DBRS Morningstar Publishes Auto Loan Performance at Banks in Canada Has Weakened but Remains Manageable Commentary

DBRS Limited (DBRS Morningstar) published a commentary titled “Auto Loan Performance at Banks in Canada Has Weakened but Remains Manageable.” This commentary analyzes the credit performance of auto loans in Canada, which has marginally weakened in recent quarters but remains healthy and manageable.

The commentary highlights the following points:

-- Credit performance of auto loans in Canada at the six large Canadian banks has deteriorated marginally but remains strong.
-- Auto loans in Canada represent a modest proportion of household debt but are contributing to the rising burden of non-mortgage debt payments.
-- Auto loans are a small share of large Canadian banks’ lending, providing the banks with capacity to grow their auto-lending portfolios.
-- In the event of an economic downturn, DBRS Morningstar expects auto-loan losses and delinquencies to rise and revert to more historical levels. However, the six large Canadian banks are well positioned to absorb any potential increase in auto-loan losses.

“In recent quarters, the credit performance of auto loans in Canada at the six large Canadian banks has deteriorated marginally but remains strong. Since 2012, the large Canadian banks have been expanding their auto lending portfolios by an annual average rate of 9.7%,” said Robert Colangelo, Senior Vice President – Global Financial Institutions Group. “Loan terms have extended to over 75 months, longer than traditional 60-month terms. This heightens the probability that borrowers may experience negative equity, which may result in borrowers defaulting on their loans, as they may perceive themselves to be underwater.”

Notes:
A copy of this commentary is available by contacting us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada