Talk of a credit crunch in Canada off base, says RBC Economics
Strong growth in household and business loans has accelerated
Monday, August 27, 2007
By James Langton
RBC Economics says that credit conditions are better than some fear, particularly in Canada.
In a report that tracks its financial industry forecasts, RBC notes that while growth in household loans continues to slow, growth in commercial and industrial loans (C&I) at U.S. commercial banks has shot through the roof. “Getting financing on the open market may have become trickier for some businesses, but this may have prompted them to alternately back into undrawn lines at banks that are proving to be very willing to continue extending business loans. In fact, weekly data is showing that drawn C&I loan balances are now up 12% over a year ago, and the four week moving average of annualized weekly growth rates is 32%,” it says.
“This contrasts sharply with the early 1990s, and contrasts even more sharply with the post-9/11 and dot-bomb period during which C&I loans went into a tailspin,” it adds
“Talk of a credit crunch in core Canadian household and business banking markets remains off base,” RBC says. “In fact, already strong growth in household and business loans has accelerated even further over recent months.”
“We remain of the view that Canada was relatively less exposed than the U.S. to developments in select markets where assets changed hands at a frequent and highly leveraged pace,” it adds. “Further, Canadian household credit markets must be evaluated independently of U.S. developments due to an inconsequential sub-prime share of Canadian mortgages, and the fact that Canada deregulated its mortgage insurance market early in 2006. This has allowed for the introduction of a variety of new mortgage products in Canada that were not previously available and that are backed by much stronger underwriting standards than the worst excesses of some types of U.S. mortgage products.”
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