Personal credit line balances up 61% since 2007

Is the consumer up to his/her eyeballs in debt? Depends upon whether you are thinking on a gross or net basis.

Looking at the corporate loan books of the Canadian banks (see prior post “Canadian corporate bank loans hit three year low” July 24-10) might give you the wrong idea about the banks’ proclivity to lend capital. Just look at what the consumer borrower has been up to over the past three years, according to data from the Bank of Canada:

June 2007

Personal loans: $42.2 billion
Credit cards: $42.3 billion
Personal lines of credit: $132.3 billion
Other: $22.1 billion
Residential mortgages: $441.8 billion

June 2010

Personal loans: $52.5 billion
Credit cards: $55.2 billion
Personal lines of credit: $213.3 billion
Other: $27.8 billion
Residential mortgages: $490.3 billion

And the asset side? Personal deposits in June 2007: $509 billion; June 2010: $658.8 billion

Personal debt may have grown by 23% over the past three years, even as corporate debt stayed flat. But, with personal deposits rising by 29%, the national consumer balance sheet is actually deleveraging as far as our banks are concerned; even if these deposits aren’t spread evenly across the customer base.

The scariest number in the dataset? The 61% growth in personal lines of credit compared to the 11% growth in residential mortgages. I’m convinced those are the Home Equity lines that have come to replace many a convential mortgage. And, as long as you stay at 75% loan-to-value, there’s no net amortization required from year to year. Sure, you have to make the monthly payment, but unlike a traditional mortage, which should be paid to zero in 25 years, these home equity lines are far less likely to wind up at zero. You can just borrow the money back the day after you’ve made the payment.

Relative to the nation’s personal bank deposits, the gross consumer bank debt situation has dropped from 1.34x to 1.27x over the past three years. But the 61% increase in personal credit lines, to almost half of the entire bank mortgage pool, is exactly the kind of trouble that the U.S. subprime market got into circa 1997-2006: “no am” mortgages.

MRM