Canadian credit card holders carried an average balance of over 4,300 Canadian dollars ($3,200 U.S.) in the second quarter, the highest level since the start of the global financial crisis in 2007, according to Equifax Canada.
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Published August 27, 2024 • 2 minutes reading time
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(Bloomberg) — Canadian credit card holders carried an average balance of more than 4,300 Canadian dollars ($3,200 U.S.) in the second quarter, the highest since the global financial crisis began in 2007, according to Equifax Canada.
An environment of high interest rates and rising unemployment is putting pressure on borrowers, especially younger Canadians, the credit bureau warned in a report released Tuesday. Consumer debt exceeded 2.5 trillion Canadian dollars in the last quarter, up 4.2 percent from a year earlier.
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Credit card loans contributed most to the debt increase, as outstanding balances reached C$122 billion. The average balance per consumer continued to rise even as spending declined. The delinquency rate (excluding mortgages) reached 1.4%, surpassing the pandemic peak in 2020.
The report’s authors found a decline in payments that was particularly evident among cardholders under 35, who saw the greatest decline in payments. Canadians between the ages of 26 and 35 had the highest delinquency rate, at nearly 2%.
Canada’s unemployment rate has risen to 6.4%, and among younger workers it is 14.2% – the highest in more than a decade outside of the pandemic. While the Bank of Canada began cutting borrowing costs in June and is expected to continue those cuts next year as inflation eases, its benchmark interest rate of 4.5% remains near multi-decade highs.
Rebecca Oakes, vice president of advanced analytics at Equifax Canada, said stabilizing inflation is “good news” for many consumers. “Unfortunately, rising unemployment has offset some of the positives and is leading to increased financial stress,” she said in a statement.
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Mortgage borrowers are feeling the pinch particularly hard, with their average credit card balance rising nearly 12% year over year, nearly double the 7.7% increase for consumers without mortgages during the same period.
Another challenge will be an impending wave of mortgage renewals at higher interest rates, as most mortgages in Canada renew after five years and interest rates were at record lows before and during the pandemic.
Equifax found that at least 15% of renewals in 2024 saw monthly payments increase by more than C$300, compared to 8% in 2019. Overall, however, mortgage delinquencies remained lower than before the pandemic.
Canadian banks’ earnings results released on Tuesday also underscored that consumers and businesses are struggling to pay their bills amid a prolonged period of high interest rates. Both the Bank of Montreal and the Bank of Nova Scotia have set aside more money for potentially bad loans in Canada and the United States.
— With assistance from Christine Dobby.
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