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Canadian delinquency rates, which have been declining since the last recession, will probably reverse and begin to climb by the end of 2018 as the central bank presses ahead with interest rate increases, according to the country’s largest credit reporting firm.

Regina Malina, senior director of analytics at Equifax Canada, predicts late payments on the country’s $599 billion of credit card, auto and other non-mortgage consumer debt will begin to move “modestly higher” by the end of this year.

“Our prediction is that we will start to see delinquency rates inching up a little bit, and debt probably slowing down,” Malina said last week in an interview.

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The delinquency rate -- which measures the number of payments on non-mortgage debt that were more than 90 days past due -- was 1.08 percent in the first quarter, up slightly from the fourth quarter but still close to the lowest level since the 2008-09 recession.

The Toronto-based analyst declined to estimate how high delinquencies will climb, saying it depends on the pace of interest rate increases and what happens in the trade battle between the U.S. and Canada. She cited the experience in Alberta, where delinquency rates rose in some instances 20 percent or 30 percent on a year-over-year basis after the oil-price collapse. Such an extreme case, however, isn’t what Equifax is predicting. “It will only happen if we start seeing deterioration in employment numbers,” she said, adding delinquencies should remain “still very low,” and “they’re just going to start inching up a little bit, probably not double digits.”

Change Coming?

Household credit has ballooned to unprecedented levels in Canada, as in many other developed countries, amid historically low interest rates. That hasn’t posed too many difficulties so far, because the economy and the labor market have generated solid growth, allowing people to handle servicing costs. But with the Bank of Canada intent on raising rates and the U.S. and Canada engaged in a tit-for-tat tariff fight, that could change.

A red flag in the Equifax data was a decline in the share of people who completely pay off their credit cards each month. The 56 percent who did so in the first quarter matched the fourth-quarter number and was down from as high as 59 percent last year. It’s a small but important detail, according to Malina.

“The changes aren’t big, but when they’re consistent and we see it for two or three quarters, we start to believe it,” she said. “Given that less people are making their credit card payments in full, and those people are usually people with lower delinquency rates, we might be seeing overall delinquency rates deteriorating.”

Consumer debt including mortgages was $1.83 trillion in the first quarter, up 0.4 percent from the end of 2017 and 5.7 percent from the same quarter a year earlier, Equifax said.

Excluding mortgages, Canadians carry an average of $22,800 each in debt. Some other highlights from the report include (all figures exclude mortgage debt):

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  • Those between the ages of 46 and 55 have the highest average debt loads, at $34,100.
  • That age group is also seeing the largest increase in debt, year-over-year, at 4 percent.
  • Of nine cities listed, Fort McMurray, Alta., had the highest average debt levels, at $37,800, as well as the highest delinquency rate, at 1.72 percent.
  • Vancouver and Toronto saw the highest rate of debt accumulation in the first quarter, with 5.2 percent and 5 percent growth from a year earlier.
  • Montreal is the least indebted city, with average debt loads at $17,300.
  • Ontario and British Columbia have the lowest delinquency rates, at 0.95 percent and 0.84 percent.
  • Nova Scotia, at 1.74 percent, had the highest.
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