TransUnion today released the findings of its Canada Q3 2022 Credit
Industry Insights Report (CIIR), which shows that more Canadian
consumers are utilizing credit. Credit participation reached a new
record high, with 27.9 million Canadians having active credit
products with a total outstanding balance of $2.29 trillion. This
is a year-over-year (YoY) increase of 7.9%, on a three-year
compound annual growth rate of +6.4%.
As part of the CIIR, TransUnion maps consumer
credit market health with its Credit Industry Indicator (CII),
which rose 3.5 points YoY to 105.6 in September 2022, staying
relatively steady following the Q2 2022 score of 103.8, after
reaching a high of 110.8 in April this year.
“Rising CII levels generally indicate an
improvement in the overall activity and health of the consumer
credit market, which in the most recent quarter was primarily
propelled by the strong credit activity due to balance growth and
continued higher spend levels,” said Matt Fabian, director of
financial services research and consulting at TransUnion in
Canada.
“Credit performance remains relatively healthy
compared to pre-pandemic levels, although the CII was offset
somewhat by slowing credit demand in a high interest rate
environment, with lenders also being more cautious in anticipation
of continued macroeconomic headwinds,” he added.
Chart 1: Canadian Credit Industry
Indicator
A photo accompanying this announcement is
available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/b3c5182c-6c20-4dc3-9f6b-14f068000138
Source: TransUnion Canada consumer credit
database. (i) A lower CII number compared to the prior period
represents a decline in credit health, while a higher number
reflects an improvement. The CII number needs to be looked at in
relation to the previous period(s) and not in isolation. In
September 2022, the CII of 105.6 represented an improvement in
credit health compared to the same month prior year (September
2021) and a slight increase in credit health compared to the prior
quarter (June 2022).
Consumer balances growing at a healthy
paceGrowth in the number of consumers carrying a balance
was the highest among subprime* consumers (those consumers with
higher risk of default), with the number of consumers in this
segment growing by 7.2% YoY in Q3, although their share of balances
remained relatively low compared to other consumer segments. This
marks a re-engagement with credit among these consumers after a
decline during the pandemic, likely led by the effects of inflation
along with lenders increasing their participation in the subprime
consumer space.
Credit participation increased mostly amongst
those in Generation Z (born between 1995 and 2010) with a YoY
increase of 20.9% as more Gen Z consumers entered the credit market
and this cohort expanded the use of different products. Credit
participation increased 3.6% YoY among Millennials (born between
1981 and 1994), whose non-mortgage balances grew the fastest at
13.3% YoY. Credit participation among Baby Boomers (born between
1946 and 1964) and the Silent Generation (born between 1928 and
1945) declined by -1.0% and -6.6%, respectively.
Overall, non-mortgage debt increased by 2.0% YoY, driven by
increased credit card and line of credit balances. Inflation and a
higher cost of living eroded both disposable income and the savings
rate, leading to an increased reliance on credit.
Growth in the minimum required payment was led
by mortgages, as the average consumer’s monthly mortgage payment
increased by 9.3%, driven by a combination of rate increases and
home prices. Credit card minimum payments increased by 7.4% driven
by increased utilization and balances. Auto loans increased by 2.6%
as vehicle purchase prices also continued to increase.
Table 1: Balance Growth by
Product
Average balance per consumer |
Q3 2019 |
Q3 2020 |
Q3 2021 |
Q3 2022 |
YoY % change |
% Change from 2019 |
Credit Cards |
$ |
4,163 |
$ |
3,663 |
$ |
3,575 |
$ |
3,913 |
9.44 |
% |
-6.01 |
% |
Auto Loans |
$ |
24,285 |
$ |
24,488 |
$ |
25,200 |
$ |
26,082 |
3.50 |
% |
7.40 |
% |
Lines of Credit |
$ |
35,566 |
$ |
34,001 |
$ |
33,431 |
$ |
34,968 |
4.60 |
% |
-1.68 |
% |
Recent Mortgages |
$ |
273,577 |
$ |
286,669 |
$ |
314,260 |
$ |
343,612 |
9.34 |
% |
25.60 |
% |
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“Inflationary pressure is likely contributing to
higher spend levels relative to income as cost of living increases
have eroded Canadians’ disposable income and savings rates,” Fabian
said. “They are increasingly reliant on credit to bridge that gap.
Additionally, an increasing interest rate environment continues to
increase the cost of certain debt which puts additional pressure on
some consumers.”
Ongoing volatility creates shifts in
consumer behaviourRecent TransUnion Canada analysis looked
at the changing debt behaviours of Canadians. The study looked at
more than 21 million Canadian credit consumers over a 12 month
period to observe consumer credit behaviour through the pandemic.
