While there are some worrying trends in Canadian household credit, the overall picture suggests that credit losses will evolve in line with market expectations, maybe even surprise to the upside, according to CIBC World Markets Inc.
In a report, CIBC economists take a deep dive into the data on household credit trends, against the backdrop of rising unemployment, weak economic growth and a looming cliff for mortgage refinancing that will deliver payment shocks to certain households — which finds some worrying trends, but no cause for alarm just yet.
To start, the report notes that while insolvencies have risen, they are stabilizing at pre-pandemic rates and there’s been a welcome shift away from bankruptcies toward consumer proposals, which are less costly and deliver higher recoveries for lenders.
Similarly, household credit is also growing at pre-pandemic rates.
“That pace of growth is less due to increased number of borrowers and more due to an increase in the average loan size,” the report said, adding that while there’s strong growth among Gen Z borrowers, credit demand by Baby Boomers is contracting.
“Zooming in on the aggregate risk profile of borrowers, things continue to look reasonably OK,” it added — although there are pockets of stress in the delinquency data.
For instance, among sub-prime borrowers, the 30-plus day delinquency rate is up to 11.5%, which is “notably higher than pre-Covid levels,” the report said.
And, for borrowers that don’t have a mortgage — mostly households that rent — the 90-plus day delinquency rate is also higher than pre-pandemic levels.
The delinquency rate has risen for mortgage-holders too, but it’s only marginally higher than the pre-pandemic level for this cohort.
“We believe that most of that increase in arrears was due to economic reasons such as job loss as opposed to payment shocks, given that the vast majority of the increase in mortgage arrears this year accrued well after borrowers adjusted their payments,” the report said.
Looking ahead, the report noted that “some pressure on mortgage delinquencies is likely to persist and in fact, might intensify” in the year ahead, as mortgages that currently carry rock-bottom interest rates are repriced to higher rates, “mostly in the second half of 2026 when we expect the share of borrowers facing payment shocks of more than 40% to reach 5%–6% of the mortgage portfolio — more than double the share seen in 2025.”
Overall, there are lurking signs of rising credit stress — with delinquencies among sub-prime borrowers on the rise, delinquency rates rising for renters’ credit cards and credit lines, and early warning signals among mortgage-holders too. As a result, “the upward trajectory in delinquency rates is likely to continue in the coming quarters,” the report said.
“However, our assessment that we are already very close to peak unemployment for the current cycle, along with a reasonable starting point and increased pre-emptive activity by lenders suggests that future credit losses should be consistent or even better than what might be priced in by the market,” it concluded.