A recent TransUnion study states that the impact of low oil prices in Alberta since late last year could cause a drastic increase in credit and loan product delinquencies in the second half of 2015.
Darcy Peelar, chief credit officer at Servus Credit Union, agrees that some negative impact could be expected from the economic downturn, but with a bit of foresight and good financial planning, some of these situations involving potential delinquency can be avoided.
“Alberta has been through a number of downturns with oil over the years and it wouldn’t be unreasonable to expect that delinquency might go up somewhat. It depends on how long this goes on for, but I think in our case we are certainly working with our members both leading up to this and so on to make sure that what we’re doing is structuring loans in anticipation of this kind of thing potentially happening in the future,” he said.
Peelar says that delinquency rates for an average year depend on the institution’s portfolio, and Servus’s specific rates this year have been similar to years past, without much of an “uptick” in delinquencies. In fact, they have seen a decline at the end of July over June and are currently tracking well within their normal rates.
“It’s the proper alignment of the credit granting principles that we employ and working with our members to make sure that they’re well-established and what they have in front of them or in their balance sheets makes sense.”
But Alberta isn’t yet out of the slump when it comes to the energy economy so those delinquency rates still have time to increase, and how much higher they will go, Peelar says, is hard to predict. It depends on how long the slump lasts and how many people get the opportunity to go back to work, and when.
“Can we expect to see (delinquency rates) go up in Alberta if this is longer term? Yes, I believe we would. But how high that would go is really unpredictable to know,” he said.
As far as these rates stabilizing after oil prices level out, Peelar says that in 2008, during the last decline in oil prices, it took about 18 to 24 months. Having been through a number of downturns in his career he thinks this is a normal period of adjustment for people to get back to work and on their feet. One piece of advice he’d like to offer borrowers if they’re going through difficulties because of things like layoffs or reduced hours is to talk to their lender early in the process and look at what can be done.
“I think there’s a number of different things that are available for a borrower to consider so that they’re able to deal with it before it becomes a longer term issue,” said Peelar.
“I think lenders are willing to work with borrowers in those situations to try and help them through it.”