TransUnion Canada’s Q2 2020 Industry Insights Report shows that the
impact of the COVID-19 pandemic continued to affect the consumer
credit market as consumers and lenders braced for uncertainty.
Access to credit slowed as overall origination of credit products
fell. Existing credit consumers slowed usage, as revolving balances
(cards and lines of credit) dropped, partly due to reduced consumer
spending and deleveraging by certain segments of consumers. While
use of credit slowed and balances dropped, delinquency and
insolvency rates improved, driven in part by the widespread use of
financial accommodation tools, such as deferrals.
“COVID-19, of course, continues to be the dominant driver of
changing conditions in credit markets, but it is very encouraging
to see lenders and borrowers working together to adapt to the new
environment,” said Matt Fabian, director of financial services
research and consulting at TransUnion. “As lockdown restrictions
due to the pandemic eased slightly in July, a combination of a more
resolved consumer base augmented by government relief and financial
forbearance programs seemed to be restoring some business and
consumer confidence.”
In addition to the Industry Insights Report, TransUnion’s most
recent Financial Hardship Survey revealed that consumers continue
to take payment deferrals. In the latest wave of the survey the
week of August 2nd, 18% of consumers surveyed indicated they are
receiving some form of financial accommodation such as a deferral
or payment holiday, up 306 bps from the last wave the week of July
4th. Further, of those receiving deferrals, the most common
products are credit cards (29%), mortgages (28%), personal loans
(17%) and utilities (16%).
As originations slowed, consumers tapped into
investments and savings to manage cashflows
As the crisis progressed, the number of consumers seeking
credit—observed by the volume of applications—plunged at the start
of Q2 2020, then slowly grew to pre-crisis levels by the end of the
quarter. The slowdown may have been driven by a combination of
reduced access to branches during the lockdown, and uncertainty
around employment and the implications of the lockdown causing
consumers to defer taking on new debt. While the number of
consumers with access to credit grew from the prior year by 1.5% to
29.2 million, this number is below the average year-over-year
growth rate of 2% to 3% observed in previous
reports.
Origination volumes of loans declined across most products
heading into the crisis, led by credit cards, which experienced a
13.5% year-over-year (YoY) decline in Q1 2020 (originations are
reported one quarter in arrears). Credit card origination volumes
had already been declining for a few quarters before the pandemic
as the market for additional cards had become saturated. Auto loan
originations declined as auto sales had continued to drop heading
into the crisis. Access to dealers during the early stages of the
lockdown also impacted auto sales and financing volumes. Mortgages
were the only product with positive YoY origination growth, at
29.2% as many consumers took advantage of renewals and refinancing
opportunities, given the continued drop in interest
rates.
While access to credit may have tightened as lenders were more
cautious during the peak of the crisis, lenders provided support
and relief programs to existing customers through a hard economic
period. However, consumers did not solely rely on credit. The
results of TransUnion’s most recent Financial Hardship Survey
indicate that Canadian consumers are withdrawing from savings and
investments to augment their incomes. Over 1 in 3 affected
consumers (approximately 13% of Canadians) reported they are using
money from TFSA or RRSP accounts to help pay bills – up by 345 bps
from the previous month’s survey.
“We are finding that Canadian consumers may be using their
existing savings and investments to supplement income during this
pandemic,” said Fabian. “Many Canadians are opting to dig into
their personal savings and investments rather than taking on
additional debt, which could partly explain the general decline in
new originations. There are obvious longer-term implications to
this approach, but this is an unprecedented situation, and we will
have to see how sustainable it is if the economic recovery is
slower to materialize.”
