BUSINESS

Canadians' Debt Getting Riskier, BoC Warns -- But We're Getting Better At Paying It Off

06/08/2017 01:44 EDT | Updated 06/08/2017 01:50 EDT

The Bank of Canada is yet again raising the alarm about Canadians’ debt levels, but new data from credit ratings agency TransUnion shows Canadians, overall, are getting better at paying off their debts.

The average Canadian now carries $21,696 in non-mortgage debt, a two-per-cent increase from the first quarter of last year, TransUnion said in a report issued Thursday.

Given that StatsCan data shows incomes grew just 0.9 per cent over the past year, Canadians are taking on debt faster than their incomes are growing.

delinquencies by city

But TransUnion says delinquency rates on Canadians’ debt are falling. The number of delinquencies — debts overdue by more than 90 days — fell by 1.45 per cent from a year earlier.

Toronto led the way, with a 7.55-per-cent decline in delinquencies — despite a three-per-cent increase in total debt.

Among major cities, Vancouver saw the largest increase in non-mortgage debt (up 4.27 per cent in a year), but the city also saw a 1.85-per-cent increase in delinquencies.

non mortgage debt by city

The one major exception was the oil provinces, where delinquencies rose as the effects of the oil price collapse continued to make themselves felt. The cities in these provinces also have some of the highest non-mortgage debt loads in the country.

“The consumer credit market in Canada is expanding, and is doing so in a healthy manner,” TransUnion’s head of research, Matt Fabian, said in a statement. He said this “bodes well for Canada’s overall economic activity.”

Bank of Canada strikes a different tone

In the latest edition of its biannual Financial System Review, the Bank of Canada struck a very different tone from TransUnion, warning once again — and in stronger language — that Canadians’ debt levels are making the country’s economy vulnerable to a shock.

“Highly indebted households have less flexibility to deal with sudden changes in their income,'' said the bank.

“As the number of these households grows, it is more likely that adverse economic shocks to households would significantly affect the economy and the financial system.''

stephen poloz

Bank of Canada governor Stephen Poloz.

The bank outlined two key risks to the financial system.

The first risk is a large, persistent decrease in foreign demand that would lead to a severe recession. While the bank noted the probability of such a risk is low, it said that rising household vulnerabilities mean the severity of such an event, should it occur, has expanded.

The other risk identified in the review, which has a “moderate'' chance of occurring, is a regional correction in housing prices in sizzling markets like Toronto, Vancouver and their surrounding areas. Such a development would hurt the broader economy and the financial system, the bank said.

But even as the central bank warned that the country's most significant weak spots have widened, governor Stephen Poloz said the overall financial system remains resilient and broader economic conditions have shown signs of improvement.

— With a file from The Canadian Press