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Shoppers are separated by rows of wood pallets to help with physical distancing as they line up to enter a Costco store in Burnaby, B.C., on April 19, 2020.

DARRYL DYCK/The Canadian Press

Credit card spending has begun to rebound and consumers are starting to take out new loans, even as Canadians remain cautious with personal finances as physical distancing measures relax.

Canada’s six largest banks, which released quarterly earnings this week, all reported an uptick in consumer spending and loan activity in recent weeks. That follows a sharp drop after the COVID-19 quarantine curtailed spending on non-essential items and shell-shocked households adjusted their budgets.

Despite the bounce, none of Canada’s big banks is expecting things to return to normal for many quarters. With the economy contracting and unemployment on the rise, Canadians are likely to constrain spending and avoid unnecessary debt until the economic outlook begins to clear.

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“Although it’s encouraging, we don’t expect loan originations to come back to the level of pre-COVID before the end of the year,” Lucie Blanchet, National Bank of Canada’s executive vice-president of personal banking, said on a Tuesday analyst call.

Consumer spending and loan origination has rebounded to varying degrees over the past two months. Bank of Nova Scotia saw total consumer spending fall by 35 per cent in mid-March, then steadily improve since the beginning of April. Spending is now just 4 per cent below prepandemic levels, according to Daniel Moore, chief risk officer at Scotiabank.

National Bank, meanwhile, saw weekly mortgage originations drop by 50 per cent, year-over-year, in early April, and auto lending plummet 80 per cent. Both segments have rebounded in recent weeks, and are now 5 per cent and 35 per cent below last year, respectively.

Over the course of the pandemic, spending patterns have varied by sector, said Neil McLaughlin, Royal Bank of Canada’s head of personal and commercial banking. RBC clients spent about 50 per cent less at restaurants in the quarter, which ended on April 30, but spent about 20 per cent more at grocery stores and pharmacies, he said.

“Net for the quarter, we were down about 12 per cent or 13 per cent in terms of spending. ... There’s about $5-billion of purchase volume that we had anticipated that did not materialize because of the COVID measures,” Mr. McLaughlin said on a Wednesday conference call.

Across all of the big banks, credit card balances have come down. Likewise, lines of credit, which were drawn down heavily in March, are starting to be repaid.

This is not, in itself, good for the banks, which earn interest on outstanding loans. However, it points to a prudent approach to personal finances that has emerged over the past three months. And that is good news for bankers, who need Canadians to restart payments on billions worth of loans, for which they have been granted payment deferrals, in the coming months.

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“Typically in recessions you’d see consumers starting to reach for more credit. ... The fact that consumers aren’t doing that, I think, speaks to the kind of government support that’s just been massive. You can’t underestimate how big the government support programs all together have been," said Meny Grauman, an analyst with Cormark Securities.

Taken together, the Big Six banks have deferred payments on more than $200-billion worth of mortgages, personal loans and credit cards. The payment holidays range from one to six months. What will happen at the end of this deferral period remains the biggest outstanding question for bankers and policy makers alike.

Most expect an uptick in impaired loans and delinquencies, and the Big Six took billions worth of provisions for potential credit losses when they reported earnings this week. There are, however, some things that are giving bankers cautious optimism.

A number of people appear to have opted for loan or mortgage payment deferrals for “tactical” reasons, and not because they were on the edge of a financial precipice, said William Bonnell, National Bank’s head of risk management.

“Given the uncertainty that everyone was facing in March, it was a good idea, I think, in giving advice to clients to take some [deferrals to] have a little bit more flexibility,” Mr. Bonnell said.

“We have had many cases where clients, now that they’re wanting to not run significant debt, are asking to reverse the moratorium, [and] starting to come back to their regular payments,” he added.

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