Canadian insolvency filings have been surging, but it doesn’t really matter. That was the take from BMO Capital Markets, which dismissed the issue due to population growth. In a note to investors, the bank explained the per capita trend remains healthy. There’s just one problem—their take makes no sense.
Canada Has Near-Record Insolvencies. Does It Matter?
There were 13,254 insolvency filings in June, up 11.5% from last year and more than double 2020’s volume. Only June 2009 came in higher, with nothing else even close on the books. That may sound concerning, but BMO sees population growth as a mitigating factor.
“As has been reported in recent days, consumer insolvencies are running near the highest level since the 2009 recession. Adjusting for the size of Canada’s population, however, the level has basically just normalized back to pre-pandemic conditions,” explains BMO senior economist Robert Kavcic.
More people equals a smaller ratio of credit losses, after all. “The real story is that there is really no story,” he adds.
Not exactly.
Canadian Insolvencies Per Capita Are Low. That Doesn’t Mean What Many Think It Does
Canadian insolvencies per capita, seasonally adjusted.
Source: BMO Capital Markets.
Per capita calculations are important, and we often stress they’re essential for understanding data. GDP is the most common point we reference, as the number is often used to frame the health of an economy. People might be doing worse, but without a per capita breakdown, policymakers can simply add more people to show growth.
The logic of dismissing the trend based on per capita growth is just as bad as the logic of using aggregate GDP. Insolvencies were already aggressively rising in 2019, paused for the pandemic, then resumed their climb right afterwards. Rising insolvencies were a concern in 2019, but changing immigration so it averages down per capita, and the concern is suddenly dismissed.
“Don’t worry about the pensioner getting crushed by the cost of living, we got two students!” feels like an insane argument to dismiss rising insolvencies, but that’s effectively BMO’s position here. That brings us to our next issue—qualifying the data.
Canada Might Have More People, But Does That Mean More Loans?
Another point we stress in finance is that data needs to be qualified for it to be relevant. A good example is the real estate industry conflating demand with qualified buyers. Yes, a lot of people want to buy a home, but if they can’t afford it, that’s not really the same. If a household’s income is a third of the amount needed for a mortgage, their demand for home buying is equivalent to their demand for Lambos. That said, let’s review the population growth diluting the credit woes.
Over the past 5 years, roughly 40% of Canada’s population growth came from non-permanent residents (NPRs). The demographic is composed largely of temporary workers and international students. Like most immigrants, those two groups tend to lack unsecured credit access and need to front the funds to secure any credit.
That’s relevant because virtually all consumer insolvencies are the result of unsecured credit. The OSB doesn’t track immigration status (publicly, at least), but they have explained that most insolvency filers (57% in 2024) had a bank loan with a median value of $20,000, and for 1 in 5 (20%) filers, it’s not their first rodeo—they’ve filed at least once before.
Not exactly the profile of NPRs, but we’ll concede that growth hasn’t exclusively been immigrants. Some people had babies too, and not to sound discriminatory against babies, but they make terrible financial decisions.
Qualifying it from the bank’s perspective, more loans mean credit loss allowances can rise. One person’s failure is fine as long as you can find 99 more to keep that ratio down. However, they should understand this problem better than most. Despite Canada’s massive population growth, banks hold the fewest mortgages since 2020 and have seen the arrears rate approach a 10-year high. Tragically, they can’t report their losses on a per capita basis.
