Low credit default rates reflect industry and consumer prudence, says the Canadian Bankers Association, but the federal government continues to urge consumers to curb borrowing as household indebtedness reaches all-time highs.
Terry Campbell, president and CEO of the Canadian Bankers Association, said that his industry agrees with the federal government’s emphasis on curbing consumer borrowing, but insisted that Canadian banks are practicing sound lending standards.
“We lend money to people who will pay it back. That’s banking 101—it’s always been true here, but it has not necessarily been true in other jurisdictions,” said Mr. Campbell, who pointed to “remarkably low” credit card delinquency and mortgage arrears statistics as proof of prudential lending on the part of banks and prudential borrowing on the part of consumers.
The CBA’s most recent statistics show only 0.34 per cent of mortgages were in arrears in March, totalling 14,847 households. Meanwhile, the credit card delinquency rate for 2011 was 1.1 per cent.
The mortgage arrears rate is the lowest it’s been since the beginning of the 2009 recession, while the credit card delinquency rate has declined each year since 2009.
In the U.S., the mortgage arrears rate is at 5.49 per cent, while the credit card delinquency rate is 0.63 per cent, according to credit reporting agency Transunion.
“While banks are prudent and careful lenders, Canadians are careful and prudent borrowers. The facts bare this out. If you look at the mortgages in arrears statistics, it is remarkably low and has been consistently low for years,” Mr. Campbell said. “This low mortgage arrears statistic has been true before the financial crisis, during the financial crisis, and now.”
Mortgages account for nearly 75 per cent household indebtedness in Canada, while non-mortgage household debt, such as lines of credit and credit cards, accounts for the remaining debt.
Consumer borrowing has continued to rise in 2012, however. In June, Statistics Canada announced that the ratio of credit market debt to personal income reached 152 per cent in the first quarter of 2012, while per capita indebtedness rose to $47,000.
Finance Minister Jim Flaherty (Whitby-Oshawa, Ont.) and Bank of Canada Governor Mark Carney have repeatedly urged consumers to manage their debt loads over the past year.
In March, Mr. Carney called household indebtedness “the biggest domestic risk” to the Canadian economy. The governor has relied on record low interest rates to sustain economic growth since the 2008 recession, and has warned consumers that interest rates will eventually increase from the current one per cent.
Mr. Flaherty has also urged Canadians to rein in their borrowing, and in June he announced that the maximum amortization for government-backed insured mortgages would be lowered from 30 years to 25, while the maximum amount that homeowners would be able to borrow from their home equity was lowered from 85 to 80 per cent.
Despite a year of federal warnings of an imminent interest rate hike, the risk that Canadians will become over-leveraged persists. The debt to personal income ratio has risen by five percentage points and per capita indebtedness rose by $1,500 since last summer.
One promising sign that consumers are reducing their borrowing rate is in the Conference Board of Canada’s July consumer confidence index.
Although the index rose 2.9 points to 76.9 between June and July, the Conference Board notes that consumer confidence remains low due to economic uncertainty. The index is based on a monthly survey that gauges consumers’ likelihood of making major purchases.
Although Mr. Campbell is confident in his organization’s membership’s lending practices, Bloomberg News reported last winter that the Office of the Superintendent for Financial Institutions was concerned that lenders were becoming “increasingly liberal” with mortgages, and likened emerging financing products to the subprime loans that contributed to the 2007 U.S. housing bubble.
The Financial Consumer Agency of Canada publishes a wide range of consumer information on credit and loan products, mortgages, and debt management.
The federal government has touted financial literacy as a way of improving consumer protection in the financial services sector, and has introduced legislation that would strengthen the FCAC’s mandate to educate the public on financial management.
Last November the government introduced Bill C-28, the Financial Literacy Leader Act, which would amend the Financial Consumer Agency of Canada Act to establish a Financial Literacy Leader position within the FCAC.
Bill C-28 is currently before the House Finance Committee. The legislation acts on recommendations the Task Force on Financial Literacy made in February 2011.
