The strains of higher interest rates and slowing economic growth are starting to show up on household balance sheets, as credit card payment performance continues to decline and insolvency activity rises, according to a new report from Fitch Ratings.
The rating agency reported that credit card performance continued to deteriorate in the first quarter, with delinquencies of over 60 days rising to 1.01% in the first quarter from 0.9% in the previous quarter, and its net chargeoff index seeing the largest quarterly increase since the onset of the pandemic.
Additionally, monthly credit card payment rates declined to 58.30% in the first quarter, from 62.81% in the previous quarter, Fitch noted.
The declining card performance came as “credit trends normalized and pressures continued to build for consumers as interest rates and inflation remain elevated,” Fitch said.
While household borrowing has slowed amid rising rates, Fitch said that consumers have been leaning more heavily on credit, resulting in higher monthly credit card balances and lower payments.
These trends also align with rising insolvency filing volumes, it noted, with insolvency filings jumping 28% in March to their highest level since November 2019, and the third straight monthly increase, led by a surge in consumers seeking to renegotiate their debts.
The insolvency trends represent “a sign that more Canadians are struggling to manage their debt obligations amid an environment of higher prices, interest rates and record household debt levels,” the rating agency noted.
“As more households fall behind on payments, Fitch expects chargeoffs to continue to trend towards 2019 levels in the near term as the economy has yet to bear the full brunt of the large interest rate hikes of 2022,” it said, adding that it is “expecting slower economic growth and higher unemployment later this year.”