Canadian Household Financial Health and Consumer Credit Indicators

Transcription

1 Canadian Household Financial Health and Consumer Credit Indicators Q Date of Release: December 20, 2016

2 Table of Contents Highlights Household Financial Health Household Debt and Personal Disposable Income (PDI) Growth Household Debt-to-PDI Household Debt Service Ratio Consumer Bankruptcies Personal Savings Rate Net Worth Employment Gross Domestic Product (GDP) Unemployment Rate Labour Force Participation Rate Involuntary Part-Time Workers Consumer Credit Consumer Credit Auto Loans Home Equity Lines of Credit (HELOCs) Credit Cards 2

3 Highlights The Bank of Canada maintains the target overnight rate at 0.5%. Even though Canada s economy has made a sizable contribution toward gross domestic product (GDP) in the third quarter, there is still weakness in business investments and exports. Economic growth continues to rely on household spending. The outstanding amount of household debt increased to $2 trillion as of September 2016, driven by mortgage growth. Consumer credit continued to expand, but at a slower pace than in the previous two quarters, representing 29% of total household indebtedness. Although job creation was strong in Q3 2016, it was led by part-time employment. Full-time employment for youth is also declining. New graduates are forced to live with their parents longer due to the lack of a steady employment or adequate compensation. The adjusted household debt-to-personal disposable income ratio remains high at 156.4%, 300 basis points higher than in the same quarter of DBRS expects that current high household debt levels and disappointing job growth will constrain future consumption. The Canadian savings rate increased sharply throughout Q3 2016, almost reaching the U.S. level of savings of 5.9%, although high indebtedness with the increasing cost of borrowing continue to undermine Canadian consumers savings ability. The new child tax benefit may have helped boost savings in Q Credit loss rates in the securitization market for consumer-related asset classes remain low. 3

4 Debt and PDI Growth Between 1990 and Q3 2016, household liabilities (including mortgages, consumer credit, bank loans and trade receivables accounts) increased by 469% but personal disposable income (PDI) only grew by 193.9%. Household debt-to-pdi increased by 96.6% in the same period. 500% 450% 400% 350% 300% 250% 200% 150% 100% 50% 0% Debt and PDI Growth Q1-90 Q4-90 Q3-91 Q2-92 Q1-93 Q4-93 Q3-94 Q2-95 Q1-96 Q4-96 Q3-97 Q2-98 Q1-99 Q4-99 Q3-00 Q2-01 Q1-02 Q4-02 Q3-03 Q2-04 Q1-05 Q4-05 Q3-06 Q2-07 Q1-08 Q4-08 Q3-09 Q2-10 Q1-11 Q4-11 Q3-12 Q2-13 Q1-14 Q4-14 Q3-15 Q % 193.9% 96.6% Source: DBRS, Statistics Canada. Debt PDI Debt-to-PDI 4

5 Household Debt-to-PDI Recent growth in consumer debt has been led by activity in the housing market and vehicle purchases. Canadian households remain highly indebted, however, the Canadian household debt-to-pdi saw a slight decrease for the first time since Q4 of 2013, bringing it to 156.4%. U.S. debt-to-pdi levels remained flat throughout Q % Household Debt-to-Personal Disposable Income 160% 140% 120% 156.4% 137.1% 100% 80% 60% 40% Canada - Adjusted United States Source: DBRS, Statistics Canada, Federal Reserve Board, Bureau of Economic Analysis. Note: In 2012, Statistics Canada released a publication explaining the adjustments necessary to Canadian and U.S. data to make them comparable. 5

6 Household Debt Service Ratio The percentage of household disposable income allocated to service debt has hovered around 14% since The interest-only debt service decreased by 0.2% in Q It currently stands at 6.1%. Household Debt Service Ratio 16.0% 14.0% 14.0% 12.0% 10.0% 8.0% 6.0% 6.1% 4.0% 2.0% 0.0% Source: Statistics Canada. Debt Service Ratio Debt Service Ratio, interest only 6

