Continued growth in the Canadian consumer credit market in the first quarter of 2019 has not come at the expense of serious delinquencies — a big positive, although there are some variations in regional performance. There’s an overall trend favouring non-revolving credit products, and a willingness among lenders to extend credit to consumers in higher-risk segments. However, the economic slowdown will likely put pressure on consumers, and lenders should monitor trends and adjust their strategies to align with consumer demand.
Two factors driving consumer credit growth
TransUnion’s Industry Insights Report for the first quarter of 2019 (Q1 2019) shows that the Canadian consumer credit market has expanded against a backdrop of moderating economic growth and higher interest rates.
This growth has been driven by two factors: more consumers have access to credit, and they hold higher credit balances overall.
In our outlook for 2019, we forecast an overall decline in delinquency, bearing in mind that delinquency rates are sensitive to economic events such as interest rates, unemployment, inflation and wage growth. Canadians are increasing the amount they’re borrowing, delinquency rates have remained steady (5.36% in Q1 2019, a drop of 5 basis points from the prior year).
Focus moves towards non-revolving credit products
In our last report (Q4 2018), we noted some clear trends among consumers in different generations. An interesting development in the numbers from this quarter is the trend towards non-revolving credit products, such as auto and installment loans. This is where most growth has come from.
In Q1 2019, there was a 3.1% increase in the number of consumers holding one or more of these products, and a 7.2% increase in the average balance per consumer. In comparison, growth in revolving accounts, like credit cards and lines of credit, was relatively low. The number of consumers with these accounts increased by just 1.5% and the average balance was down 0.3%.
Lenders extending credit across risk tiers
Lenders seem increasingly willing to grant credit to consumers in higher-risk categories. Balances for revolving credit grew most quickly among consumers in below-prime risk tiers, as consumer demand continued, and lenders were more willing to extend credit across the risk spectrum.
This, and the shift towards non-revolving credit products, may indicate a broader change in consumer credit appetite and spending behaviour. These trends provide good insight into lenders’ continued appetite for risk and how households are coping with changing economic conditions.