Original Article
Source: hill times
Author: CHRIS PLECASH
Terry Campbell, president and CEO of the Canadian Bankers Association, said that his industry agrees with the federal government’s emphasis on curbing consumer borrowing, but insisted that Canadian banks are practicing sound lending standards.
“We lend money to people who will pay it back. That’s banking 101—it’s always been true here, but it has not necessarily been true in other jurisdictions,” said Mr. Campbell, who pointed to “remarkably low” credit card delinquency and mortgage arrears statistics as proof of prudential lending on the part of banks and prudential borrowing on the part of consumers.
The CBA’s most recent statistics show only 0.34 per cent of mortgages were in arrears in March, totalling 14,847 households. Meanwhile, the credit card delinquency rate for 2011 was 1.1 per cent.
The mortgage arrears rate is the lowest it’s been since the beginning of the 2009 recession, while the credit card delinquency rate has declined each year since 2009.
In the U.S., the mortgage arrears rate is at 5.49 per cent, while the credit card delinquency rate is 0.63 per cent, according to credit reporting agency Transunion.
“While banks are prudent and careful lenders, Canadians are careful and prudent borrowers. The facts bare this out. If you look at the mortgages in arrears statistics, it is remarkably low and has been consistently low for years,” Mr. Campbell said. “This low mortgage arrears statistic has been true before the financial crisis, during the financial crisis, and now.”
Mortgages account for nearly 75 per cent household indebtedness in Canada, while non-mortgage household debt, such as lines of credit and credit cards, accounts for the remaining debt.
Consumer borrowing has continued to rise in 2012, however. In June, Statistics Canada announced that the ratio of credit market debt to personal income reached 152 per cent in the first quarter of 2012, while per capita indebtedness rose to $47,000.
Finance Minister Jim Flaherty (Whitby-Oshawa, Ont.) and Bank of Canada Governor Mark Carney have repeatedly urged consumers to manage their debt loads over the past year.
In March, Mr. Carney called household indebtedness “the biggest domestic risk” to the Canadian economy. The governor has relied on record low interest rates to sustain economic growth since the 2008 recession, and has warned consumers that interest rates will eventually increase from the current one per cent.
Mr. Flaherty has also urged Canadians to rein in their borrowing, and in June he announced that the maximum amortization for government-backed insured mortgages would be lowered from 30 years to 25, while the maximum amount that homeowners would be able to borrow from their home equity was lowered from 85 to 80 per cent.
Despite a year of federal warnings of an imminent interest rate hike, the risk that Canadians will become over-leveraged persists. The debt to personal income ratio has risen by five percentage points and per capita indebtedness rose by $1,500 since last summer.
One promising sign that consumers are reducing their borrowing rate is in the Conference Board of Canada’s July consumer confidence index.
Although the index rose 2.9 points to 76.9 between June and July, the Conference Board notes that consumer confidence remains low due to economic uncertainty. The index is based on a monthly survey that gauges consumers’ likelihood of making major purchases.
Although Mr. Campbell is confident in his organization’s membership’s lending practices, Bloomberg News reported last winter that the Office of the Superintendent for Financial Institutions was concerned that lenders were becoming “increasingly liberal” with mortgages, and likened emerging financing products to the subprime loans that contributed to the 2007 U.S. housing bubble.
The Financial Consumer Agency of Canada publishes a wide range of consumer information on credit and loan products, mortgages, and debt management.
The federal government has touted financial literacy as a way of improving consumer protection in the financial services sector, and has introduced legislation that would strengthen the FCAC’s mandate to educate the public on financial management.
Last November the government introduced Bill C-28, the Financial Literacy Leader Act, which would amend the Financial Consumer Agency of Canada Act to establish a Financial Literacy Leader position within the FCAC.
Bill C-28 is currently before the House Finance Committee. The legislation acts on recommendations the Task Force on Financial Literacy made in February 2011.
Original Article
Source: hill times
Author: CHRIS PLECASH
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