Canadian Tire Corporation (TSX: CTC.A) has reported a significant increase in the rate of credit card debt write-offs, raising concerns about consumer financial health and the company’s credit portfolio stability.
According to Doug Hoyes, a bankruptcy trustee and financial commentator, the write-off rate for Canadian Tire credit cards has more than doubled over the past three years. “In 2021, the write-off rate was 3.81%. As of 2024, it has surged to 7.83%,” Hoyes stated in a recent post.
The write-off rate, which indicates the percentage of credit card debt deemed uncollectible and removed from the company’s books, is a critical indicator of financial distress among consumers. A rising rate suggests that more cardholders are unable to repay their debts, which could reflect broader economic challenges such as inflation, unemployment, or interest rate hikes.
The data from the Glacier Credit Card Trust’s report, as of March 31, 2024, corroborates this trend. The net write-off rate for Canadian Tire’s broader portfolio of credit cards was reported at 7.83%, up from 6.66% in 2023 and 4.99% in 2022.
Several factors contribute to the rising write-off rates. One is the economic environment, which has put pressure on household budgets. Higher living costs and interest rates have increased the financial burden on consumers, leading to higher default rates.
Additionally, the seasoning of accounts plays a role. New credit card accounts, which tend to have higher default rates, are added regularly to Canadian Tire’s portfolio. These new accounts are less seasoned compared to older accounts, which historically have lower default rates. According to the Glacier Credit Card Trust report, only “if no amounts owing thereunder have ever been written off at any time or classified as ‘past due’ by CTB on the specified date” are eligible for inclusion, but newly added accounts still carry higher risks.
The distribution of credit card accounts and their performance varies across Canada. Ontario holds the largest share of the accounts, with 46.38% of Canadian Tire’s selected accounts. Quebec and British Columbia follow, holding 23.04% and 9.40% respectively.
Regions such as Alberta and British Columbia, which have significant economic contributions from the volatile oil and gas industry, might experience higher financial stress, contributing to regional disparities in write-off rates.
Information for this briefing was found via the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
