Canadian Private Lending Activity Slows

3/14/2019
Canadian Small Business, Canadian Small Business

PayNet Data Shows 17% Decline in Mid-Sized Business Borrowing

Today’s data release from PayNet provides the latest evidence that the lending cycle is turning from steady increases to moderate pullback for Canadian small and mid-sized businesses. While small business lending remains modestly positive compared to a year ago, PayNet data indicate that the “risk on” posture exhibited by small businesses in early/mid-2018 has been replaced with cautiousness and pessimism. The outlook for medium-sized business lending is even more dire, with January representing the 7th consecutive month of annualized double-digit declines. On a more positive note, despite sluggish investment growth, we see small and mid-sized businesses maintaining their financial health, suggesting that Canadian firms are increasingly looking to tighten their belts and hunker down in the face of heightened economic uncertainty.

PayNet Canadian Small Business Lending Index Sees Modest Year-over-Year Increase

The PayNet Canadian Small Business Lending Index seasonally adjusted originations decreased 2.4% from 116.3 in December 2018 to 113.5 in January 2019. The index has been down for seven consecutive months and has fallen 15 points (11%) compared to its mid-2018 level. Compared to the same month one year ago, the Index is up 2.9%. This is the ninth straight month that there has been a year-over-year increase after 10 months of year-over-year decreases.

Lending Rises in Most Major Industries

On a monthly basis, lending rose in six of the nine major industries, led by Professional Services (+1.7% M/M), and Construction (+0.6% M/M). Notably, Retail (+0.1% M/M) saw lending reach an all-time high in January, while Professional Services achieved its third-highest level. On an annual basis, lending increased in most industries, with double-digit gains in Transportation & Warehousing (+21.2% Y/Y) and Agriculture (+13.5% Y/Y). However, Manufacturing (-9.8% Y/Y) saw lending fall to its lowest level since December 2010, and current lending activity is in the bottom ten percent of historical readings.

Regional Lending Continues to Trend Upward

Lending increased in the majority of regions on a monthly basis, led by Atlantic Canada (+1.0% M/M) and Ontario (+0.8% M/M) — which both rose to record highs in January. Compared to year-ago levels, lending rose across all major regions except Saskatchewan (-0.3% Y/Y), continuing the trend seen in the prior eight months. Regions that were particularly strong compared to a year ago include Atlantic Canada (+20.6% Y/Y) and Albert (+12.6% Y/Y). Notably, lending levels currently rank in the top 20% of historical readings across all major regions.

PayNet Canadian Medium Business Lending Index Continues Dramatic Decline

The PayNet Canadian Medium Business Lending Index seasonally adjusted originations decreased 1.9% from 162.4 in December 2018 to 159.3 in January 2019. On an annual basis, the index fell 17.0% in January, its 15th consecutive year-over-year decline. The Canadian MBLI has now fallen more than 50 points (25%) from its mid-2018 level, indicating a major downshift in lending activity by mid-sized firms.