The newly released Q2 2019 TransUnion (NYSE: TRU) Industry Insights
Report shows that overall consumer credit balances continued to
grow in the second quarter—up 4.3% compared to the same period a
year ago—bringing total outstanding consumer credit to $1.88
trillion. Over the last 12 months, the number of consumers with
access to credit also grew, up 1.7% year-on-year (YoY) in Q2 2019.
Helped by the continued emergence of FinTech lenders and an
increased focus by the whole lending market on subprime and near
prime consumer segments, total balances for non-revolving credit
products (primarily installment and auto loans but excluding
mortgages) increased over the year. The average non-revolving
balance per consumer grew 6.2% YoY to $31.4K in Q2 2019. At the
same time, borrowing for revolving products (including credit cards
and lines of credit) saw a slight drop, down 1.2% YoY to end Q2
2019 at $18.5K. Encouragingly, consumer-level delinquencies
remained broadly stable across all major lending categories, the
exception being installment loans where consumer-level
delinquencies improved by 24 basis points.
“Buoyed by low unemployment and recent interest rate stability,
consumers in Canada continue to build debt, particularly on auto
and installment loans. And to date, consumers continue to do a good
job of managing their debt levels, with delinquency rates stable
over the past year. However, as the economy slows and risks of an
economic downturn remain prevalent, it will be important for
consumers to manage these higher debt levels diligently to remain
current on their obligations,” said Matt Fabian, director of
financial services research and consulting for TransUnion
Canada.
Originations, the measure of new accounts opened, were strongest
for the Line of Credit category—up 13.9% YoY. Conversely, with the
market still adjusting to new qualifying rules for mortgages, there
was a decline in mortgage originations of 8.9% YoY in this key
category. After the increased regulatory control came into force in
January 2018, chartered bank lending in mortgages began to cool,
while non-bank lending conversely grew. TransUnion’s Industry
Insights Report shows a drop in origination volume from the major
banks of 9.8% during the 12 months ended Q1 2019, while secondary
banks and credit unions—which are not subject to the new rules—saw
a 2.1% increase in origination volume over the same
period.
A generational coming-of-age and the continued emergence
of FinTech lenders
As consumers mature through various stages of their lives and
careers, their needs for various assets and expenditures evolve,
including transportation, housing, and everyday purchases.
Correspondingly, their borrowing requirements evolve as well. Q2
2019 marked a significant landmark for Millennials, as they became
the age segment with the second-highest outstanding credit
balances, behind Generation X.
Total Generational Borrowing as at end of
Q2 2019
Generational Grouping(1) |
Total Balances (B) |
YoY Growth |
Average Number of Credit Products Per Consumer with
Credit |
Silent |
$52.5 |
-7.45% |
2.2 |
Baby Boomers |
$514.3 |
-1.80% |
3.7 |
Gen X |
$767.4 |
3.40% |
4.2 |
Millennials |
$515.9 |
12.33% |
3.4 |
Gen Z |
$24.8 |
50.53% |
2.1 |
(1) Silent Generation: Born 1945 and before, Baby Boomers: Born
1946–1964, Generation X: Born 1965 – 1979, Millennials: Born 1980 –
1994, Gen Z: Born after 1994
During the quarter, Millennials (born 1980-1994) reached parity
with Baby Boomers (born 1946-1964) in terms of outstanding
debt—each with slightly over $500B in total debt. This trend
represents a fundamental shift in generational lending, as banks
and other institutions continue to adapt and evolve their business
models to provide more options and more tailored customer
experience for Millennials and Gen Z.
“At a headline level, the consumer credit market continues to
grow. However, growth hasn’t been uniform, and in major categories
like mortgages, we continued to see a decline in origination
volumes when compared to the same period a year ago,” continued
Fabian. “The shift in focus toward non-revolving credit products is
something we’ve seen over recent quarters. The rise of Millennials,
who have equaled and slightly surpassed Baby Boomers when looking
at outstanding balances, is having a fundamental impact on the
approach lenders take to how they market to and service their
customers.”
Q2 2019 Metrics for Major Credit
Products
Credit Product |
Q1 2019 Originations(1) – All Borrowers |
Annual Change |
Average New Account Limit |
Annual Change |
Consumer-Level Serious Delinquency Rates(2) |
Annual Change |
Consumer Credit Cards |
1,519K |
-5.21% |
$4,739 |
0.8% |
3.07% |
- 5 bps |
Captive Auto Loans |
192K |
-1.55% |
$31,724 |
1.9% |
1.77% |
- 17 bps |
Lines of Credit |
337K |
13.92% |
$42,004 |
-19.7% |
1.07% |
- 9 bps |
Installment Loans |
731K |
-0.10% |
$21,619 |
-5.7% |
4.30% |
+ 13 bps |
Mortgages |
159K |
-8.91% |
$276,579 |
-3.6% |
0.45% |
- 6 bps |
(1) Originations are viewed one quarter in arrears to account
for reporting lag. (2) Serious delinquency rates are 90 or more
days past due for credit cards and 60 or more days past due for all
other credit products.
The report also reveals some caution in the market, as there has
been a decline in the size of new credit limits, which suggests
some pullback by lenders. The changes weren’t uniform, as the
average new limit issued for new credit cards and auto loans
increased, while lines of credit, installment loans and mortgages
decreased.
