Household borrowing continued its seemingly inexorable rise in October, and business credit finally revived, too, according to the Bank of Canada’s financial statistics.

TD Economics said Wednesday that the central bank’s monthly chartered bank statistics for October “showed a continued improvement in household credit”, and, at the same time, business credit to non-financial firms recorded its “fastest growth since 2008”.

The pace of household credit growth slowed to just 0.1% on a month-over-month basis in October, led primarily by a 1.4% month-over-month decline in securitized mortgage growth, although traditional mortgage credit and consumer credit continued to grow by 0.6%, it says.

The bigger news was that, after recording flat or negative growth for 21 consecutive months, business credit grew substantially in October, rising by 1.1%.

“The key story behind this month’s report was clearly the stronger showing in business credit growth — a first in almost two years. Business investment has contributed substantially to overall economic growth in the past two quarters, yet this has not been reflected in credit growth up until now,” TD says.

While investment has been surging, much of this has likely been funded from strong corporate profit growth, TD says. Now however, firms are having to return to borrowing to fund that investment. TD suggests that, “investment will continue to act as major contributor to overall economic growth with businesses likely turning more to credit facilities to finance these purchases.”

Household credit growth has yet to slow

“On the household side, credit growth has not yet slowed to the extent that we are expecting,” TD adds, noting that consumer spending keeps growing despite record high household debt levels.

“Continually falling consumer borrowing rates are likely the culprit for this seemingly insatiable thirst for debt, but selected mortgage rates are now back on the rise as of November and a normalization in consumer borrowing rates will ultimately slow Canadians’ abilities to take on additional debt,” TD says. “Moderation in consumer spending will likely characterize the coming quarters and this will eventually feed into consumer credit growth.”

IE