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Cracks in Canadians’ household finances are starting to show, cautions to a new report from DBRS Ltd.

The rating agency reported that, over the past decade, Canadians have added more debt relative to income than their counterparts in the U.S.

As a result, Canada’s household debt/personal disposable income ratio averaged 166.3% in the third quarter, compared with 130.7% in the U.S.

“In fact, the current Canadian rate is comparable with the rate the U.S. reported prior to the global financial crisis of 2007–08,” it said.

“With high debt trends and declining savings, the average Canadian consumer is vulnerable to a downturn in the market, particularly to a sudden change in unemployment or increases in interest rates,” the report said.

The report also noted that insolvencies are on the rise in Canada. For example, in the third quarter of 2019, the number of insolvencies rose by 14.9% compared with the same period a year ago, DBRS said.

“While, on average, Canadian consumers appear to have the capacity to carry a larger amount of debt supported by the significant wealth accumulation achieved over the last decade, a combination of cash-flow pressure and potentially less liquid asset holdings in the form of real estate could lead to an increase in the number of credit arrangements,” DBRS stated in its report.

In particular, the report warned that insolvency risks are high among the 8.4% of Canadians with a net worth of less than $500.

For investors in structured finance transactions, the report said, high-quality collateral and conservative underwriting policies in Canada will help guard against credit losses.

“We expect the performance of the collaterals and the structured securities to continue remaining stable,” the report stated.