TransUnion today released the findings of its Canada Q4 2022 Credit
Industry Insights Report (CIIR), which shows that the Canadian
credit market continues to expand against an uncertain economic
backdrop, with consumers taking on additional credit and lenders
continuing to grow.
As part of the CIIR, TransUnion maps consumer
credit market health with its Credit Industry Indicator (CII). The
CII is a country-specific measure of consumer credit health trends,
focusing on four pillars: demand, supply, consumer behaviour and
performance. The CII for Q4 of 2022 in Canada rose four points
year-over-year (YoY) in December 2022, reaching 105 and remaining
in the same range as before the COVID-19 pandemic.
Canadian Credit Industry
Indicatori
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 December 2022, the
CII of 105 represented an improvement in credit health compared to
the same month prior year (December 2021) and a slight increase in
credit health compared to the prior quarter (September 2022). |
The YoY increase in the CII was primarily driven
by higher credit participation – the proportion of consumers
utilizing credit – as well as to the growth in consumer balances,
although it was slightly offset by recent declines in inquiries and
retail spending, as well as increases in delinquency levels across
products.
More and more borrowers are looking to a range
of credit products to cope with their financial pressures and
better position themselves for the evolving financial landscape.
Credit participation increased across all provinces, led by Ontario
which saw a 3.2% increase in the number of credit-active consumers.
Total outstanding balances also reached a new record high for the
second consecutive quarter, increasing 6.8% year-over-year (YoY) to
$2.3 trillion. Increases in average credit card and mortgage
balances per consumer – up 7.2% and 4.5% YoY, respectively –
largely drove this balance growth.
Overall, credit adoption is growing the fastest
among younger consumers, with Gen Z consumers, born in 1995 or
after, being the fastest growing cohort relative to credit
participation, while also having the highest growth in average
non-mortgage balances. Much of the growth in Gen Z is attributable
to more of these consumers reaching credit-eligible adult age each
year. However, Millennials also continue to see growth in
participation, with nearly 4% YoY growth in the number of
credit-active borrowers.
Table 1: Credit participation across
generations
Generation Cohort |
YoY growth in credit-activeconsumers |
Average non-mortgagebalance per consumer |
Gen Z (1995-Present) |
18.94% |
$10,715 |
Millennials (1980-1994) |
3.75% |
$25,776 |
Gen X (1965-1979) |
0.65% |
$39,619 |
Baby Boomers (1946-1964) |
-1.03% |
$26,916 |
Silent/Pre War (1912-1945) |
-6.52% |
$11,644 |
“We are observing increased credit usage, as
some consumers look to credit as a means to help stave off
financial pressures. Additionally there’s been some deterioration
in credit performance; however: overall credit market health
remains at pre-pandemic levels,” said Matt Fabian, director of
financial services research and consulting at TransUnion in
Canada.
“Lenders are beginning to increase their
provision for credit losses, but they’re not stopping their growth
trajectory since delinquency levels are still below what they were
prior to 2020. Canada is still in a good environment from a
performance perspective, but lenders would do well to monitor
trends closely,” he added.
Originations grow as consumers seek
access to credit and liquidityAcquisition volumes, or the
number of new accounts opened, increased by 6.2% YoY in Q3 2022
across all products, with card originations having increased by 23%
over that period. Originations grew the most in higher-risk tiers –
below prime* originations grew by 7% while prime and better risk
consumers accounted for 2% YoY origination growth.
Originations were largely driven by younger
consumers seeking access to new or additional credit, with
originations among Gen Z growing by 20.1% YoY, and by 9.9% among
Millennials. This mirrors the most recent Canada Consumer Pulse
Survey, which recorded that 18% of Gen Z consumers and 19% of
Millennial consumers plan to increase their credit usage.
Bankcard originations increased to 1.7 million
in Q3 2022, which represents growth of 22.5% YoY. With this growth,
26 million Canadians have access to credit cards.
Mortgage originations, which had been a driver
of volume through 2022, continued declining, by 18.3% YoY. The
demand for mortgage refinancing has continued to decline with the
recent interest rate increases, as most consumers who were eligible
for refinancing have already taken the opportunity to do so.
Higher interest rates, along with overall higher
credit balances, have driven higher minimum payment obligations.
The average credit consumer with a balance saw their minimum
monthly payments increase by 10% YoY to $584, driven predominantly
by increased payments due across credit card, lines of credit and
mortgages.
The property price correction that started in
early 2022 is deepening, with prices already down 11.5% from
February last year. Affordability, which is a major concern among
Canadians and government, may be set to improve in 2023 as mortgage
rates peak and house prices continue to decline. However, the
increase in minimum payments due for mortgages, as a result of
interest rate increases, has put Canadian homeowners under even
more pressure, with mortgage payments increasing, on average, by
17% YoY.
