Canada consumers unscathed by credit crunch: report

Wed Mar 26, 2008 11:30am EDT
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OTTAWA (Reuters) - Canadian households have felt little fallout from the global credit troubles, with mortgage and consumer credit expanding and no big increases in arrears or delinquencies, according to a report released on Wednesday.

The report, prepared by the Canadian Imperial Bank of Commerce, supports the Bank of Canada's view that the country has been less affected than Europe and the United States by the financial market breakdown that originally stemmed from the U.S. subprime mortgage market.

Looking at the most recent data available on mortgages, personal loans, credit cards, household debt and consumer bankruptcies, CIBC economist Benjamin Tal concludes: "So far the credit crunch did not impact the Canadian household credit market in any significant way."

Numbers from January and February suggest Canadians are confident enough in their incomes to shrug off the subprime crisis and continue to take out mortgages at a robust rate.

CIBC forecasts mortgage outstanding will grow by about 8 percent to 9 percent this year, down slightly from the 13 percent growth in 2007.

"This is very different than the situation south of the border where the pace of growth in mortgage outstanding has slowed significantly," it said.

Also unlike the United States where foreclosures are on the rise, the arrears rate in Canada remains low at 0.26 percent. CIBC expects some upward pressure on arrears over the next year but a strong labor market will help limit the increase, it said.

The Bank of Canada said in January that both household and business credit continued to grow at a healthy clip but that there had been some tightening in the prices, terms and availability of credit.

It said the spread between the effective household borrowing rate and the bank's expected overnight rate had increased by about 20 to 25 basis points since October 2007.   Continued...