In the hyper-competitive credit card market, against a backdrop
of falling new card volumes (down 5.2% YoY), issuers have increased
new card limits to better performing credit consumers—limits for
credit cards to super prime consumers increased 12.8% while card
limits issued to high risk subprime consumers fell 13.9% as lenders
continue to risk balance their portfolios. Additionally, card
issuers have been aggressive in extending credit limit increases to
existing customers to offset slower growth in new accounts. There
was a 3.7% YoY rise in overall card credit limits across all risk
tiers in Q2 2019. Limits in the below-prime segments grew the most
in percentage terms, with subprime and near-prime tiers seeing
limit increases of 5.6% and 4.6%, respectively.
Across installment loans, the report shows increased
participation from younger age cohorts, with consumers in
Millennial and Gen Z segments taking on more installment loans.
Conversely, the rate of loans issued to older consumer tiers has
declined. This may be due to increased participation of
FinTechs—lenders which originate solely through online channels and
which focus heavily on personal installment loans. In other
markets, including the U.S. where FinTechs have been operating for
over a decade, FinTechs have proven successful in appealing to
younger consumers and bringing them into the personal loan market
by offering fast turnaround times and a positive customer
experience.
The total number of open installment loans grew by 5.1% YoY in
Q2 2019. The report also showed that originations by traditional
lenders (major banks and credit unions) were flat YoY in the most
recent quarter, while alternative lenders, including FinTechs, grew
34% over the prior year, albeit still relatively small in overall
volume compared to traditional lending.
The continued shift in mortgage lending and the impact
of mortgage legislation
The report also looked at the mortgage market and observed a
significant drop in originations in the most recent quarter, down
8.9% YoY. While the mortgage market is affected by multiple
factors, including house price growth, longer-term consumer
sentiment, interest rates and unemployment levels, there can be no
doubt regulatory changes have had a material impact on the Canadian
mortgage market since early 2018.
From a demographic perspective, the biggest erosion in mortgage
originations has been among younger cohorts, led by the 18-25
segment, which saw a reduction of 13.4% in originations YoY. The
new mortgage rules affect this group perhaps the most, as they will
typically be starting their careers and have lower incomes relative
to older cohorts. This limits both their ability to qualify under
the mortgage stress test rules, as well as the size of mortgages
they can obtain. In many of the major Canadian housing markets,
many younger consumers have now been effectively priced out of
buying.
“The new mortgage regulations seem to be having the intended
effect in cooling the overheated housing market and broadly
preventing consumers from overextending themselves with mortgage
debt. This is now the fourth consecutive quarter we have seen a
decline in both mortgage originations and balances. However, there
are signs of some potentially unintended consequences. We have
started to see an uptick in co-borrowing as the means of getting a
foothold on the property ladder, where multiple consumers make an
application together—in effect combining the power of their
salaries. Although this is nothing new, it is now often with the
help of a parent, other relative or a friend rather than just a
partner or a spouse,” said Fabian.
Regional variations
There continues to be significant regional variation in both
credit demand and performance. Alberta continues to have the
highest average non-mortgage credit debt per consumer at $37,048.
This is likely due to higher demand for credit in this region in
recent years resulting from the effects of lower oil prices on the
resource-dependent province, as well as a series of natural
disasters that have affected large areas of Alberta.
Volatility in the oil sector and its effect on employment have
impacted delinquencies as well. In Alberta and Saskatchewan, there
were YoY increases in consumer-level non-mortgage delinquency rates
to 6.6% (+21 bps) and 6.8% (+37 bps), respectively, in Q2 2019.
There has also been an increase in revolving balances, which in
down markets can be an indicator of borrowing to finance day-to-day
expenses.
British Columbia and Ontario rank second and third highest for
average non-mortgage borrowing per consumer at $33,516 and $31,888
respectively. This is likely driven by a combination of a higher
cost of living in the large metropolitan areas in each province, as
well as the effect of significant recent housing cost increases,
which can impact consumer disposable income and increase reliance
on borrowing.
A cautious approach to a cooling economy
Although the Canadian consumer credit market continues to look
sound, with overall delinquency rates remaining broadly stable,
there are significant variations in origination and balance growth
across regions, categories and risk tiers.
“As concerns continue about the prospect and timing of an
economic downturn, the Canadian consumer credit market remains
generally resilient. The continued increase in overall lending is
now at a slightly slower pace than in previous quarters, suggesting
that consumers and lenders may be exercising some caution. Despite
data showing a cooling economy, strong job growth and accelerating
wages continue to mitigate the pressure on household finances and
prevent a softening in consumer credit demand. That said, a future
downturn in economic growth will put pressure on credit consumers
and may affect delinquency rates, especially in more vulnerable
regions of Canada.” concluded Fabian.
More information about the TransUnion Canada Industry Insights
Report, including details about a variety of credit products, can
be found here. Among the details are more information about balance
and delinquency trends, including for auto loans, installment
loans, lines of credit and mortgage loans. Please visit the
following website to register for TransUnion's Q2 2019 Industry
Insights Report webinar scheduled for August 27 at 2 pm ET.
TransUnion CreditVision score risk tier segment definitions:
subprime = 300-639; near prime = 640-719; prime = 720-759; prime
plus = 760-799; super prime = 800+
About the TransUnion Canada Industry Insights
ReportTransUnion’s Canada Industry Insights Report is an
in-depth, full credit-active population-based solution that
provides statistical information every quarter from TransUnion’s
national consumer credit database, aggregated across virtually
every active credit file on record. Each file contains hundreds of
credit variables that illustrate consumer credit usage and
performance. By leveraging the Industry Insights Report,
institutions across a variety of industries can analyze market
dynamics over an entire business cycle, helping to understand
consumer behavior over time and across different geographic
locations throughout Canada. Businesses can access more details
about and subscribe to the Industry Insights Report.
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