canada’s unemployment

rate held at a consistent

6.8% for six consecutive

months, but in the third

quarter it increased to 7%.

Provincially, Ontario, British

Columbia, New Brunswick

and Manitoba recorded

increased employment,

while Alberta recorded a

decline. In other provinces

there was little or no

change. Higher

unemployment levels in

Alberta and Saskatchewan

persist.

Most gains are observed in

full time.


Source: Statistics Canada

Canada Overview – Interest Rate

In early 2015, the

overnight interest rate was

changed to 0.75% after

remaining unchanged at

1% for over 4 years. In

July 2015, it was reduced

further to 0.5% as Bank of

Canada felt that additional

monetary stimulus was

required to ensure the

economy can work at full

capacity. A constant low-

interest rate environment

continues to be a main

driver for the continued

increase in consumer

credit indebtedness.


Source: Bank of Canada

Consumer Debt Trends

Total Debt

Average Debt - Major Cities

Total Debt Distribution and Trends All Credit Products

Consumer total debt is still on the rise. As of

Q3 2015, Canadian consumers owe $1,587.5

billion, compared to $1,568.0 billion in Q2 2015

and $1,513.1 billion a year earlier; an increase

of 1.24% and 4.92%, respectively.

On a debt classification basis, the installment

loan and auto loan sectors are showing

significant increases of 8.1% and 5.1% year-

over-year, respectively.

Number of accounts increased, mainly driven

by Installment Loans, National Credit Cards

and Auto. The number of National Credit Cards

and Auto loans increased faster than in the

previous quarter.

Mortgage figures are based on information reported to Equifax and do

not include the entire Mortgage market.


Consumer Debt Trends

Total Debt

Average Debt - Major Cities

Average Debt – Toronto (Consumer Level)

Average debt and

limits show steady

increases over the

past six quarters

while utilization

continues to

decrease.


Average Debt – Montreal (Consumer Level)

The growth of

average balances

and limits has risen

again this quarter.


Average Debt – Vancouver (Consumer Level)

Average balance

decreased this

quarter, driving

utilization further

down.


Average Debt – Calgary (Consumer Level)

Average balances

have increased

slightly, but not

enough to change

the trend of

decreasing

utilization.


Average Debt – Ottawa (Consumer Level)

Average balances

and limits have

increased, while

utilization decreases.


Average Debt – Edmonton (Consumer Level)

Average limits have

increased faster than

balances resulting in

decreases in

utilization.


Average Debt – Halifax (Consumer Level)

Average balances

and limits continue to

increase while

average utilization

shows little change.


Average Debt – St. John’s (Consumer Level)

Average balances

and limits continue to

increase while

average utilization

decreases.


Credit Risk Trends

Delinquency

Bankruptcy

After the national 90+ delinquency rate has consistently decreased over three years and then increased in Q1/2015. In the subsequent two quarters it went down and is now at its lowest level of 1.05%. When compared to the same quarter last year, the national 90+ delinquency rate decreased, largely driven by the changes in Ontario. Improvements are also seen in Quebec and Eastern provinces this quarter. Nova Scotia, New Brunswick and PEI impacted the decrease in the delinquency rate within the Eastern region. Notably, in the Western region the delinquency rate trend reversed course over the past two quarters: it increased twice after declines over several years. This was driven by significant increases within the oil-producing Western provinces of Alberta and Saskatchewan. Despite changes in some regional trends, the Western region still has the lowest delinquency rate, while the Eastern region has the highest. After customers within the 65+ age segment showed an increase in delinquency last quarter for the first time in years, the decrease this quarter was consistent in all age groups. Auto loan delinquency rates continue to increase when compared to the previous quarter, but slower. The mortgage 90+ delinquency rate is 0.22%.

Summary – Delinquency Trends


90+ Delinquency Rate (Except Mortgage)


Note:

Delinquency is defined as 90 + days or worse on a trade.

Delinquency Rate = Total Delinquent Balance/Total Balance

Credit Risk Trends

Delinquency

Bankruptcy

The number of bankruptcies has decreased since 2009. Ontario continues to lead in terms of the rate of decrease of bankruptcies. The number of bankruptcies within Alberta, Saskatchewan and Newfoundland and Labrador increased this quarter.

Average bankruptcy balance increased in Q3 2015 when compared to the same quarter last year, mainly driven by the younger segments, and all regions but Ontario. Within bankruptcies, the proportion of proposals continues to increase, especially in Ontario and Alberta.

Summary – Bankruptcy Trends


Bankruptcies


Canadian Consumer Credit Trends Q3 2015

Prepared by: Equifax Analytical Services

About Equifax Inc.

Equifax is a global leader in consumer, commercial and workforce information solutions that provide businesses of all sizes and consumers with insight and information

they can trust. Equifax organizes and assimilates data on more than 600 million consumers and 81 million businesses worldwide. The company’s significant investments in

differentiated data, its expertise in advanced analytics to explore and develop new multi-source data solutions, and its leading-edge proprietary technology enable it to

create and deliver unparalleled customized insights that enrich both the performance of businesses and the lives of consumers.

Headquartered in Atlanta, Equifax operates or has investments in 19 countries and is a member of Standard & Poor's (S&P) 500® Index. Its common stock is traded on

the New York Stock Exchange (NYSE) under the symbol EFX. In 2015, Forbes named Equifax one of the World’s 100 Most Innovative companies; Bloomberg

BusinessWeek nominated it as one of its Top 50 companies; its CIO was named one of the top 100 by CIO magazine; the company ranked 16th in the Fintech 100 list; and

it was recognized as a top 20 company to work for by the Atlanta Journal-Constitution and was named a 2015 InformationWeek Elite 100 Winner. For more information,

please visit www.equifax.com.

The graphs contained in this report are for informational purposes only. Equifax Canada Co. makes no representation, claim, warranty, or guarantee in respect of the information contained herein.

© 2015 Equifax Canada Co. All rights reserved.

http://www.equifax.com/

Canadian Consumer Credit Trends - Equifax · PDF fileCanada Overview - GDP The growth of the...

Documents

Transcript of Canadian Consumer Credit Trends - Equifax · PDF fileCanada Overview - GDP The growth of the...