Canadian subprime debt accelerates as economy pinches consumers

By Leah Schnurr
OTTAWA, May 18 (Reuters) - The debt of Canadian subprime
borrowers grew at a faster pace than other consumers in the
first quarter, suggesting the weak economy forced some to turn
to pricier credit at a time when policymakers are concerned
about high household debt.
But Canadians with higher credit scores paid down some types
of loans, including credit cards and lines of credit, data from
TransUnion showed on Wednesday.
Subprime borrowers, or those with low credit scores,
increased their average credit card balance by 5.7 percent in
the first quarter compared with the same time last year.
Growth in subprime debt also outstripped that of other
borrowers across other types of non-mortgage debt, including
auto loans.
Canada was in a brief recession last year, hurt by the slump
in oil prices. This could have compelled some Canadians to take
on more debt, said Jason Wang, TransUnion's director of research
and industry analysis in Canada.
Indeed, overall delinquencies surged 11.92 percent in the
oil-producing province of Alberta in the first quarter from a
year ago, far outstripping the national average increase of 2.98
percent.
Debt counseling experts said the subprime increase showed
some Canadians lack alternatives due to poor credit scores or
having too much debt.
"We are seeing people come in with a multitude of subprime
loans, with each one taken out trying to pay the other one, and
in the end they owe several at the same time with no means to
pay," said Laurie Campbell, CEO of Credit Canada Debt Solutions.
The rise of subprime mortgage borrowers contributed to the
U.S. housing market crash as Americans bought homes they
ultimately could not afford.
In Canada, non-mortgage subprime borrowers only account for
a relatively small 13 percent of credit-active consumers tracked
by TransUnion, said Wang.
Given low interest rates and a relatively stable
unemployment rate, it is unsurprising consumers have continued
to spend and take on debt, said Nathan Janzen, senior economist
at Royal Bank of Canada.
Nonetheless, increased borrowing always makes the economy
more vulnerable to a shock, he said.
The Bank of Canada has highlighted high household debt as a
vulnerability for the financial system. It said last December
that debt has become more concentrated in the hands of more
highly indebted younger households who may have less ability to
cope with a financial shock.