7 Consumer Bankruptcies Total consumer insolvencies, which include consumer filings for bankruptcies and proposals, increased by 2.0% in Q compared with the same quarter a year ago, with the numbers remaining high in Alberta, Saskatchewan and Newfoundland and Labrador. Higher insolvencies were registered in Alberta (30.9%), Newfoundland and Labrador (29.6%) and Saskatchewan (37.2%) over the last 12 months. Consumer Bankruptcies (Number of Filings) 35,000 U.S. New Bankruptcy Law 30,000 25,000 20,000 15,000 10,000 5,000 - Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source: American Bankruptcy Institute, Office of the Superintendent of Bankruptcy Canada. 35,000 30,000 25,000 20,000 15,000 10,000 5,000 - Canada U.S. Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source: Office of the Superintendent of Bankruptcy Canada. Consumer Proposals (Number of Filings) Consumer Proposals 700, , , , , , ,

8 Personal Savings Rate The Canadian savings rate increased sharply throughout Q3 2016, almost reaching the U.S. level of savings of 5.9%, although high indebtedness with the increasing cost of borrowing continues to undermine Canadian consumers savings ability. The new child tax benefit may have helped boost savings in Q According to a recent Equifax report, the majority of consumers are trying to decrease their debt and, with a small exception, are paying off their credit cards in full every month. On the other hand, another group of people frequently adds large amounts increasing the overall level of consumer debt. On average, the payment rate on Canadian credit card receivables securitized was 43% during the third quarter, slightly up from the previous year Personal Savings Rate Source: Statistics Canada and Bureau of Economic Analysis. Canada U.S. 8

9 Net Worth As at September 30, 2016, the average Canadian household had a net worth of $726,000, with approximately $263,000 consisting of home equity. $800 Net Worth Per Household $ $600 Thousands $500 $400 $300 $200 $100 $ Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 Source: DBRS and Statistics Canada. 9

10 Gross Domestic Product Canadian GDP has regained strength adding 0.9% to the output and surpassing the United States, which reported 0.8% growth in the third quarter. Improved GDP numbers are partly attributed to the increase in consumption supported by the new child tax benefit that was rolled out on July 20, Business investment is still weak and inventories keep rising. According to the recent business outlook survey conducted by the BoC, many natural resource-related companies indicate that the bottom in sales has been reached. Considering the somewhat stable commodity prices, their expectation is that sales will pick up from now on. Gross Domestic Product (Annualized Quarter over Quarter Change) 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% Source: Bureau of Economic Analysis, Statistics Canada and DBRS. Canada United States 10

11 Unemployment Labour market conditions are important for assessing the credit performance of securitized consumer-related obligations. Canadian unemployment rate remains high compared to the United States at 6.8% versus 4.6%. Total employment rose by 183,000 in the past year with a noticeable increase in part-time employment. Unemployment Rate (Seasonally Adjusted) Percentage (%) Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Canada Source: Bureau of Labor Statistics, Statistics Canada United States 11

12 Labour Force Participation Rate The Canadian labour force participation rate continues to exhibit a downward trend. Young workers keep multiple contract jobs and are forced to switch jobs frequently looking for a better pay, a steady schedule and better benefits. Labour Force Participation Rate (Seasonally Adjusted) Percentage (%) Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Canada Source: Bureau of Labor Statistics, Statistics Canada Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 United States Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 12

