2019 Financial Stability Report

growth outlook the financial sector

Household Credit

could be adversely impacted.

Credit intermediaries are heavily exposed

1.2 Cyclical Risk

to household credit; initial estimates

suggest that at the end of 2019 household

Cyclical risk in the financial sector

credit accounted for 54.0 per cent of total

remained low. Credit growth still expanded

credit in the financial system, (Figure 4).

less slowly than the rate of growth of

Though the pace of credit to households

nominal GDP growth, which resulted in a

eased in 2019, institutions are increasingly

negative credit to GDP gap, (Figure 3).

exposed to households. The financial health

With credit growing at a slower pace than

of households is important for the financial

GDP, credit excesses are still contained but

system. Households are vulnerable to

asymmetric across the financial sector. In

cyclical downturns in the economy, which

the credit union sector, credit continues to

may cause income loss and possibly loan

deepen at a rapid pace raising questions

defaults. A high level of debt can pose risks

regarding the sustainability and carrying

by increasing potential losses to lenders. It

capacity of debt in this sector. To contain

can also increase the likelihood of sharp cuts

any negative repercussions from this

in consumption, especially by highly

development the authorities need to intensify

indebted households, which may amplify a

their oversight of credit unions or implement

downturn. This in turn increases the risk of

measures to slow the growth of credit.

losses to lenders on all forms of lending.

Figure 3: Credit to GDP Gap (Financial Cycle)

Additionally, the efficiency of the financial

system can be compromised if high levels of

10.0 20.0 30.0

household debt inhibit the flow of credit to

creditworthy borrowers.

(60.0) (50.0) (40.0) (30.0) (20.0) (10.0) 0.0

Business Sector Credit Gap Household Credit Gap

Private Sector Credit Gap

Total Credit

Jun-07

Jun-10

Jun-13

Jun-16

Jun-19

Sep-06

Sep-09

Sep-12

Sep-15

Sep-18

Dec-05

Dec-08

Dec-11

Dec-14

Dec-17

Mar-08

Mar-11

Mar-14

Mar-17

7