3 Min Read
TORONTO (Reuters) - Canadian consumers took on more debt in the second quarter as credit card and loan balances rose, but the delinquency rate continued to decline as indebted Canadians found ways to pay their bills, a report showed on Thursday.
Canadian consumers owed C$1.45 trillion ($1.34 trillion) in the second quarter of 2014, up 1.8 percent from the first quarter and 7.2 percent compared with a year earlier, credit monitoring firm Equifax Canada said in a report.
The Bank of Canada has repeatedly warned against rising consumer debt in Canada, where five years of low interest rates and a hot housing market have pushed households to rely on credit to finance both big purchases and day-to-day expenses.
Policymakers fear an eventual rise in interest rates will crush Canadians who have gotten used to an artificially low debt burden, sparking both credit card default and a potential housing crash when mortgage payments become unaffordable.
The central bank highlighted its concern about the overstretched household sector in remarks on Wednesday even as it kept the official interest rate at 1 percent.
The average debt held by Canadians, excluding mortgages, is C$20,759, and the outstanding balances on financial products increased 1.5 percent compared with the second quarter of 2013, Equifax said.
"Given that the interest rate has been low for a while, and the indications from the Bank of Canada is that it will probably not go up significantly, the situation is attractive enough for consumers to take advantage of," said Regina Malina, senior director of decision insights at Equifax Canada.
Credit card balances continued to increase, but credit limits and new card issuance slowed, suggesting the promotion of credit card issuers is slowing down, Malina said.
But while the level of debt rose, Canadians continued to make their payments. The average delinquency rate, which measures bills overdue by 90 days or more, fell to 1.11 percent, the lowest level since 2008, while consumer bankruptcies fell 5 percent over the last 12 months, Equifax said.
"Consumers should incorporate the fact that eventually interest rates will go up, and we're hoping when that happens the delinquency rates stay down," Malina said.
(1 US dollar = 1.0855 Canadian dollar)
Reporting by Andrea Hopkins; Editing by Jonathan Oatis