Canadian consumer debt hits half a trillion

Canadians continued a years-long national borrowing spree through the first three months of 2013, a new report shows, but signs are emerging that the credit party is coming to an end.

Total consumer debt excluding mortgages ticked 3.9 per cent higher in the first quarter, according to fresh figures released by Equifax. Canadians collectively owe $500.8 billion, up from $497 billion in debt held by households at the same time last year.

“Balances are increasing for bank installment loans, lines of credit and auto loans,” said Cristian deRitis, senior director of consumer credit economics at Moody’s, an agency that monitors debt held by companies, governments and households.

The rise breaks with a deceleration in loan growth that began in 2011, deRitis said.

Big lenders such as the country’s banks as well as policymakers have been calling for consumers to rein in debt levels which have hit record highs. Ultra low interest rates in recent years have fueled demand among consumers to take on credit.

But with consumers collectively now owing more than $1.60 for every after-tax dollar in income, concern is mounting.

Speaking in Washington this week, Mark Carney, the outbound head of the Bank of Canada, said interest rates “could be [moved] higher sooner if this isn’t addressed or this isn’t adjusted in a more timely way.”

The Bank of Canada has kept its key

interest rate at 1 per cent for some time, following the lead of central banks in larger economies that have lowered rates to keep credit flowing in a bid to speed up sluggish economic growth. Lenders rely on the rate to set their own.

The low rates have fueled a real-estate boom in Canada, as well, but that too is coming to an end as banks rein in lending and new rules make borrowing more difficult for homebuyers.

On a brighter note, Canadians were more diligent in making payments on the debts through the first three months of the year. Equifax said the percentage of delinquent accounts, defined as loans that have not seen a payment for 90 days or more, ticked down to 1.19 per cent compared to 1.39 per cent a year ago.

Jamie Sturgeon

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