Dynamics In The Canadian Credit Market: Key Insights From The Canadian Commercial Trends Report (March 2024)

30 May 2024 | by Jen Martin, SVP/Chief Product Officer, LTi Technology Solutions

INTRODUCTION

The March 2024 issue of the Canadian Commercial Credit Trends Report published by Equifax reveals a mixed picture for the Canadian business credit market. This blog highlights my key observations on the report highlighting opportunities and challenges navigating this market.

TOP SIX HIGHLIGHTS:

1. Equipment Lending Growth: The CFLA/Equifax Canadian Equipment Lending Index rose 2% from the period February to March 2024. The increase is a strong indication of increased business investments, especially from small and medium-sized enterprises (SMEs) – a positive sign. To drive growth SMEs are focusing on new equipment, reflecting a healthy underlying economic optimism in driving modernization and economic growth.
2. Essential Role of Equipment Financing: To enhance productivity and competitiveness, companies are increasingly investing in new machinery and technology. The rise in lending highlights the critical role equipment financing plays in driving economic progress.
3. Increase In Delinquency Rates: The report highlights a negative trend overshadowing the growth in lending: a rise in delinquency rates.
   • • The 31-180 days past due category increased by 55 basis points in March, with a total rise of 258 basis points over the past year.
     • The more severe 91-180 days past due category also trended upward, while smaller, it continued a year-over-year upward trend.
     • The increases in delinquency rates, sustained over fifteen months for the 31-180 days category, highlight persistent financial stress.
4. A Dual Reality: Two dynamics are at play: a rise in equipment lending indicating businesses are investing in future expansion and increasing delinquencies suggesting many businesses are struggling with debt management. This reflects the wide range of realities in the marketplace as some sectors thrive while others face substantial challenges.
5. Economic Factors Add Pressure: Economic pressures including inflation, supply chain disruptions, and interest rate hikes may be adding to the financial strain on businesses. These economic factors can exacerbate the difficulties faced by certain sectors, making it even harder to keep up with debt obligations.
6. Strategies for Financial Institutions: To navigate and grow in this competitive marketplace, financial institutions need to deploy strategies to address the root causes of the rising delinquencies.

   Strategies include:

   • • Flexible Repayment Terms. Offering better cash flow management by adjusting repayment schedules could mitigate delinquencies for borrowers
     • Financial Advice & Counseling. Offering targeted education and financial advice could help clients make more informed decisions.
     • Tailored Support. Creating a targeted support plan for struggling sectors to prevent widespread insolvencies.

SUMMARY

The March 2024 issue of the Canadian Commercial Credit Trends Report paints what can only be described as a nuanced picture of the Canadian credit market. To successfully navigate this challenging market, financial institutions need to understand these trends and plan strategically.

It is clear that equipment financing is crucial for business expansion, modernization and economic growth. Developing and implementing proactive strategic measures are a key way for financial institutions to navigate the current market conditions effectively to mitigate the risks of financial stress. A balanced approach is the key to supporting sustained economic growth and stability in the commercial credit market in Canada.

Let’s continue to work together to support our businesses and ensure the health of our industry.

For more information or to access the full report, click here.

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