Insolvency levels might bring significant risks upon the fiscal system

Piling insolvencies might presage intensified pressure upon the Canadian household market and the financial system as a whole – or they might not, according to industry observers polled by Bloomberg.

The number of Canadians who filed for insolvency in September went up by 19% year-over-year, representing the largest annual gain since 2009. With 11,935 consumers filing during that month, this placed the year-to-date total up to 102,023 insolvencies.

At the same time, the share of insolvencies in Canada’s household debt is declining. As of September, there were 5.3 filings for every $1 billion in total household debt, compared to the elevated 17.8 filings in 1997.

Taken with the generally positive economic outlook, especially the record-low unemployment levels, these figures are baffling, Quebec City economics professor Stephen Gordon said.

“Normally there’s a story you can tell, like there’s some underlying weakness that shows up with a bit of a lag in personal bankruptcies and insolvencies,” the Université Laval academic told Bloomberg. “It’s just hard to see that now. It’s perplexing.”

Another important metric to consider is the mortgage arrears rate, which stood at 0.23% nationwide as of the end of July – near historic lows, in fact.

Fidelity Investments portfolio manager David Tulk echoed these sentiments, saying that it’s “hard to square” the insolvency growth with the economic context.

“Maybe it isn’t a trend that would represent the average borrower, but is instead catching the fringe that have over-extended themselves,” he explained.

MBN

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