Despite BoC key rate hold, bankruptcy fears remain

by Ephraim Vecina25 Apr 2019

Canadian households might have let out a sigh of relief at the Bank of Canada’s decision to hold its trend-setting interest rate at 1.75% earlier this week, but fears of financial instability remain.

Around 35% of Canadians said that another interest rate hike will push them towards bankruptcy, according to a recent analysis by MNP Ltd.

Moreover, around 48% said that they are just $200 or less each month away from financial insolvency. Over a quarter (26%) lamented that they basically have no elbow room by month’s end, already unable to earn enough to cover bills and debt payments as it is.

This downward trend in optimism, which MNP said has been going on since September 2018, has been aggravated by increases in interest rates. The insolvency practice added that Canadians’ debt sentiments are at their lowest point ever since tracking began.

“Canadians appear to be maxed out with no real plan for paying back what they have borrowed. This raises many alarming questions about how and if consumer debt will be repaid, particularly if conditions deteriorate or interest rates rise,” MNP Ltd. president Grant Bazian said.

Canadian households’ perception of their finances has also fallen to a new low. Over half (54%) of the MNP respondents indicated considerable anxiety about their ability to repay debts, while a similar proportion (47%) admitted that they would fall in financial trouble if interest rates increase further.

“When there is this little room in the household budget, people can easily get trapped in an endless cycle of debt,” Bazian warned. “This isn’t simply a matter of people living beyond their means. The reality is that too many households simply cannot make ends meet, however hard they try.”

“Credit has become inextricably woven into Canadian household budgets.  A whole industry has grown up around making that happen, from payday lenders to credit card companies, to buy-now-pay-later retail offers. Paying down debt or saving for the future is seen as more of a luxury than a necessity.”

 

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