PayNet reports that the PayNet Canadian Small Business Lending Index (CSBLI) decreased 3% to 113.9 in June 2016 from 117.7 in May 2016. Compared to June 2015, the Index is down 16%.
“Canadian businesses are clearly feeling pressure from the economic slowdown and are pulling back on investment to manage that pressure,” states William Phelan, president PayNet. “The pullback is not resulting from financial stress, rather it is from a lack of demand for goods and services.”
Contraction continued within most major industry sectors of the Canadian economy. The sectors which declined the most compared to last year were Retail (-15%) and Transportation (-19%), and their pace of decline is increasing.
Manufacturing and Professional Services remain the only expanding industry sectors, up 6% and 5%, respectively.
On a regional basis, this release shows that Alberta’s free fall continues at -22%. In another sign of the overwhelming wave of contraction hitting the economy, Ontario no longer shows expansion and Quebec is barely expanding at +3%. Manitoba moves into contraction mode in a bigger way falling -5% from the prior year.
Loan quality exhibits no major signs of financial stress. The PayNet Canadian Small Business Delinquency Index (CSBDI) 31-180 days past due decreased 3 bps to 1.17% in June 2016 from 1.20% in May 2016. Compared to one year ago, delinquency increased 9 bps
Industry sectors remain about the same as the prior month with almost a zero increase in the trend rate to higher loans past due. Manufacturing exhibited the largest increase, +51 basis points, over the prior year. Transportation +34 bps, Construction +17 bps, and Professional Services +18 bps register the next largest increases. Retail and Agriculture show slight decreases in past dues.
Alberta shows the largest year over year increase in loans past due. On a month-over-month basis, loans past due declined in all regions from 1 to 11 bps.
“Canadian businesses are compensating by cutting costs to adjust to the economic shifts, without going into survival mode, in a sign they are managing this slowdown relatively well.” Phelan added, “Many loans have been restructured especially out West. The question is how long restructuring can go on until lenders finally are forced to recognize credit losses.“