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Canada Household Debt Ratio Hits Record 164.6% in 3Q

Dec. 13 (Bloomberg) -- The ratio of Canadian household debt to disposable income rose to a record last quarter, highlighting what Bank of Canada Governor Mark Carney called the biggest domestic risk to the economy.

Credit-market debt such as mortgages rose to 164.6 percent of disposable income, compared with 163.3 percent in the prior three-month period, Statistics Canada said today in Ottawa. Disposable income rose 0.8 percent while consumer credit-market debt advanced 1.8 percent.

“Household debt remains excessive and is a notable risk to future Canadian economic growth,” said Diana Petramala, an economist at Toronto-Dominion Bank. “Given the prospects that interest rates will eventually rise, households must cool their spending and borrowing further.”

The share of households that pay more than 40 percent of income to service debt would rise to 20 percent, from 12 percent now, under a scenario where the central bank lifts its key rate to 4.25 percent from today’s 1 percent by mid-2015, the Bank of Canada said in a Dec. 6 report.

Moody’s placed Bank of Nova Scotia, Toronto-Dominion Bank and four other lenders on review for possible downgrade on Oct. 26, citing the heightened risk to Canada’s economy from rising consumer debt and real estate prices. The Moody’s review followed a similar outlook downgrade by Standard & Poor’s Ratings Services in July.

Household net worth rose 1 percent to C$6.92 trillion ($7.03 trillion) last quarter, Statistics Canada said today.

Equity Fell

The equity held by consumers as a percentage of real estate value fell to 69 percent in the third quarter from 69.3 percent in the previous quarter.

Non-financial companies reduced their ratio of credit-market debt to equity to 54 percent in the third quarter from 55 percent in the second quarter, extending a decline that began in the early 1990s, Statistics Canada said.

Carney is relying on business investment to drive economic growth over the next two years, and has said some companies are sitting on “dead money” that should be used to boost competitiveness and tap into faster-growing emerging markets.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net

To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net

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