The ratio of what Canadians owe versus their ability to pay it back went down in the first three months of COVID-19, but that unexpectedly brighter debt picture could be hiding a wave of bankruptcies waiting to emerge.
Statistics Canada reported Friday that the debt to disposable income ratio fell to 158.2 per cent in the three months between April and June, compared with a reading of 175.4 per cent in the first three months of the year.
That means that Canadian households owed $1.58 for every dollar they had to spend as of the end of June. That ratio peaked at 177 per cent in 2017 and has held steady in the 170 range up until the sudden drop this year.
While it’s encouraging to think that Canadians are managing to pay down their debt loads during the pandemic, insolvency trustee Scott Terrio with Hoyes & Michalos says that number can mislead about what’s happening beneath the surface.
Prior to the pandemic’s start in March, consumer insolvencies had been growing at a double-digit pace since the start of 2019 as the system worked through a decade of debt fuelled by a low rate that Terrio said people “binged” on “and kicked the can down the road.”
Most of Canada’s household debt comes in the form of mortgages, but Canadians also owed $779.4 billion on things like credit cards at the end of June. (Getty Images)
But the massive wave of support programs rolled out by governments across the country seem to have had their designed effect of keeping peoples’ heads above water, too.
While the record number of layoffs made a dent in incomes, many people who were in trouble before COVID-19 got some relief simply because they weren’t spending as much.
As daycares shut down and parents moved to work from home en masse, “all of a sudden, people weren’t paying $2,000 a month in daycare for five months,” Terrio said.
In addition to government stimulus, roughly one out of every six Canadian homeowners with a mortgage applied for programs that banks offered to defer all or part of payments for up to six months this spring. But those programs are slated to end in the coming weeks, and those bills have to be paid.
Insolvency trustee Scott Terrio is expecting a wave of bankruptcies and insolvencies to start this fall and winter. (Martin Trainor/CBC)
“The ones I’m worried about are the ones who had significant debt and then one of the spouses stopped working,” he said.
“They’ve taken advantage of deferrals and benefits [but] that ride is gonna end.”
Savings up sharply, too
All told, Canadians owed $2.3 trillion at the end of June, which consists of $1.5 trillion worth of mortgages, and $779.4 billion worth of consumer debt such as credit cards.
The Statscan numbers show the debt picture is changing very unevenly across different income groups.
The lowest 20 per cent had a debt to income ratio of 281.7 per cent at the end of June, meaning they owed almost $3 for every dollar they had on hand to spend. Those in the top 20 per cent, meanwhile, owed just $1.38 for every dollar of disposable income they had.
Those imbalances are part of why Terrio predicts that insolvencies are going to come back “with a vengeance ” in the coming months.
“Once the courts open you’ll find out how much your bank loves you,” he said.
‘Delinquency tsunami’
TD Bank economist Ksenia Bushmeneva found reasons for optimism in the numbers.
“One of the major risks heading into this pandemic-induced recession was the high level of household indebtedness in Canada, which could greatly amplify the hit to the economy and slow the subsequent recovery,” she said.
“So far, it appears that the consumer side of the economy has held up better than might have been expected at the start of the crisis.”
Bushmeneva was especially heartened by the fact that the debt service ratio — the amount of money spent on servicing debt loads — fell by its highest amount on record, to 12.4 per cent from 14.54 per cent, largely because of lower rates.
In addition, she noticed that the household savings rate — the percentage of disposable income that households manage to save — soared from 3.9 per cent at the end of 2019 to 28.2 per cent in June, a level she described as “eye popping.”
But she is also worried about what could be coming down the pipeline.
“The unprecedented federal government income support programs and payment deferrals by financial institutions have been paramount for averting a delinquency tsunami and protecting household finances,” she said. “However, more challenging times are likely ahead.
“Delinquencies and consumer insolvencies will likely begin to rise at the end of this year and into 2021.”
CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.
It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.
The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.
Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.
TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.
The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.
This report by The Canadian Press was first published Nov. 7, 2024.
BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.
The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.
On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.
“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.
“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”
Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.
BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.
The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.
BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.
It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.
The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”
Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.
This report by The Canadian Press was first published Nov. 7, 2024.
TORONTO – Canada Goose Holdings Inc. trimmed its financial guidance as it reported its second-quarter revenue fell compared with a year ago.
The luxury clothing company says revenue for the quarter ended Sept. 29 totalled $267.8 million, down from $281.1 million in the same quarter last year.
Net income attributable to shareholders amounted to $5.4 million or six cents per diluted share, up from $3.9 million or four cents per diluted share a year earlier.
On an adjusted basis, Canada Goose says it earned five cents per diluted share in its latest quarter compared with an adjusted profit of 16 cents per diluted share a year earlier.
In its outlook, Canada Goose says it now expects total revenue for its full financial year to show a low-single-digit percentage decrease to low-single-digit percentage increase compared with earlier guidance for a low-single-digit increase.
It also says it now expects its adjusted net income per diluted share to show a mid-single-digit percentage increase compared with earlier guidance for a percentage increase in the mid-teens.
This report by The Canadian Press was first published Nov. 7, 2024.
