Canadians under strain, not in crisis: NBF

Household finances are under growing stress from inflation and a weaker job market, but there’s no solvency crisis just yet, says National Bank Financial Inc. (NBF).

In a research note published Wednesday, NBF analysts acknowledge that recent data points to deteriorating household financial health — with total debt in insolvency reaching its highest mark since the financial crisis in the first quarter, and the number of insolvency filings also reaching their highest level since 2009. 

“However, two adjustments are necessary to correctly interpret the trend in insolvencies,” the note said. 

For one, there’s a seasonality aspect to the data — with higher insolvency volumes traditionally reported in the first half of the year. 

And two, the population has soared since 2009, rising by about 25% since then. 

“… once the data is seasonally adjusted and expressed on a per capita basis, the insolvency rate remains well below the peak reached in the wake of the financial crisis and is even below its pre-pandemic level of 2019,” the note said. 

Indeed, the recent trend in rising insolvency filings over the past few years “reflects a normalization from an exceptionally low pandemic trough rather than a widespread breakdown in household credit,” it said. 

So, while the data does indicate rising financial stress, it doesn’t signal systemic credit risk, NBF said.

“The most accurate interpretation remains more nuanced: financial strains are increasing, but their magnitude remains moderate by historical standards for now,” it said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.