Our Thoughts on Rising Canadian Consumer Insolvencies

Research evidence excerpt

Our Thoughts on Rising Canadian Consumer Insolvencies

TD SECURITIES INC. - CANADA SECTOR NOTE

May 12, 2026

■Financial Services - Banks Our Thoughts on Rising Canadian Consumer

Insolvencies

Mario Mendonca, CFA, CA^ THE TD COWEN INSIGHT

416 308 2361

We are seeing an increasing number of media reports about the rise of Canadians filing for

mario.mendonca@tdsecurities.com

insolvency. We believe banks' historically high valuations are currently supported by strong

Masa Song^ fundamentals, but if investors turn their attention to articles like this and begin taking a second

416 982 5452 look at credit risks, bank valuations could be vulnerable, and investor capital could flow to

masa.song@tdsecurities.com

Lifecos and P&C.

Fernando Torrealba Tesi, CFA^

416 983 2664 Impact: NEUTRAL

fernando.torrealbatesi@tdsecurities.com

While we acknowledge that the number of Canadians filing for insolvencies is rising, credit

pressures are a well-known story. What matters more is whether momentum in strong

fundamental performance at the banks will be enough to keep investors' attention on growth

rather than risk. Consider the following:

■As we've published before, credit pressure should first hit discretionary consumer spending,

then non-mortgage forms of debt (credit cards, auto loans, lines of credit), rather than

mortgages. Our estimates for loan growth and PCLs reflect this dynamic. Recall from our

preview that banks are no longer pointing to lower PCLs in H2/26 - our estimates reflect

2027, not H2/26, as the recovery year.

■Impaired loan formations are returning (i.e., rising) to pre-COVID levels. We estimate

formations as the annualized rolling 3-month $ value of consumer liabilities included in

newly filed insolvencies as a % of total consumer loans.