13 Involuntary Part-Time Workers Involuntary part-time workers are those who work part-time because full-time work could not be found. The combination of a falling labour force participation rate and elevated involuntary part-time worker rate indicates an increase in labour market underutilization. An increase in part-time employment is also a reflection of companies being reluctant to hire full-time staff because of uncertainty of their future business activity. Job creation in 2016 has been led by part-time employment. 30% 25% 20% 15% 10% 5% 0% Involuntary Part-Time Employment 27% 28% 28% 27% 27% 27% 27% 26% 26% 25% 24% 22% 23% Part-Time Employment (As % of Total Employment) 19.8% 19.6% 19.4% 19.2% 19.0% 18.8% 18.6% 18.4% 18.2% 18.0% 17.8% Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Jan-16 Sep % Source: DBRS, Statistics Canada. Source: DBRS, Statistics Canada. 13

14 Consumer Credit Outstanding Amount Consumer credit relates mainly to credit extended to individuals excluding residential mortgages. Total consumer credit increased by 3.0% to $590 billion in the last year up to Q Consumer Credit Outstanding Dollars x 1,000, Source: DBRS, Statistics Canada. 14

15 Consumer Credit Growth In the past three years, annual consumer credit growth has remained stable with the exception of Q2 2016, hovering around 3% on average. 16.0% Consumer Credit Growth (YoY (%) Growth) 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 3.0% 0.0% Source: DBRS, Statistics Canada. 15

16 Consumer Credit Funding Chartered banks continue to represent the biggest consumer loan funding category at 84.7% as at August 31, Consumer Funding in Canada as of August 31, 2016 Special-purpose corporations (securitizations) 2.3% Non-depository credit intermediaries and other institutions 5.5% Life insurance companies 1.3% Chartered banks 84.7% Credit unions and caisses populaires 6.0% Trust and mortgage loan companies 0.2% Source: DBRS, Bank of Canada. 16

17 Auto Industry New Vehicle Sales vs. Consumer Confidence On a annual basis, sales of new vehicles increased by 3.0% in Q New truck sales increased by 5.4% compared to Q and passenger cars sales decreased by 3.2% for the same period. Unifor reached agreements with Fiat Chrysler, General Motors and Ford Motor Co. Negotiated work contracts, benefits and upgrade of the plant facilities are expected to provide more security for Canadian auto workers and to bring more stability to the auto industry in Canada. Dollars x 1,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0 New Vehicle Sales (CAD) vs. Consumer Confidence = 100 Source: Statistics Canada, O.E.C.D. Trucks Passenger Cars Consumer Confidence 17

18 Auto Loans Outstanding Amount The amount of outstanding loans to purchase private passenger vehicles from the chartered banks increased to $71.4 billion in Q Growing auto loans put already highly leveraged Canadian consumers into more debt and for a longer period of time Chartered Banks Loans to Purchase Private Passenger Vehicles Dollars x 1,000, The decrease in Q is due to re-classification of data Q1-99 Q3-99 Q1-00 Q3-00 Q1-01 Q3-01 Q1-02 Q3-02 Q1-03 Q3-03 Q1-04 Q3-04 Q1-05 Q3-05 Q1-06 Q3-06 Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11 Q1-12 Q3-12 Q1-13 Q3-13 Q1-14 Q3-14 Q1-15 Q3-15 Q1-16 Q3-16 Source: DBRS, Statistics Canada. 18

19 Auto Loans Outstanding Amount The growth of private passenger vehicle loans, as a percentage of total consumer loans, has remained stable in the past year. Car loans made up 15.1% of total consumer loans in Q The practice of longer amortization terms continues to prevail in the market. 18.0% Private Passenger Vehicle Loans as a % of Total Consumer Loans 16.0% 14.0% 12.0% The decrease in Q and Q are due to re-classification of data 15.1% 10.0% 8.0% 6.0% Q1-99 Q3-99 Q1-00 Q3-00 Q1-01 Q3-01 Q1-02 Q3-02 Q1-03 Q3-03 Q1-04 Q3-04 Q1-05 Q3-05 Q1-06 Q3-06 Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11 Q1-12 Q3-12 Q1-13 Q3-13 Q1-14 Q3-14 Q1-15 Q3-15 Q1-16 Q3-16 Source: DBRS, Statistics Canada. 19

