Today, TransUnion released the findings of its Q1 2021 TransUnion
Industry Insights Report, which showed a sharp decline in balances
across most products as higher consumer liquidity, reduced spending
and lender accommodations enabled Canadian credit consumers to
navigate the ongoing public health and economic crises. While the
Canadian economy is improving, the credit market has been slow to
recover as consumers are seeking fewer credit products and
maintaining conservative borrowing behaviours. Nevertheless, the
Canadian credit market shows signs of good health and consumer
confidence is at its highest level in more than a year, according
to TransUnion’s most recent Consumer Pulse survey, which suggests
an improved outlook for new credit activity in the latter half of
2021 and beyond.
“As the economy slowly recovers, we are witnessing consumers
deleveraging in the Canadian credit market, with the exception of
mortgages,” said Matt Fabian, director of financial services
research and consulting at TransUnion. “Despite increased consumer
confidence and liquidity, the decline in consumer balances and
originations could pose problems for lenders that are not prepared
for the changing consumer behaviours, which could result in a
higher proportion of risky balances. Lenders should consider
actively seeking to replenish their portfolios with new balances
and originations to maintain a manageable delinquency rate.”
Consumers show signs of deleveraging unsecured
credit
In Q1 2021, use of credit remained slow across all products
except for mortgages. Existing borrowers focused on paying down
balances, while balance growth on newly originated products
remained stagnant compared to prior periods. While the overall
number of credit-active consumers remained essentially flat – down
by 0.47% year-over-year (YoY) – consumers seem to be taking
advantage of higher income and savings from enhanced government
benefits and reduced spending to deleverage1.
The average non-mortgage consumer balance declined by 2.9% YoY
to $28,900 in the first quarter of 2021. Unlike unsecured lending
products, the average consumer mortgage balance increased by 5.7%
to $112,000. This strong mortgage activity appears to have been
buoyed by attractive interest rates and high real estate demand.
Continued strong mortgage originations generated over $170 billion
in mortgage balances in Q4 2020 – a 43% increase from prior year.
While delinquencies remain low, this recent growth bears watching
in future quarters.
Consumer liquidity has increased as Canadian consumers have
elevated their savings rate to an all-time high – 28% of disposable
income2. The decrease in non-mortgage balances could be attributed
to this higher consumer liquidity, as well as appeared reduced
spending and accommodation programs that have enabled consumers to
pay down revolving balances on credit cards and lines of credit. In
Q1 2021, the average revolving balance per consumer decreased by
7.3% YoY, with credit cards down by 16.5% YoY. The total number of
accounts with one or more credit cards also decreased in Q1 2021 by
5.2%.
Originations slowed down across all credit products and
risk tiers, except for mortgages
In Q4 2020, the Canadian credit market saw significant declines
in origination volume YoY, suggesting that consumers have adequate
liquidity and do not feel the need to engage in the credit market.
New originations dropped across all products, except for mortgages,
on an annual basis.
Bankcards experienced the sharpest decline in originations with
a 31.4% reduction YoY. Other products suffered double-digit drops
in originations, including personal loans (-27.1%), lines of credit
(-18.3%), and auto finance (-8.8%).
Meanwhile, mortgage originations continued to grow in Q4 2020 –
increasing 25.8% YoY, likely fueled by record-low interest rates
and increased demand for refinancing. Because of intense real
estate activity, home prices surged by 31.6% in March on an annual
basis, with home sales up 76.2%. This growth is expected to
continue through the second quarter of 2021, before tapering off
due to lower demand.
Origination Volumes
|
Q4 2019 |
Q1 2020 |
Q2 2020 |
Q3 2020 |
Q4 2020 |
YoY |
Bankcard |
1,647,627 |
1,313,470 |
642,845 |
1,051,728 |
1,130,658 |
-31.40% |
Auto Loan |
476,994 |
383,792 |
369,215 |
550,295 |
435,065 |
-8.80% |
Line of Credit |
346,389 |
315,993 |
219,003 |
247,667 |
283,062 |
-18.30% |
Installment |
531,305 |
475,792 |
347,611 |
445,531 |
387,072 |
-27.10% |
Mortgage |
260,281 |
205,386 |
263,958 |
306,278 |
327,344 |
25.80% |
The decrease in originations occurred across the risk spectrum,
though it was most pronounced in below-prime consumers3.
