Lenders in Canada are starting to get nervous as the jump in the jobless rate and loss of jobs in March is stoking unease about the short-run outlook for loan performance. Moody’s Analytics reported that the increase in the unemployment rate to 6.1% last month, the highest level in two years, has raised concerns among credit risk monitors.
Auto loan delinquencies have already surpassed their pre-pandemic average and are showing signs of accelerating, according to data from Equifax Canada and Moody’s. This trend is particularly concerning as the number of loan payments that are 60, 90, and 120 days late is growing.
While residential loans like mortgages and home equity lines of credit remain below their pre-pandemic levels, auto loans are becoming a cause for concern. Moody’s Analytics highlighted that auto loan delinquencies are on the rise, especially for borrowers with lower credit scores.
The weak Canadian dollar, which has sunk to 72 cents after recent economic reports, poses a challenge for the Bank of Canada. A further depreciation of the currency could lead to inflation due to higher import costs, creating a dilemma for policymakers.
To address these challenges, the Bank of Canada may consider interest rate cuts to boost consumer sentiment and prevent deeper job losses. However, the impact of such decisions on the Canadian dollar and inflation rates remains uncertain.