Canadians' credit binge continues, but at slower pace

Thu Dec 13, 2012 11:22am EST
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By Louise Egan

OTTAWA (Reuters) - Canadians continued to pile on personal debt in the third quarter, pushing the debt-to-income ratio to a record high in what has become the biggest headache for central bank chief Mark Carney as he keeps interest rates low to spur growth.

There was evidence, however, that Canadians are curbing their appetite for mortgage credit as the country's housing market cools.

The ratio of credit market debt to disposable income rose to 164.6 from the previous record high of 163.3 in the second quarter as borrowing grew faster than incomes, Statistics Canada said on Thursday.

The trend is similar to that seen in the United States and Britain before the global financial meltdown, and that similarity prompted the government to tighten mortgages rules in July for the fourth time since 2008.

The Bank of Canada said last week that household financial excesses remained the biggest domestic threat to the country's financial system.

But the debt-to-income ratio rose by a smaller amount than it did in the second quarter, Statscan said.

"The further deterioration in household leverage ratios in the third quarter is sure to raise concerns," said David Onyett-Jeffries, economist at Royal Bank of Canada.

"With that said, the annual rate of increase in household debt has shown considerable moderation during 2012, and credit growth is around decade lows at 5.8 percent in the third quarter," he said.   Continued...

The Bank of Canada building is pictured in Ottawa March 3, 2009. REUTERS/Chris Wattie