Borrowing and credit utilization slowed due to consumer
caution and spending preferences
Total outstanding debt in Canada grew 4.3% to $1.9 trillion,
with the growth in balances being driven by mortgages, which grew
5.3% from the prior year. Credit card balances fell drastically, by
12.3% YoY, with TransUnion’s Financial Hardship Survey indicating
that Canadians are postponing expenditures during the crisis. Two
of the top expenditures being postponed are vacations and holidays
(56%) and home improvement (23%)—this has likely impacted card
balances, especially as card is often the mode of paying for such
expenditures.
|
Q2 2019($Billions) |
Q2 2020($Billions) |
YoY |
Bank Card |
96.4 |
84.6 |
-12.3% |
Auto Loan |
64.6 |
62.4 |
- 3.3% |
Line of Credit |
257.2 |
248.9 |
- 3.2% |
Installment |
168.8 |
175.4 |
3.9% |
Mortgage |
1,248.8 |
1,314.5 |
5.3% |
While overall non-mortgage credit balances declined, balances
for Millennials and Gen Z consumers grew 0.8% and 5.9%
respectively. It is harder for younger consumers to absorb economic
shocks like this as they have fewer options to maintain cashflows,
like savings, investments or retirement funds. As a result, it is
likely that more of these younger consumers have been forced to
rely on credit. In the TransUnion Financial Hardship Survey,
younger generations felt overwhelmingly impacted, as 65% of Gen Z
and 63% Millennials surveyed indicated they remain negatively
impacted financially by the pandemic.
Delinquency rates reflect systemic resiliency as lenders
and consumers are working together
The Q2 Industry Insights Report shows that that the number of
consumers with delinquent balances dropped, reflecting the impact
of both government support and the provision of financial
accommodations by lenders. Overall, consumer non-mortgage
delinquency rates have declined by 10 bps YoY, to 1.7%. The
reduction in delinquency was driven, by credit cards and auto loans
with drop in consumer delinquency rates of -14 bps and -3 bps
respectively. Lines of credit and mortgages saw slight
increases in delinquency rates and personal loans saw a much larger
increase in delinquency. Personal loan growth has been partly
fueled by alternative lenders who have been slightly more
aggressive in issuing personal loans to Below Prime consumers
(consumers with CreditVision scores below 720).
Product |
Consumer Serious Delinquency Rate Q2 2020* |
Change YoY (bps) |
Credit Cards |
0.75% |
-14 |
Captive Auto Loans |
0.45% |
-3 |
Line of Credit |
0.34% |
4 |
Installment/Personal Loan |
1.48% |
14 |
Mortgage |
0.31% |
3 |
* Serious consumer
delinquency defined as the percentage of consumers delinquent on at
least one product 90+ days past due for Credit Card and 60+ days
past due on other products |
Delinquency rates have been mitigated by lenders through the
provision of financial accommodation tools like deferrals.
Approximately 2.6 million Canadians (or 9.2% of credit consumers)
have at least one active deferral, with higher-risk consumers more
likely to be taking advantage of financial accommodation tools.
15.2% of Subprime consumers (consumers with CreditVision scores
between 300 – 639) and 12.8% of Near Prime consumers (consumers
with CreditVision scores between 640 – 719) have taken a deferral
on at least one credit product or loan, while only 6.1% of Super
Prime consumers (consumers with CreditVision scores above 800) have
opted to take a deferral.
TransUnion’s Financial Hardship Survey indicates that consumers
are planning for the inevitable termination of financial
accommodation programs like deferrals. 32% surveyed indicated that
they plan to create a repayment plan, while 28% plan to extend
programs for an additional period if possible. Additionally, with
the government emergency relief benefit coming to an end, consumer
delinquency may be impacted in the coming months as some segments
may have reduced cash flow as a result and will be forced to make
trade-offs on what they will pay.
As the pandemic lingers, consumers should continue to manage
expenditures and debt levels to sustain themselves through the
crisis. Lenders should continue to monitor portfolios frequently to
predict and assess risk and strategize for sustainable and prudent
growth amidst uncertainty. Managing consumer loyalty and trust,
planning for future growth strategies, and leveraging enhanced data
and analytics to inform those strategies are critical ingredients
to build resiliency during these unprecedented times.
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 behaviour 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
Bang |
E-mail |
Fiona.Bang@ketchum.com |
Telephone |
647-680-2885 |
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