Canadian consumers returned to their debt-loving ways last year in a reversal of the deleveraging trend that began in the second half of 2013.
And the pattern is expected to continue as low interest rates help fuel a rise in debt levels, credit-analysis firm TransUnion cautions.
The average balance per consumer – excluding mortgages – rose 2.3 per cent in the fourth quarter of 2014 to $21,428 from $20,945 a year earlier, according to the latest report on credit trends by TransUnion, unveiled Wednesday. TransUnion's analysis is based on a sampling of anonymous credit files.
"Canadians began to deleverage during the latter half of 2013, but our latest data show that consumers once again increased their balances throughout much of 2014," TransUnion director of research and industry analysis Jason Wang said.
"This trend is likely to continue after the recent rate cut by the Bank of Canada made borrowing more affordable."
The central bank unexpectedly lowered its key rate in a move to stimulate the economy in January. Last week, it decided to keep the key rate unchanged.
Canadian banks have also been lowering their mortgage rates, adding to the mountain of household debt that includes mortgages.
The International Monetary Fund last week warned that Canadian household debt levels are well above those in other Western countries and that Ottawa needs to further tighten mortgage lending standards and increase oversight of the country's financial system.
Experts warn that rising personal debt is particularly worrisome because disposable income growth is lagging debt growth. Pressure is expected to increase with the impact of the oil shock on incomes as companies cut back on capital spending and staffing levels.
"We find these numbers troubling but not surprising based upon what we're seeing," said Scott Hannah, president and chief executive officer of the non-profit Credit Counselling Society.
The number of people in financial difficulty is up 22 per cent in the first two months of 2015 compared with the same period last year, he said.
"We're seeing that savings levels are substantially lower than what they need to be at or have been historically," he said. The savings rate should be at 10 per cent and ideally at 15 per cent but it is less than 5 per cent, Mr. Hannah said.
"With our low-rate environment, there is very little motivation for people to save money and they're not."
TransUnion says one bright spot is that, despite the rise in lines of credit and instalment loan balances, both credit products are performing well.
The 90-day delinquency rate for line-of-credit accounts dropped to 0.74 per cent in the fourth quarter from 0.84 per cent in the year-earlier period.
Delinquency rates for lines of credit were nearly 20 basis points higher two years ago when they were at 0.92 per cent in the fourth quarter of 2012.
Instalment loan delinquency rates dropped more than 12 per cent to 3.33 per cent in the fourth quarter of 2014 from 3.80 per cent.
But even here, there is reason to worry, Mr. Hannah said.
"I'd say that [lower delinquency rates] is going the right way if debt wasn't going up at the same time. If debt was declining as well as the delinquency rate, then I would say real progress is being made."