Canadian households are stepping up their borrowing once again, driven by increasing use of their credit cards, which may help drive bankruptcies higher once interest rates start to rise, CIBC World Markets Inc. warns.

In a new report authored by Benjamin Tal, CIBC looks at the state of household finances in Canada, and finds that “credit growth is no longer decelerating”. Indeed, it says that, during the third quarter, total household debt outstanding rose by 4.3% on a year-over-year basis; which is up from the rate seen in the second quarter, and represents the fastest pace of growth since early 2013.

In particular, consumer credit rose by 2.4% year over year in the third quarter, CIBC says; which is its fastest pace in almost two years. And, while auto loan growth remains strong, CIBC says that, “What’s new is the recent acceleration in the pace of growth in credit card balances.”

“After declining for most of 2013, growth in this portfolio has returned and accelerated notably in the first half of 2014,” the report notes, attributing this fact to a “significant supply push by credit providers.”

As a result, it notes, “the recent improvement in retail sales might be more leveraged than perceived”; and, it says that the transfer of debt from credit cards to lines of credit appears to be slowing.

“In the mortgage market the most significant observation is the fact that mortgage activity has been slowing, but so far we have not seen a similar trend in real housing activity,” it says. There are a number of possible explanations for this, the report suggests, including the “possibility that unregulated alternative lenders are playing a more significant role in the market than currently perceived. If so, that would mean that more mortgages are simply not included in the official statistics.”

Finally, the report indicates that the debt-to-income ratio may rise as a result of renewed credit growth. For now, with record-low interest rates, interest payments on total debt are at a record low, the report says. The total debt to total assets ratio is at its lowest level since early 2008, and net worth as a share of disposable income is at a record high, the report says.

However, it warns that personal bankruptcies could rise as interest rates do. Generally, bankruptcies are negatively correlated with interest rates, the report says, since higher rates typically coincide with improved job market conditions. “This time around, given the current debt load, the likelihood is that the impact of higher rates on debt financing (at the margin) might lead to a reversal of the typical correlation, and we might see bankruptcies rising alongside interest rates,” it says.