20 Auto Loans Securitization Performance Credit losses in the auto sector continued to be stable in 2016, trending below 2012, 2013, 2014 and 2015 vintages, as employment in Canada remains relatively stable on a national level. Automotive Cumulative Credit Losses by Issuance Year 1.0% Cumulative Net Losses (% of Original Balance) 0.8% 0.6% 0.4% 0.2% 0.0% -0.2%

21 HELOCs Outstanding Amount Lines of credit secured by residential properties are the largest component of consumer credit in the balance sheet of chartered banks, accounting for 45% of the total as at September HELOCs originated by the chartered banks have increased by 2.7% in the past year. Chartered Banks, Loans Secured by Residential Properties CAD x 1,000, , , , , , , , , , , ,000 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Source: DBRS, Office of the Superintendent of Financial Institutions. 21

22 HELOCs Securitization Performance Loss rates for HELOC transactions have remained low currently at 0.01% for conventional transactions for the month of September Extremely low losses reflect the prime nature of the borrowers and loan-to-value (LTV) ratio limit. 0.10% 0.08% 0.06% 0.04% 0.02% HELOC Loss Ratio 0.00% Sep-16 Jul-16 May-16 Mar-16 Jan-16 Nov-15 Sep-15 Jul-15 May-15 Mar-15 Jan-15 Nov-14 Sep-14 Jul-14 May-14 Mar-14 Jan-14 Nov-13 Sep-13 Jul-13 May-13 Mar-13 Jan-13 Nov-12 Sep-12 Jul-12 May-12 Mar-12 Jan-12 Nov-11 Sep-11 Jul-11 May-11 Mar-11 Jan-11 Nov-10 Sep-10 Jul-10 May-10 Mar-10 Jan-10 Nov-09 Sep-09 Jul-09 May-09 Mar-09 Jan-09 Nov-08 Sep-08 Jul-08 May-08 Mar-08 Jan-08 Conv Loss Ratio Source: DBRS. 22

23 Credit Cards Outstanding Amount Loans provided by chartered banks to fund credit cards increased by 3% from Q to a total of $81.9 billion in Q The amount of credit card loans as a percentage of total consumer credit has been fluctuating around 17% in the last three years. Credit card loans remained flat in Q2 and Q3 2016, accounting for 17.4% of total consumer credit. The term asset-backed security market remains an important source of funding for this asset class and, along with assetbacked commercial paper, represents 36% of the total. Chartered Banks, Loans for Credit Cards Data in 2011 were affected by conversion to International Dollars x 1,000, Q1-99 Q3-99 Q1-00 Q3-00 Q1-01 Q3-01 Q1-02 Q3-02 Q1-03 Q3-03 Q1-04 Q3-04 Q1-05 Q3-05 Q1-06 Q3-06 Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11 Q1-12 Q3-12 Q1-13 Q3-13 Q1-14 Q3-14 Q1-15 Q3-15 Q1-16 Q3-16 Source: DBRS, Statistics Canada. 23

24 Credit Cards Securitization Performance Average loss rates for credit card-securitized transactions remain low, ending at 3.25% as at September Performance of credit card receivables has slightly improved compared with Q Average losses decreased by 30 basis points. 14.0% 12.0% 10.0% 8.0% Credit Card Loss Rate 6.0% 4.0% 2.0% 0.0% Jan-02 Jun-02 Nov-02 Apr-03 Sep-03 Feb-04 Jul-04 Dec-04 May-05 Oct-05 Mar-06 Aug-06 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug % 3.25% 1.94% Source: DBRS. Maximum Weighted Average Minimum 24

25 Thank You Jamie Feehely Managing Director Canadian Structured Finance DBRS Limited Clara Vargas Senior Vice President, Surveillance Canadian Structured Finance DBRS Limited Oxana Rhybak Financial Analyst Canadian Structured Finance DBRS Limited