Despite continuing economic uncertainty, Canadian households and businesses are borrowing more money than they did last year, according to a new report from TD Economics.

The report by economist Grant Bishop finds that in April, Canadian bank credit to households and businesses expanded at 10.3% and 6.4% year-over-year, respectively.

Household credit was up 1.1% from March. The boost reflects robust borrowing by homebuyers through mortgages and lines of credit, as home sales increased in April. Lower interest rates and falling house prices appear to be drawing potential buyers into the market, according to the report.

“Households continue to borrow at a swift pace,” it says.

Meanwhile, personal loans are slowing on lower demand for durable good financing, as consumers delay big-ticket purchases. But credit card balances returned to a monthly growth in April and accelerated to a year-over-year pace of 8.9% after several months of slowing growth. This likely reflects the uptick witnessed in retail sales in the past few months, after a dismal December, Bishop notes.

While business credit from banks represented year-over-year growth, the pace of growth was slightly slower than levels in recent months, including 7.5% in March and 9.4% in February.

“Growth in bank credit to businesses has been especially strong through the first two quarters of this recession,” the report says.

The slower pace of growth in April reflects greater availability of market-based funds, which has larger borrowers relaxing their earlier draws from bank provided credit facilities.

“Spreads have alleviated in commercial paper markets and corporate bond markets jumped back on-line in March and April, with nearly $4 billion in corporate bonds issued since February,” states Bishop.

In addition, the dampened business outlook has depressed demand for investment funds, which is a trend consistent with previous recessions, according to the report. It notes that inventory-to-sales ratios in manufacturing and wholesale are at historically elevated levels, reducing the need to for short-term funds to finance new inventories.

Bishop also finds that demand for bankers acceptances to finance short-term trade transactions remains lower, while business borrowing from banks through non-residential mortgages is strong, at a year-over-year growth rate of 12.1%.

Going forward, Bishop expects deteriorating business conditions to continue to hamper the pace of business borrowing.

IE