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  • Insolvencies on rise
  • Markets at a glance
  • Rogers raises dividend
  • ECB holds the line
  • Bombardier to buy jet wing business
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  • From today’s Globe and Mail

What delinquencies show

Delinquencies on Canadian lines of credit are tiny, but they tell an intriguing tale.

There’s still “very little stress” on loans as interest rates rise, CIBC World Markets said in a new study, but insolvencies are rising, and that’s expected to continue as borrowing costs increase further.

Among the interesting findings in the report by Benjamin Tal, CIBC’s deputy chief economist, is the difference in delinquencies among various types of credit.

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Mortgage arrears

Percentage of arrears to total number of mortgages

0.8%

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0.0

‘91

‘94

‘97

‘00

‘03

‘06

‘09

‘12

‘15

‘18

Lines of credit

Total balance delinquencies

0.30%

0.25

0.20

0.15

Q1

2004

Q1

2006

Q1

2008

Q1

2010

Q1

2012

Q1

2014

Q1

2016

Q1

2018

Credit cards

Total balance delinquencies

1.8%

1.6

1.4

1.2

1.0

0.8

Q1

2004

Q1

2006

Q1

2008

Q1

2010

Q1

2012

Q1

2014

Q1

2016

Q1

2018

SOURCE: CIBC CAPITAL MARKETS

Mortgage arrears

Percentage of arrears to total number of mortgages

0.8%

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0.0

‘91

‘94

‘97

‘00

‘03

‘06

‘09

‘12

‘15

‘18

Lines of credit

Total balance delinquencies

0.30%

0.25

0.20

0.15

Q1

2004

Q1

2006

Q1

2008

Q1

2010

Q1

2012

Q1

2014

Q1

2016

Q1

2018

Credit cards

Total balance delinquencies

1.8%

1.6

1.4

1.2

1.0

0.8

Q1

2004

Q1

2006

Q1

2008

Q1

2010

Q1

2012

Q1

2014

Q1

2016

Q1

2018

SOURCE: CIBC CAPITAL MARKETS

Mortgage arrears

Percentage of arrears to total number of mortgages

0.8%

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0.0

‘91

‘94

‘97

‘00

‘03

‘06

‘09

‘12

‘15

‘18

Lines of credit

Total balance delinquencies

0.30%

0.25

0.20

0.15

Q1

2004

Q1

2006

Q1

2008

Q1

2010

Q1

2012

Q1

2014

Q1

2016

Q1

2018

Credit cards

Total balance delinquencies

1.8%

1.6

1.4

1.2

1.0

0.8

Q1

2008

Q1

2012

Q1

2014

Q1

2016

Q1

2018

Q1

2004

Q1

2006

Q1

2010

SOURCE: CIBC CAPITAL MARKETS

“At just 0.9 per cent, the delinquency rate in the credit cards portfolio is at a record low, after trending downward since the recession,” Mr. Tal said.

“The same is true for term loans and mortgages,” he added.

“Note, however, that despite a clear downward trend since 2012, the delinquency rate in the lines of credit portfolio is still higher than its pre-recession level – most likely reflecting transfer of risk from credit cards to lines of credit.”

That, Mr. Tal added in an interview, is because consumers have been transferring their credit card debts to lines of credit over the past several years to take advantage of lower rates for the latter.

Some observers have warned about the increase in home equity lines of credit as Canadians effectively use their homes as bank machines. And, as Mr. Tal’s findings indicate, this is coming home to roost at least somewhat.

The Bank of Canada has been raising its benchmark overnight rate, though it paused recently amid uncertainty in the outlook, notably in the oil market.

It has cited the fact that the housing market has been slower than expected in adjusting to new measures meant to cool prices, and it is monitoring the impact of its earlier rate hikes on Canadians whose debt levels are famously swollen.

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Insolvencies, Mr. Tal said, are rising at an annual pace of 4.5 per cent, the sharpest since mid-2016.

There’s another interesting twist here, too, in the breakdown between outright consumer bankruptcies and what are known as proposals, where stretched borrowers negotiate new terms rather than simply going bust.

Both are insolvencies. But while consumer bankruptcies have declined in the last year by a cumulative 5 per cent, proposals have climbed 8.4 per cent.

Total insolvencies are still low, but you can see how the troubles in the oil market are taking a toll.

“The cumulative number of insolvencies in Alberta rose by 12 per cent during the six months ending November, 2018, Manitoba and Saskatchewan have seen roughly the same increase,” Mr. Tal said.

“At the same time, the number of insolvencies in Ontario rose by close to 3 per cent. The same is true for B.C.”

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The troubles in Alberta are nowhere near what they were during the oil price crash of 2015, though they probably will rise, Mr. Tal said.

It’s interesting to note that unemployment is only partly to blame for rising insolvencies in Canada.

“In fact, only one-third of insolvent debtors are unemployed,” Mr. Tal said.

“Other factors, such as employment quality, play an important role here, with more than 60 per cent of insolvents being in unskilled or semi-skilled occupational classifications,” he added.

“Increased self-employment activity is also important, with no less than 20 per cent of insolvents stating that they operated a business within a five-year period prior to becoming insolvent. More than half of insolvencies occur due to the combination of over-extension of credit, financial mismanagement and unexpected expenses.”

Canadians can expect to see “a bit higher rate of increase” in delinquencies and insolvencies with rates rising. But the threat of this alone may prevent the Bank of Canada from moving too aggressively,” Mr. Tal added in the interview.

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Markets at a glance

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Rogers raises dividend

Rogers Communications Inc. raised its dividend as it eked out a tiny first-quarter profit.

The Canadian telecom giant raised the quarterly payout to 50 cents, bringing its annualized dividend rate up by more than 4 per cent to $2 from $1.92.

This came as the company’s fourth-quarter profit rose to $502-million, or 97 cents a share, from $499-million, also 97 cents, a year earlier.

Adjusted, earnings per share rose to $1.13 from $1.02.

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