Origination volumes for below-prime consumers fell 27% from the
prior year, while prime and better originations were down by
12%.
According to TransUnion’s most recent Consumer Pulse survey,
more than 30% of consumers who classified their credit as good to
poor – out of a potential range of excellent to poor – considered
applying for credit but ultimately did not. When asked about the
reason for not applying, 29% reported they did not think they would
meet income or employment conditions and 23% thought their credit
history would be inadequate.
Higher-risk consumer originations were down across all product
categories, signalling that lenders may not be expanding their risk
appetite to pre-COVID levels or engaging these consumers. Subprime
consumers saw a decline in originations across credit cards
(-26.7%), auto loans (-33.6%), LOCs (16.9%), installment loans
(-42.3%) and mortgages (-24.1%).
Lower-risk consumers also showed a decline in originations, with
the percentage drop for new credit cards greater for super prime
consumers than for subprime, likely due to lower demand. However,
other unsecured products saw much smaller YoY declines for low-risk
versus high-risk borrowers, whereas auto originations for prime and
better borrowers effectively recovered to pre-pandemic levels.
YoY Growth/Decline in Origination Volume |
|
Cards |
Auto |
LOC |
Installment |
Mortgage |
Subprime |
-27 |
% |
-34 |
% |
-17 |
% |
-42 |
% |
-24 |
% |
Near Prime |
-34 |
% |
-13 |
% |
-15 |
% |
-26 |
% |
5 |
% |
Prime |
-29 |
% |
2 |
% |
-13 |
% |
-22 |
% |
22 |
% |
Prime Plus |
-25 |
% |
4 |
% |
-6 |
% |
-18 |
% |
38 |
% |
Super Prime |
-32 |
% |
-3 |
% |
-3 |
% |
-16 |
% |
33 |
% |
“We’ve observed depressed spending and decreased overall
balances as people stay home, cut entertainment and travel costs
and increase their savings rate,” explained Fabian. “Fewer
consumers have been seeking credit, regardless of whether they are
below or above prime. As pandemic-related lockdowns ease and
businesses reopen, consumers are expected to increase their
spending, which may drive a resumed need to borrow. Lenders could
work with existing consumers to inform them of the many credit
products and services available as consumers return to more robust
spending and borrowing patterns.”
Improving delinquency rates indicate resilience of the
Canadian credit market
Despite the end of a majority of deferral programs, delinquency
rates decreased for all products. At the end of Q1 2021,
consumer-level serious delinquency (90 DPD) dropped 63 bps YoY to
1.4%, and consumer non-mortgage delinquency decreased YoY 62 bps to
1.39%, potentially driven by the combination of increased consumer
liquidity and deleveraging observed driving down non-mortgage
credit balances and reducing payments.
Consumer-level delinquency (% of consumers delinquent on at
least one product) by product |
|
90 + DPD |
YoY change (bps) |
Bankcard |
0.63% |
-32 |
Auto |
0.51% |
-13 |
LOC |
0.16% |
-4 |
Installment |
0.80% |
-15 |
Mortgage |
0.15% |
-4 |
Consumers are managing financial obligations effectively, likely
thanks to improved savings and debt relief, and many appear to have
leveraged that increased liquidity to pay down credit balances. The
number of consumers making payments beyond the minimum payment due
on revolving balances grew 4% from the prior year.
“There are several healthy market trends that lenders should
consider in extending new credit to consumers,” said Fabian. “As
pandemic-related concerns begin to ease, consumers are performing
better than expected even after deferral programs ended, and
delinquencies are lower than expected. Lenders can take note of
these positive trends and be prepared to meet the needs of
consumers as their credit demand rebounds in 2021.”
1 Unless otherwise stated, the source of the information in this
release is from the TransUnion Canada consumer database.
2 Statistics Canada. Table 36-10-0112-01 Current and capital
accounts - Households, Canada, quarterly
3TransUnion CreditVision® score risk tier segment definitions:
subprime = 300-639; near prime = 640-719; prime = 720-759; prime
plus = 760-799; super prime = 800+
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
Bang |
E-mail |
Fiona.Bang@ketchum.com |
Telephone |
647-680-2885 |
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