Elevated household debt combined with a surge in unemployment risks putting Canada in a precarious position amid the coronavirus shutdowns, said the head of domestic banking at Canadian Imperial Bank of Commerce.

“We do have a highly indebted Canadian consumer that we’ve been talking about for quite some time, and just under half of Canadians live paycheck to paycheck,” said Laura Dottori-Attanasio, who oversees Canadian personal and business banking at CIBC.

“If you add that people are no longer working and generating cash flow, I do think it makes for a toxic combination that’s going to be much more difficult to overcome the longer this takes to resolve.”

Dottori-Attanasio said she’s concerned about a buildup of stress among consumers that will only get worse until there’s clarity on when the pandemic ends and plans for a recovery begin to take shape.

Her fears are noteworthy, as she spent almost seven years as chief risk officer before moving to her current role on March 2, putting her in charge of CIBC’s largest division just as the Covid-19 crisis began disrupting the economy.

“I think it’s been really tough on people, not just financially but mentally -- there’s just so much stress in the system,” she said in an interview Monday. “That stress will continue to build until we get a little more clarity about what happens next and when it happens.”

Bank Efforts

Despite her concerns, Dottori-Attanasio sees the situation as being largely under control for now thanks to bank efforts including mortgage-payment deferrals and unprecedented government relief programs. Canada’s federal government has delivered $19.8 billion (US$13.9 billion) in income support to workers as of April 19.

Shares of CIBC, Canada’s fifth-largest lender, have slumped 25 per cent this year, more than the 22 per cent decline in the S&P/TSX Financials Index. The Toronto-based bank has provided more than 250,000 clients with deferrals for $20 billion in mortgages, credit cards, loans and credit lines during the pandemic.

It also has approved $1.5 billion of government-backed loans for 40,000 small-business clients under the federal government’s Canada Emergency Business Account program.

Such relief efforts have made it difficult to identify any emerging credit trends, Dottori-Attanasio said.

“It’s a bit too early because all of our deferral programs kicked in when the crisis started,” she said. “People that would normally go into delinquency buckets have had their payments deferred.”

Unemployment Surges

Still, Dottori-Attanasio said she’s comforted by the fact that Canadians don’t appear to be ratcheting up their credit-card bills or drawing from home-equity lines of credit yet, despite a sharp surge in unemployment in recent weeks.

Since mid-March, 5.97 million Canadians have applied for the government’s emergency income-support program for people who have lost income due to the pandemic, a government official said last week.

“What we’re seeing are Canadians acting really responsibly -- they’re cutting back on their spend, and we’re seeing things like credit-card purchase volumes are down,” she said.

“People are not adding to their debt load, but when we look at utilization rates, too, on things like Helocs and whatnot, we don’t see any increases there, so it indicates that people are being, I’d say, very responsible.”

Canadian households already owe $1.76 for every dollar in disposable income, one of the highest ratios among advanced countries.

“The length of this crisis,” Dottori-Attanasio said, “is going to be probably the most important determinant in terms of what things look like in the future.”