Insolvencies jump sharply in May

A “sharp” increase in insolvencies in May suggests that households are struggling more than ever with debt.

Insolvencies, which include bankruptcies and proposals to renegotiate loans, rose 12.3 per cent in May from April and are up 30.9 per cent from the same time last year on an adjusted basis, according to data from Innovation, Science and Economic Development Canada.

They are now at their highest level since the start of the pandemic, with proposal numbers cresting above the PRE-COVID era, said Charles St-arnaud, chief economist at Alberta Central, in an analysis of the latest figures.

May is historically a quiet month for insolvencies, Starnaud said in his analysis.

“The increase in 2023 has been more significant than usual in almost every province,” he said.

“This situation could be a correction after a small decline in April. However, so far this year, the monthly increases have been notably bigger than historically and suggest a fast-rising trend in insolvencies.”

In Canada, insolvencies numbered 11,262 in May, down 4.1 per cent, compared with 2019. Of that, bankruptcies totalled 2,735, down 42.6 per cent, relative to 2109.

However, proposals totalling 8,561 in May were 22.6 per cent higher, relative to 2019. Year to date, insolvencies are now up 27.6 per cent.

Insolvencies rose above their pre-pandemic levels in Manitoba, British Columbia, Alberta, Ontario and Saskatchewan — all provinces with rates of debt-to-disposable income higher than the average.

Manitoba reported a 35.4 per cent jump in insolvencies, relative to 2019, the highest increase among the five provinces where insolvency rates rose above PRE-COVID levels. In B.C., insolvencies jumped 17 per cent; in Alberta, 7.3 per cent; Ontario, 2.9 per cent and 0.3 per cent in Saskatchewan.

Insolvencies remain well below pre-pandemic levels in P.E.I., where they are down 27.8 per cent; Quebec, down 20.4 per cent; New Brunswick, down 18.8 per cent; Nova Scotia, 18.3 per cent and Newfoundland and Labrador, down 18.1 per cent.

However, no province has been spared from rising numbers of proposals to renegotiate terms of loans that have surpassed PRE-COVID marks, the economist said.

Manitoba led the way with a 66 per cent increase in proposals, followed by B.C., up 54 per cent; Alberta, up 35 per cent; Ontario and Saskatchewan, both up 25 per cent and Nova Scotia, up 21 per cent.

“This suggests that an increasing share of households are facing financial stress,” St-arnaud said.

He attributed the shifting insolvency outlook to record levels of household debt, weakening purchasing power and a series of increases to the Bank of Canada’s benchmark lending rate, which sets the baseline costs for borrowing.

Further, the Calgary-based economist said he expects insolvencies to continue to rise this year since higher interest rates have yet to fully filter through to household borrowing.

“The question is whether the continued strength of the labour market, with the very low unemployment rate, and the vast amount of saving accumulated during the pandemic will continue to provide some relief,” St-arnaud said in his note.