Negative Credit Trends

Many companies will successfully navigate through 2023 and adapt to what changes may come. However, there are vulnerable groups within different industries and markets that are exposed to negative credit trends. If you deal with some of the vulnerable groups mentioned below be sure to monitor for changing payment habits.

A prime example is the mortgage market. The people who have already renewed at a low fixed rate are immune in 2023 to rising interest rates. According to the Bank of Canada half of variable-rate mortgages have hit their trigger rate. This equates into 13% of all Canadian mortgages. For some homeowners a higher interest rate could be catastrophic.

If your target market is millennium-aged customers don?t be surprised if there is a big dip in sales in 2023. According to Bloomberg, roughly half of all insolvencies filed in 2022 were by millennials, even though they account for less than 27 per cent of the Canadian population aged 18 and older. Many government covid programs are coming to an end. Millennials carry an average unsecured debt load of $47,283. Thirty five per cent of millennials carry an average of $16,725 in student loans. Looks like most millennial finances are running on fumes.

A few years ago, office space in Vancouver was at a premium. Then came the covid lock downs and many people and companies switched to having their employees working remotely. Many companies saw productivity increases and went virtual and-or reduced the amount of space they needed. For example: Instead of three floors they would only lease two. Of course, any monies saved on having less space goes straight to the bottom line.

Today the office vacancy rate in Vancouver hovers around 10-14% depending on location. One trend we are seeing more often is construction developers pausing construction projects. Many developers are converting existing office space into residential units. New construction projects are paused while new plans and permits are acquired to build for residential home buildings. Either way the delay can have a serious impact on the finances of suppliers, general contractors, sub-contractors and other creditors.

The big high-tech companies are laying off tens of thousands of people. While some of these people will locate employment with other companies there are many who will become entrepreneurs. Depending on the industry your customers are in this could result in increased competition, which usually translates into lower pricing. Increased competition will force some companies to either adapt or slowly die.

New technology can wipe out obsolete industries very quickly. Companies that fail to adapt to the new technology will lose market share and fade away.

Whenever a large company goes through major financial difficulties there is always a domino effect, resulting in delayed payments especially with unsecured creditors. If your customer is one of the unsecured creditors then it could result in late payments.

The overall economic landscape in 2023 has a unique twist. Instead of entire industries-markets being stagnant, it is only a small percentage of a particular market that is flat. This makes it harder to identify potential risks. 2023 is looking to be a year of surprises.