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“The research suggests Canadians repay their credit cards at a higher rate than in the U.S. and the U.K. because it’s more expensive to carry a balance,” Mercer said. “The flip side is that these rates lead to higher profitability for the (Canadian) banks.”

In the last recessions in the U.S. and U.K, credit card loss rates rose to 11.5 per cent and 12 per cent respectively, according to Moody’s. That’s well above the ratings agency’s prediction of 6.3 per cent to 6.8 per cent for Canada in the next downturn.

Debt load

The expectation of additional losses is not surprising when considering Canadians’ growing debt burden. As Moody’s points out, as of March 31 of this year, just a penny shy of $1.70 was owed for each dollar earned.

That’s “nearly twice the level of 30 years ago,” the ratings agency points out, adding that the trend has been driven by a combination of low interest rates, minimal economic stress, and increasing housing prices.

Canada’s record high household debt has attracted attention and warnings from international organizations such as the Bank for International Settlements. A key ratio of credit to gross domestic product tracked by the BIS suggests Canada is among a group of developed countries most vulnerable to a financial crisis.

This week’s Moody’s report suggests high household leverage will play out differently in regions across the country. Consumers in Toronto and Vancouver, for example, are flagged as particularly vulnerable to “cash-flow” shocks such as job losses or rapidly increasing interest rates, due to more dramatic house price increases in those pockets. In the oil-producing provinces of Alberta and Saskatchewan, meanwhile, there have already been indications of an uptick in delinquencies in consumer debt portfolios in the aftermath of a slump in crude prices, the report says.

Initial unemployment insurance claims in those oil-dependent provinces nearly doubled in the latter half of 2016 from the start of that year.

“Although we expect losses to be moderate and manageable for large, geographically diversified banks, card loan performance in these Prairie provinces in coming quarters will be an illustrative first test of the ongoing strength of Canadian credit card portfolios,” the ratings agency report said.