Canada Debt-to-Income Ratio Rises to Record in Q4
Canadian household debt as a share of income rose to a fresh record in the fourth quarter, data from Statistics Canada showed on Wednesday in a report likely to underscore concerns consumers are becoming overly indebted.
The ratio of debt to disposable income rose to 167.3% from an adjusted 166.8% in the third quarter. That meant Canadians owed C$1.67 ($1.24) for every dollar of disposable income, Reuters reported.
On a seasonally adjusted basis, households borrowed C$28.4 billion in the fourth quarter, up from C$18.7 billion in the previous quarter. Mortgages made up C$18.9 billion of this, an increase of C$1.2 billion, while consumer credit and non-mortgage loans were up C$8.5 billion at C$9.5 billion.
Years of low interest rates since the global financial crisis, as well as rising home prices, have prompted Canadians to steadily increase their debt.
The Bank of Canada has flagged the elevated level of household indebtedness as a potential vulnerability for the financial system as consumers with large amounts of debt could find it difficult to adjust to a loss of income or other financial shock.
However, low interest rates have allowed consumers to pay down more of their mortgage principal, with payments split almost evenly between interest and principal in the fourth quarter, the statistics agency said.
Consumers’ ability to pay their debt also remained relatively easy. The interest-only debt service ratio held at a record low of 6.1%, while the household savings rate jumped to 5.8% from 5.5%.
The household debt service ratio, with is obligated payments of both principal and interest as a proportion of disposable income, edged down to 14% from 14.1% in the third quarter.
Reduced Lending to Small Businesses
Lending activity to small Canadian businesses edged down in January, though borrowing by larger firms accelerated, data showed on Wednesday, pointing to an economy that is still recovering from an oil price shock two years ago, Nasdaq reported.
The PayNet Canadian Small Business Lending Index decreased to 120.3 from 121.9 in December, while lending was down 6% compared to a year ago. But medium-sized companies fared better, rising to 238.3 from 221.7.
Activity was flat from a year ago. Small business lending has fallen from a peak reached in June 2015 as the economy was hit by the drop in the price of oil, a major export for Canada. But economists expect the worst of the oil fallout is over.
Small business lending is also improving compared to the double-digit annual decreases seen last year, said PayNet President Bill Phelan. “Overall, private companies have been digging themselves out,” he said.