Canadians are facing increasing financial pressure due to high inflation and rising borrowing costs. With indications of a looming economic downturn, lenders should be aware of the opportunities and potential risks associated with various sectors of the Canadian economy.
A few proactive steps lenders can take during this time include:
implementing risk management strategies, using data-driven insights to review customer payment behaviours,
incorporating relevant market trends, insights, and updates across economic, technological, and regulatory environments.
Below are some key market opportunities and potential risks within the credit, auto, and mortgage industries for lenders.
New Credit Cards Offer Growth Potential
Over 1.4 million new credit cards were issued in the last three months, showing huge growth within the market. Increases in immigration and new-to-credit consumers open up the opportunity for lenders to establish new loyal customer bases. “Canada has strong immigration targets with an aim to welcome 500K per year into the country by 2025,” states Rebecca Oakes, Vice-President of Advanced Analytics at Equifax Canada. “These individuals have credit needs, which adds to the growing demand for products.”
Potential risks within the credit card sector include increased credit card spending as the cost of living increases, which could lead to an increased risk of delinquency. In the last 12 months, the 90+ day volume delinquency for credit cards rose 23 per cent. Identifying potential changes in consumers’ financial status enables lenders to manage possible risks quickly.
Supply Chain Recovery Equates to More Car Loans
With the supply chain slowly recovering and car prices normalizing, this creates the opportunity for more new car loans and the clearing of past backlogs. Lenders should track performance closely by key segments, geography, and risk levels to identify the best growth opportunities.
However, auto loans that are not derived from a bank show
rising account delinquency comparable to other products as consumers
feel the pressure of high monthly payments and rising borrowing
costs. To effectively manage risk and uncover hidden opportunities
lenders should strengthen collection and debt recoveries to manage
Upcoming Mortgage Renewals
Within the mortgage industry, home prices are normalizing and slowly shifting to a buyer’s market which could give first-time home seekers some relief. In Q4 2022, new mortgage originations fell 38.5 per cent compared to 2021. Lenders should keep a competitive rate to retain price-sensitive customers, as most upcoming mortgage renewals for consumers are at a much higher rate.
A potential risk within the market is that the mortgage portfolio growth is declining. Despite some price corrections in the housing market, home buyers could find it challenging to qualify for a mortgage amidst high rates and new Office of the Superintendent of Financial Institutions (OSFI) guidelines.
Do you have further questions about consumer credit trends? Sign up to Attend our Quarterly Credit Trends Webinars and Receive our Latest Economic Insights Reports.
We want to help Canadians live their financial best. For further questions, you can also reach us by contacting your Equifax Account Representative or directly at 1-855-233-9226 and follow us on Twitter and LinkedIn.
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