Bottom line
Insolvencies fell by 12.1% m-o-m on a seasonally-adjusted basis (SA) in August, following a sharp increase in July. We note that the data has been quite volatile since the beginning of the year, even on a seasonally-adjusted basis. Nevertheless, looking through the volatility, it appears that insolvencies are stabilizing in recent months.
The consumer insolvency rate (insolvencies per 1000 population) eased slightly in August, but remained close to its highest level since January 2020. Still, the insolvency rate is roughly in line with the levels prevailing pre-pandemic (see Fig 6). We note that bankruptcies remain well below their pre-pandemic level in all provinces, as insolvencies continue to be driven by proposals (renegotiation of terms).
We note that the total levels of insolvencies in BC, Manitoba, Saskatchewan, Alberta and Ontario are well above the levels seen in 2019; all those provinces have higher than average levels of debt-to-disposable income (see Fig 7). Similarly, these provinces have seen the biggest rise in insolvency rate compared to pre-Covid.
Business insolvencies also decreased in August and are higher than for the same month last year. Despite the increase over the past three years, they remain below levels seen pre-2009 (see Fig 8). We also note that there has also been some stabilization in business bankruptcies in recent months (Fig 9). It will be interesting to see if this new trend continues over the coming months.
Record levels of household debt, declining purchasing power due to the recent inflationary episode, and higher interest rates are putting pressure on households’ finances. So far, the labour market’s resilience has meant that borrowers have been able to weather the shock by allowing them to readjust their lending to reduce the shock from higher interest rates on their regular payments. However, job losses would be a major risk, further squeezing consumers. Moreover, despite the recent rate cuts, interest rates remain well above the level seen in recent years, meaning that many homeowners have to renew their mortgages at higher rates over the next few years. All those factors point to further rises in insolvencies. The question is whether the labour market will continue to provide some relief with its low albeit increasing unemployment rate and the vast amount of savings accumulated during the pandemic. A deterioration in labour market conditions, especially job losses, and the associated decline in income would likely lead to a jump higher in insolvencies (see It’s a “Me-cession”, not a recession and Will it be a hard landing or a soft landing? The labour market will decide).
In Alberta, despite the strength of the oil sector, with high revenue levels and the associated tailwind to the economy, and a robust labour market, insolvencies continue to trend higher and the consumer insolvency rate is the highest amongst provinces. Albertan households have some of the highest debt-to-income ratios, making them vulnerable to rising interest rates and income losses. They have also seen a bigger decline in their purchasing power than other provinces due to underperforming wages and income gains. In addition, we note that the insolvency level is at record highs and proposals (a renegotiation of terms) are well above their pre-pandemic level. On the business side, we note that insolvencies seem to have eased significantly in recent months.
Insolvencies surged 12.1% m-o-m in August on a seasonally-adjusted basis after surging in July. Insolvencies have been quite volatile so far this year, even on a seasonally-adjusted basis, and seems to have stabilized somewhat. Insolvencies, which include both bankruptcies and proposals (a renegotiation of terms), rose by 8.8% compared to the same month last year. This resulted from a 9.9% y-o-y rise in proposals and a 5.2% y-o-y increase in bankruptcies. It’s important to note that proposals represent about 77% of total insolvencies.
Compared to last year, insolvencies are higher in most provinces, except in New Brunswick (-14.0% y-o-y) and Newfoundland (-7.1% y-o-y). Insolvencies increased the most in Ontario (+16.2% y-o-y), PEI (+15.8% y-o-y), Alberta (+10.3% y-o-y), and Quebec (+7.0% y-o-y).
On a monthly basis, insolvencies dropped by 12.1% m-o-m seasonally-adjusted (sa) in August. The details show a decline in bankruptcies (-15.5% m-o-m) and proposals (-10.9% m-o-m). At the provincial level, insolvencies were lower in every province, except in PEI (+1.8% m-o-m). They fell the most in Nova Scotia (-25.9% m-o-m), Newfoundland (-22.0% m-o-m), New Brunswick (-20.6% m-o-m), and BC (-16.0% m-o-m). They decrease the least in Alberta (-3.0% m-o-m), Manitoba (-7.1% m-o-m), Ontario (-7.2% m-o-m), and Quebec (-9.6% m-o-m).
Relative to 2019, insolvencies in Canada are currently 1.1% higher, with proposals being 32% above their 2019 levels, while bankruptcies are 44% below. We note that the level of insolvencies is higher compared to pre-COVID in Manitoba (+26%), Alberta (+23%), BC (+21%), Ontario (+19%), and Saskatchewan (+14%). The level of insolvencies is still well below pre-pandemic in New Brunswick (-35%), Newfoundland (-34%), Nova Scotia (-32%), PEI (-22%), and Quebec (-17%).
We note that the level of proposals is well above its pre-pandemic level in all provinces, except in New Brunswick (-7%) and Newfoundland (-3%), led by Manitoba (+69%), Saskatchewan (+60%), BC (+58%), Alberta (+56%), and Ontario (+42%).
The consumer insolvency rate (number of insolvencies per 1000 people aged 15 and over) eased to 0.338 in August from 0.383. The insolvency rate is the highest in Alberta (0.435), Newfoundland (0.384), Quebec (0.381), and Nova Scotia (0.379). It is the lowest in BC (0.239), Manitoba (0.291), PEI (0.322), and Ontario (0.326).
Compared to 2019, the insolvency rate is 0.035 lower nationally. It has increased the most in Manitoba (+0.039), Alberta (+0.031), Saskatchewan (+0.026), BC (+0.019), and Ontario (+0.016). It is lower in New Brunswick (-0.261), Nova Scotia (-0.246), Newfoundland (-0.219), PEI (-0.158), and Quebec (-0.129).
Business insolvencies declined 12.9% m-o-m seasonally-adjusted in July (+7.6% y-o-y) and followed a sharp increase in June. The increase in business insolvencies over the past year, representing less than 5% of total insolvencies, is due to a rise in bankruptcies (+9.0% y-o-y) and proposals (+3.2% y-o-y). On a year-on-year basis, the increase in business insolvencies at the national level was mainly the result of higher insolvencies in Ontario (+49.5% y-o-y).
The most affected sectors are wholesale trade, administration and support services, and manufacturing. Altogether, these sectors account for the increase in insolvencies over the past year. On the flip side, the number of insolvencies declined compared to last year for professional, technical and scientific services, other services, and food and accommodation services.
Compared to pre-pandemic levels, business insolvencies in Canada are 56% higher, with Ontario (+114%), BC (+112%), and Quebec (+50%) being the main contributors.
In Alberta, insolvencies declined by 3.0% m-o-m sa. in August and were 10.3% higher compared to the same month last year. Over the past 12 months, there have been 19.2k insolvencies, its highest level on record. On a seasonally-adjusted basis, the lower insolvencies in August came from a decrease in proposals (-3.3% m-o-m sa), while bankruptcies increased (+2.3% m-o-m sa). We note that the level of proposals is currently about 56% above its pre-pandemic level, while bankruptcies are 40% below pre-COVID. On the consumer side, the insolvency rate eased to 0.435 from 0.449, the highest in Canada and close to a record high. On the business side, insolvencies are 39.1% lower compared to August of last year, with a 60.0% y-o-y decline in proposals, while bankruptcies are unchanged compared to last year.