While the stress in the U.S. energy sector should not materially impact the credit profiles of large consumer lenders with national footprints, Canada is a different story.
Visa and MasterCard data reveal there was a downturn in credit card spending in the first quarter.
Fitch Ratings says it expects the cost of credit to rise in Canada as banks feel continued pressure from the slow recovery of oil prices impacting Alberta and other oil provinces and concerns about record consumer debt levels.
Consumer credit health is a concern due to the record household debt levels and energy pressure on consumer loan portfolios in oil provinces which is pushing up delinquencies in auto lending and credit cards.
Alberta and other oil provinces are showing signs of stress. In March 2016, Alberta’s unemployment rate jumped to 7.1% (in line with the national average) compared to 5.9% in March 2015. For Canadian banks, exposure to Alberta and oil provinces on average has been 15% of Canadian loans. However, excluding insured mortgages, the figure declines to an average of about 8%.
Strong asset quality, robust housing demand, and low interest rates offset some of the pressure for the Canadian banks. However, if sustained energy price declines dampen economic activity, Fitch expects to see broader consumer lending asset quality deterioration.
However, Canadian banks have a sizable exposure to energy lending, however Fitch views this as manageable and a bigger impact on earnings rather than capital
Visa Canada PDV Growth (FX)
MasterCard Canada PDV Growth (FX)
Source: Visa; MasterCard; The RAM Reports
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