The study followed consumers through two different time periods –
2019 and 2021 – to identify differences in credit utilization and
balance behaviour pre- and during the pandemic and revealed a
number of trends. While households accumulated a record amount of
savings during the peak of the pandemic, the gains were not evenly
distributed. As savings have subsequently deteriorated in the
current adverse macroeconomic environment, a growing inequality in
household wealth is driving different responses.
TransUnion analysis revealed that an equal
number of consumers were leveraging – increasing their debt
balances by at least 20% – as were deleveraging – shrinking their
balances by 20%. During the pandemic, just over 50% of deleveraging
consumers reduced their pre-pandemic balances by over half.
Those building their balances were doing so
across primarily unsecured credit products – credit card, line of
credit and personal loan – with 70% of these leveraging consumers
being scored above prime* (i.e. lower risk). Lenders were
increasing limits on credit products over the same 12 month period
to these consumers, as their demand for credit increased.
The consumers that were deleveraging their
credit were primarily doing so by paying down auto loans, mortgages
and home equity loans.
“Deleveraging activity reduces overall debt, but
it also lowers consumption and spending, which can limit credit
growth in an economy if it happens during an economic downturn or
recession. During a downturn, consumers prioritize what they’re
spending money on. As lenders prepare for the next possible
downturn, understanding consumers’ financial durability becomes
important in identifying growth opportunities,” Fabian
explained.
Inflation remains a concern for
CanadiansTransUnion Canada’s Q3 Consumer Pulse survey to
over 1,200 Canadian consumers indicates that inflation concerns
continued as households shifted their behaviours and reduced
spending to potentially cope with rising costs. Inflation was a
growing concern: 69% of households cited inflation as their biggest
or second biggest concern affecting household finances in the next
six months. Furthermore, 55% of households indicated their incomes
weren’t keeping up with inflation. When it comes to a potential
recession, Canadians said they’re shifting some behaviours to
prepare by reducing spending (68%), building up savings (32%) or
paying down debt (31%).
Increased credit activity approaches
pre-pandemic norms Delinquency levels, led primarily by
installment loans and credit cards where serious delinquency was up
by 12 bps and 13 bps respectively, have been trending towards
pre-pandemic levels. The recent surge in below prime originations
(an increase of +11% YoY in Q2 2022 – latest data available for
originations due to reporting lag) is likely a factor in this
trend. It is important to note that, while delinquency is generally
trending up, delinquency rates in general are still below
pre-pandemic levels, apart from personal loans.
Table 2: Delinquency Rates by
Product
DPD – days past due payment
|
Q3 2019 |
Q3 2020 |
Q3 2021 |
Q3 2022 |
YoY change (bps) |
bps Change from 2019 |
Credit Cards (90+ DPD) |
0.92 |
% |
0.59 |
% |
0.59 |
% |
0.72 |
% |
13 |
-20 |
Auto Finance (60+ DPD) |
0.90 |
% |
0.86 |
% |
0.67 |
% |
0.76 |
% |
9 |
-14 |
Line of Credit (60+ DPD) |
0.31 |
% |
0.26 |
% |
0.20 |
% |
0.24 |
% |
4 |
-7 |
Mortgage (60+ DPD) |
0.29 |
% |
0.26 |
% |
0.21 |
% |
0.18 |
% |
-3 |
-11 |
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“The Canadian credit market remained healthy and
active during Q3 2022, despite the inflationary pressures,” Fabian
said. “The economic outlook remains challenging, with high
inflation, rising interest rates and stock market volatility
negatively impacting consumers; at the same time, the strong
employment market has provided income stability. While some
increases in delinquency rates are still expected in the coming
months, a sound jobs picture and Canadian consumers’ resilience
suggests that there are growth opportunities in the credit market
among the various economic challenges.”
For more information about the Q3 2022 Credit Industry Insights
Report, please click here.
#ends
*According to TransUnion VantageScore® 3.0, score ranges are:
Subprime 300 – 600, Near Prime 601 – 657, Prime 658 – 719, Above
Prime 720 – 780, and Super Prime 781 – 850.
About TransUnion (NYSE: TRU)
TransUnion is a global information and insights
company that makes trust possible in the modern economy. We do this
by providing an actionable picture of each person so they can be
reliably represented in the marketplace. As a result, businesses
and consumers can transact with confidence and achieve great
things. We call this Information for Good®. TransUnion provides
solutions that help create economic opportunity, great experiences
and personal empowerment for hundreds of millions of people in more
than 30 countries. Our customers in Canada comprise some of the
nation’s largest banks and card issuers, and TransUnion is a major
credit reporting, fraud, and analytics solutions provider across
the finance, retail, telecommunications, utilities, government and
insurance sectors.
For more information or to request an
interview, contact: |
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Contact:E-mailTelephone |
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Emma TiessenEmma.Tiessen@ketchum.com647-523-1594 |
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