COVID-19 Pandemic Drives a Decline in the Use of Credit as Canadian Consumers and Lenders Brace for Uncertainty
TransUnion Canada's Q2 2020 report reveals a slowdown in credit participation and usage due to the COVID-19 pandemic. Overall origination of credit products declined, with credit card originations dropping by 13.5% YoY.
Despite this, delinquency rates improved, attributed to lenders providing financial accommodations. Total outstanding debt grew 4.3% to $1.9 trillion, mainly driven by mortgages, which saw a 5.3% increase YoY.
Consumers are using savings to manage cash flow, with 18% taking payment deferrals. Future consumer delinquency may rise as government support wanes.
- Delinquency rates improved, decreasing by 10 bps YoY to 1.7%.
- Mortgage origination grew by 29.2%, benefiting from lower interest rates.
- Overall outstanding debt rose 4.3% to $1.9 trillion, mainly driven by mortgages.
- Overall origination of credit products fell, particularly credit cards down 13.5% YoY.
- Credit card balances declined by 12.3% YoY.
- Consumers may face increased delinquency as government financial support diminishes.
- Credit participation growth slowed as originations of credit products dropped
- Credit usage slowed as balances on revolving products dropped due to crisis containment measures that impacted spend rates and consumers paying down existing balances
- Delinquency and insolvency rates improved reflecting systemic resiliency as lenders and consumers work together
- Consumer mindset shifted as Canadians prepare for the end of financial accommodation programs and government emergency benefits
BURLINGTON, Ontario, Aug. 18, 2020 (GLOBE NEWSWIRE) -- 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,
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
Origination volumes of loans declined across most products heading into the crisis, led by credit cards, which experienced a
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
“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
Q2 2019 ($Billions) | Q2 2020 ($Billions) | YoY | |
Bank Card | 96.4 | 84.6 | - |
Auto Loan | 64.6 | 62.4 | - |
Line of Credit | 257.2 | 248.9 | - |
Installment | 168.8 | 175.4 | |
Mortgage | 1,248.8 | 1,314.5 |
While overall non-mortgage credit balances declined, balances for Millennials and Gen Z consumers grew
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
Product | Consumer Serious Delinquency Rate Q2 2020* | Change YoY (bps) |
Credit Cards | -14 | |
Captive Auto Loans | -3 | |
Line of Credit | 4 | |
Installment/Personal Loan | 14 | |
Mortgage | 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
TransUnion’s Financial Hardship Survey indicates that consumers are planning for the inevitable termination of financial accommodation programs like deferrals.
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 Report
TransUnion’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.
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