Posthaste: These loans are raising credit risk red flags in Canada
Credit risk monitors that have been keeping a close eye on loan performance in Canada as higher interest rates put pressure on borrowers, say lenders are starting to get nervous.
The jump in the unemployment rate and loss of jobs in March “is stoking unease about the short-run outlook for loan performance,” said Moody’s Analytics.
Canada lost over 2,000 jobs and the unemployment rate rose to 6.1 per cent last month, its highest level in two years — a surprise for economists, who had been expecting a jobs gain.
Up until recently a strong labour market and steady wage growth have bolstered credit performance. “If Canadian households were to lose this crucial support, as the March jobs report hinted, default rates would quickly accelerate higher,” said Moody’s Brendan LaCerda.
The good news is that residential loans, such as mortgages and home equity lines of credit or HELOCs, remain firmly below their pre-pandemic levels.
Nor are credit cards and unsecured loans — though back in line with historic norms — ringing alarm bells.
Auto loans, however, are becoming a cause for concern.
“While every other credit segment continues to outperform its pre-recession average, auto loans delinquencies’ upward trend presents a troubling development,” said LaCerda.
According to data from Equifax Canada and Moody’s, delinquencies on auto loans have already surpassed their pre-pandemic average and are showing signs of accelerating.
This isn’t just borrowers being a month late. The number of loan payments which are 60, 90 and 120 days late is growing.
Moody’s says in some ways this reflects a long-running industry trend. Auto loan balances for lower credit scores have risen faster than higher scores since 2011, except for a brief period when
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