Canadian credit card delinquencies rising - THE CANADIAN PRESS
Canadian credit card issuers saw a sudden upward jolt in delinquencies late last year and they are getting tougher to avoid write downs like those that have afflicted the U.S. financial system, Deloitte consultants report.
"Many companies loosened standards in recent years - and many will suffer higher credit losses in the months ahead," the study released today says.
It notes that "with Canadian consumers increasing their debt-to-disposable-income ratios to more than 130 per cent, a rate currently higher than that of the U.S., Canadian issuers face new risks."
Deloitte said recent interviews with managers at major card issuers found that "beginning in October or November of 2008 they started seeing a jump in delinquencies of five to 10 per cent - which have increasingly been translating into write offs."
It said card issuers in Canada have traditionally seen loss rates of less than four per cent, compared with six per cent and rising in the United States. But the Canadian rate has risen by between half a percentage point and a full point.
This could represents new annualized losses of as much as $800 million, based on an industry total of more than $80 billion of credit card balances, of which just over $50 billion is outstanding with the chartered banks.
The Deloitte consultants observe that as the recession takes hold ``circumstances for cardholders are changing quickly; customers who had impeccable credit scores six months ago may be in trouble today."
The report advises card issuers to increase the frequency of account reviews and scrutinize cash advances which "may indicate that a card holder is in financial difficulty."
The report says some issuers have increased collection calls by as much as half, and it comments that "early and proactive management can keep at-risk accounts from ultimately defaulting."
It warns that card fraud tends to rise when the economy turns down.
But it also counsels financial institutions that "these economic times create opportunities to build even stronger relationships with your customers" through budgeting assistance, reward programs and other "actions that can build loyalty over the long term.
"Many companies loosened standards in recent years - and many will suffer higher credit losses in the months ahead," the study released today says.
It notes that "with Canadian consumers increasing their debt-to-disposable-income ratios to more than 130 per cent, a rate currently higher than that of the U.S., Canadian issuers face new risks."
Deloitte said recent interviews with managers at major card issuers found that "beginning in October or November of 2008 they started seeing a jump in delinquencies of five to 10 per cent - which have increasingly been translating into write offs."
It said card issuers in Canada have traditionally seen loss rates of less than four per cent, compared with six per cent and rising in the United States. But the Canadian rate has risen by between half a percentage point and a full point.
This could represents new annualized losses of as much as $800 million, based on an industry total of more than $80 billion of credit card balances, of which just over $50 billion is outstanding with the chartered banks.
The Deloitte consultants observe that as the recession takes hold ``circumstances for cardholders are changing quickly; customers who had impeccable credit scores six months ago may be in trouble today."
The report advises card issuers to increase the frequency of account reviews and scrutinize cash advances which "may indicate that a card holder is in financial difficulty."
The report says some issuers have increased collection calls by as much as half, and it comments that "early and proactive management can keep at-risk accounts from ultimately defaulting."
It warns that card fraud tends to rise when the economy turns down.
But it also counsels financial institutions that "these economic times create opportunities to build even stronger relationships with your customers" through budgeting assistance, reward programs and other "actions that can build loyalty over the long term.
posted by Credit Counseling at
12:41 PM
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