As the COVID-19 pandemic continues to bring unprecedented pressures
on consumers’ ability to repay their debt obligations, TransUnion
(NYSE: TRU) today released a new multi-scenario credit forecast.
TransUnion’s current scenario projects that overall non-mortgage
delinquency in Canada will peak at 6.9% at the end of Q3 2020
before gradually dropping back down to 6% at the end of Q1 2021.
For context, the non-mortgage delinquency rate in Q1, which
straddled pre- and post-COVID worlds, was 5.75%, and concluded Q4
2019 at 5.61%.
“As unemployment reaches levels not seen in several years, it’s
important to take a step back and reassess how COVID-19 will impact
the consumer credit market in the coming quarters,” said Matt
Fabian, director of financial services research and consulting at
TransUnion. “Elevated unemployment and its effect on consumers’
income and ability to pay debt obligations is a primary driver of
increased delinquency. The various government relief benefits,
combined with deferral programs provided by lenders, can act to
offset some of the COVID-related delinquency. However, each of
these measures may contribute to long-term risk at a future time,
as consumers will generally still be responsible for paying these
deferred obligations at some point in the future.”
The updated forecast indicates that the economic effects will
likely not be evenly distributed by region. Certain provinces, such
as those more dependent on industries heavily impacted by the
lockdown, like tourism and travel, are likely to be more adversely
affected. Additionally, the energy provinces including Alberta and
Newfoundland could potentially be even harder hit with the
combination of COVID restrictions and the economic impact of
plummeting oil prices.
The revised forecast, for example, estimates the non-mortgage
serious delinquency rate in Alberta to reach 8.3% at the end of Q3
2020. Lenders are already preparing for these and other scenarios,
building and executing against their downturn crisis playbooks with
a goal of mitigating risk while still supporting consumers who may
be suffering through the crisis – especially those that are only
struggling due to the crisis and would otherwise be reliable
customers.
Serious Delinquency Rates Expected to
Rise for All Major Credit Products
Serious delinquency measured as 90 or
more days past due
Product |
Forecast serious delinquency rate at end of
2020 |
Q1 2020* serious delinquency rate |
Q4 2019 serious delinquency rate |
Overall non-mortgage |
6.3% |
5.8% |
5.6% |
Credit Card |
3.8% |
2.9% |
2.8% |
Auto finance |
2.8% |
1.6% |
1.5% |
Personal loan |
5.1% |
4.3% |
4.1% |
Mortgage |
0.9% |
0.3% |
0.3% |
*assumes second half likely impacted by
COVID-19 |
The lockdown has caused businesses of all sizes to shut down,
causing massive spikes in unemployment. TransUnion estimates that
approximately 8% of Canadian credit-active consumers (3% of the
total population) impacted by COVID-19 are vulnerable to credit
shocks. This segment of consumers already has a history of missed
payments and generally can only make the minimum payment due on
revolving products like lines of credit and credit cards.
“The average consumer delinquency rate for this group is
approximately 17% - almost three times the overall market rate.
This group will be most exposed to the economic impacts of social
distancing and other economic stresses like low oil prices. The
breadth and scope of impact to this group will be largely
determined by the duration of the crisis and when consumers are
able to safely resume their previous activities,” added Fabian.
Canadian consumers felt the pressure of debt coming into
this crisis
Canadian credit-active consumers were already feeling the
pressure of debt coming into the COVID-19 crisis. Overall
non-mortgage delinquency rates in Q1 2020 were up 39 bps from the
previous quarter to 5.75%, marking the highest observed since 2015.
This increase was likely fueled by the impact of a higher cost of
debt combined with plummeting oil prices and a cooling economy.
While we observed a decline in 2018 and the first-half of 2019
of 20 bps per quarter, the latter half of 2019 saw an increase in
delinquencies. Since Q2 2019, the rate of increase in delinquencies
had been accelerating leading into the first quarter of 2020 with
an average increase of 2.4%.
Average overall consumer non-mortgage debt balances remained
relatively stable in Q1 2020, dropping 1.3% YoY to $29.6K and
nearing a two-year low, as consumers may have been trying to
deleverage in the face of higher interest rates on their credit
balances.
“Consumers may have been feeling the pressure of higher credit
balances and increased interest rates and so were beginning to
deleverage and pay down debts. However, some were unable to do
this, which can explain in part the higher delinquency rates we saw
for Q1. We do not anticipate non-mortgage balances remaining stable
in the coming months due to the COVID-19 pandemic,” said
Fabian.
Canadian consumers have historically shown resilience and
responsibility when it comes to managing credit debt. But the
impact of a slowing economy and oil price slump has affected some
consumers, and the massive impact of COVID-19 lockdowns will put
even more pressure on consumers as it relates to the ability to pay
down debt.
The resiliency of Canadian consumers remains to be seen, as
current circumstances make drawing historical parallels
challenging. This is further highlighted in a recent financial
hardship survey conducted by TransUnion, in which 60% of Canadians
indicated their incomes had been negatively impacted by the
COVID-19 pandemic, with 67% of those impacted showing concerns
about their ability to pay bills and loans.
Younger credit consumers are feeling more of the
impact
The younger cohorts seem to be struggling the most. Compared to
the previous quarter, serious delinquency rates (90+ days past due)
for Millennials increased 52 bps to 7.9% in Q1 2020, and Gen Z
consumers increased 130 bps to 7.5%. Millennials and Gen Z have
seen their overall total debt grow to $595 B – a growth rate of
just over 28% over the past two years.
Generally, younger consumers have fewer relief outlets during
economic downturns, and with fewer options there tends to be higher
delinquency levels. As these cohorts are already at a stress point,
the effects of COVID-19 and accompanying lockdowns are likely to
increase the financial shock on younger generations. This is
consistent with recent survey findings that showed both Millennial
and Gen Z cohorts indicated that they are even more likely to be
impacted by COVID-19, at 71% and 73% respectively.
While the Q1 scenario heading into the COVID crisis was already
challenging, Fabian said that he expects a drastic change over the
next quarter. “It’s important to note that the constant change, and
unprecedented scope and scale of this crisis can still unfold into
many scenarios. Possibilities to consider include how the various
relief programs will support consumers and small business, how
resilient consumers will be, and how lenders will manage through
the worst of this situation.”
For more information about the updated TransUnion consumer
credit forecast, please visit https://www.transunion.ca/lp/IIR.
About the TransUnion Canada Industry Insights
ReportTransUnion’s Canada Industry Insights Report is an
in-depth, credit-active population-based solution that provides
statistical information every quarter from TransUnion’s national
consumer credit database, aggregated across active credit files on
TransUnion record. These files contain 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.
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 a comprehensive picture of each person so
they can be reliably and safely 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 Fiona
BangE-mail Fiona.Bang@ketchum.com
Telephone 647-680-2885
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