Rising consumer debt loads aren’t a problem for Canadian banks yet, but they soon could be, according to a new report from rating agency Moody’s.
In a report released Tuesday morning, the agency warns that the credit quality of Canada’s biggest lenders is under threat in part due to longer terms on car loans, and the more than half of Canadian mortgages that will see their rates increase this year.
After a series of rules aimed at tightening the market, the majority of Canadian mortgages are now uninsured, which means lenders are on the hook for them if they turn bad and borrowers default.
That wasn’t the case five years ago, so the uptick is worth keeping an eye on, Moody’s says. And while delinquency rates on mortgages are still at record lows — less than three out of every 1,000 borrowers are currently more than three months behind on their mortgage — the possibility of that number increasing means the banks need to be aware of that risk, Moody’s says.
Higher interest rates could be a trigger for that admittedly unlikely event.