Table 2: Increase in average monthly
payments on credit products
Product |
Average Minimum Monthly PaymentRequired Q4 2022 |
YoY %Increase |
Credit Card |
$102 |
9.3% |
Line of Credit |
$411 |
35% |
Mortgage |
$1,969 |
16.6% |
Lenders can turn to early warning
signals to predict and prevent delinquenciesCanadians were
generally resilient through the pandemic, and demonstrated healthy
credit performance trends. However the current high interest rate,
high inflation environment has many facing financial stress due to
payment shocks arising from these macro changes.
During Q4 of 2022, overall consumer-level
serious delinquency (90 days or more past due) increased 11 bps YoY
to 1.51%. While overall delinquency levels remain below
pre-pandemic levels, consumer-level delinquency has increased
steadily over the last three quarters, with the most significant
increases in recent months seen in unsecured credit products.
While most efforts in portfolio management focus
on optimizing collections after delinquency, lenders could focus
more on borrowers in pre-delinquency states at risk of becoming
delinquent, to empower consumers and prepare less costly recovery
strategies. Using a robust data framework to identify at-risk
consumers at an early stage, and respond with appropriate account
management strategies, can help prevent delinquencies and build
loyalty among customers.
To deliver the tools necessary for effective
risk management, TransUnion conducted a study to better understand
first-time defaulting consumers, and clearly distinguish distracted
consumers from struggling consumers.
TransUnion’s 2022 Early Warning Signals (EWS)
study defined first-time defaulters (FTD) as consumers who have
defaulted (became 30+ days past due on a credit payment) for the
first time over the last 24 months of their credit history, meaning
they were current on all their credit payment obligations in the
two years prior to their default.
Among FTD consumers, the study identified
distracted payment behaviour as a consumer missing a payment but
for non-economic reasons, such as being away on vacation, moving to
a new address and not receiving bills, or even a major life event
such as having a baby. A distracted consumer is defined as a FTD
that did not go any deeper into delinquency over the subsequent,
whereas a struggling consumer rolled into more severe delinquency
stage over the next six months.
In contrast, struggling payment behaviour is
defined as FTD consumers who subsequently roll into a more serious
delinquency stages (e.g., progressing from 30 to 60 days past due).
Struggling consumers likely miss payments due to economic
difficulties such as losing a job, a slowdown in a business owned
by the consumer, or having other financial obligations during a
time of financial pressure.
The study, conducted using credit data between
April 2019 and June 2022, found that younger, higher risk consumers
with lower incomes and less credit experience have a higher
probability of becoming struggling consumers. However, a portion of
prime and above borrowers are also struggling, making it key for
lenders to identify them.
The study also found that consumers building
balances are more likely to default, making this behaviour a
leading indicator of delinquent and struggling consumers. A high
utilization rate is also a good indicator for predicting struggling
consumers, who also tend to have less mature portfolios, with a
higher share of accounts opened in the last two years. In addition,
the study found that consumers who pay above the minimum payment
due amount are less likely to become delinquent and struggling.
Leveraging enhanced credit attributes, an EWS
predicts the likelihood of a FTD rolling into more serious
delinquency on their payments in the following six months. The
model can accurately predict 48% of struggling FTD consumers in the
top decile of all borrowers. Of FTDs, 40% tend to be struggling
consumers who do not cure on their own, implying that lenders need
to employ proactive collection strategies.
For example, in Q4 2021, 21.5 million credit
card consumers in Canada had not missed payments over the previous
24 months. By applying CreditVision® scores, 15% of those consumers
were assessed to be high risk with below prime* credit scores. By
applying EWS scores, 48% of those high risk consumers were
predicted to be struggling, and 4.5% of them rolled into serious
delinquency, with total credit limits of $356 million.
“Lenders should prioritize struggling borrowers,
as their level of average balances has recently exceed pre-pandemic
levels,” Fabian said. “The fact that most consumers who default for
the first time become struggling borrowers is cause for concern,
and is a priority for lenders to manage, particularly since
pandemic-driven payment relief programs have ended as a source of
liquidity for borrowers.”
For more information about the Q4 2022 Credit
Industry Insights Report, please click here.
*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:
Contact: |
Emma
Tiessen |
E-mail |
Emma.Tiessen@ketchum.com |
Telephone |
647-523-1594 |
A graph accompanying this announcement is
available
at:https://www.globenewswire.com/NewsRoom/AttachmentNg/730bd353-9fec-4d7f-81dc-faa752570953
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