Expectations of higher interest rates in 2018 and a slight cooling off of the Canadian economy may see more consumers defaulting on credit card loans next year, a report by TransUnion Canada says.
While the credit rating agency expects Canadians to maintain relatively stable delinquency levels over the next year, it projects the serious delinquency rate for credit cards will rise to 3.63 per cent in the fourth quarter of 2018 from 3.02 per cent this year.
The agency also projects the average Canadian consumer's credit card balance will increase to $4,220 in the final quarter of 2018 from about $4,155 projected this year.
TransUnion says the overall serious delinquency rate for non-mortgage debt – which includes auto loans, credit cards, instalment loans and lines of credit – is otherwise expected to be essentially unchanged next year. It projects an increase to 5.65 per cent in the final quarter of 2018 compared with 5.63 per cent in the last quarter of this year.
The agency also says the serious mortgage delinquency rate is expected to remain roughly unchanged at 0.55 per cent in 2018 compared with 0.56 per cent in the final quarter of this year.
It says the average Canadian consumer carries $238,573 in mortgage debt, a 4.29 per cent increase from last year, and $22,413 in non-mortgage debt, a 3.93 per cent increase from last year.
"Though Canadians should continue to perform quite well in 2018, it is not unexpected that credit cards are forecast to see the largest rise in delinquency levels next year," said Matt Fabian, director of research and industry analysis for TransUnion Canada, in a statement.
"We also have seen an uptick in the percentage of credit cards issued to consumers with non-prime credit scores over the past year. This shift may be a reflection of lenders' desire to expand credit availability to more consumers, and improved confidence due to steady credit card performance in recent years."
TransUnion says the most recent Bank of Canada monetary policy report was more cautious about the country's economic outlook compared with recent reports.
The central bank highlighted risks such as NAFTA, weak exports and sensitivity of households to higher rates as contributing factors to potentially lower GDP numbers in the next few years.