Canada's biggest banks say consumers are reaching the limit on how much they can afford to borrow, and that's likely to slow loan growth this year.
Royal Bank chief executive Gord Nixon said Tuesday he expects Canadian households will begin to show more restraint.
"In terms of pure consumer lending (growth), we'll probably be operating at a much lower rate than we have been over the last few years," he told a bank industry conference.
"There's no question that the consumer has been leveraged up."
Low rates will end
Canadians have taken advantage of low interest rates for years, borrowing record amounts, but leaving them vulnerable.
Policy-makers have expressed concern that a sudden rise in interest rates would leave many consumers unable to meet their payments, potentially causing a fallout that ripples through the housing market and consumer spending.
Statistics Canada reported last month that household debt touched an all-time high during the third-quarter of 2013, inching up 0.6 percentage points to 163.7 per cent over the summer months. The increase means Canadians owe nearly $1.64 for every $1 in disposable income they earn in a year.
Nixon said he expects consumer lending growth to remain tight, rising by mid single-digit levels, for "an extended period of time."
"What would be the most healthy outcome for the marketplace is for there to be a steady, orderly increase in interest rates to a reasonable level," he said.
Focus away from consumer loans
Bank of Montreal chief executive Bill Downe said a slower increase in the debt levels of Canadians would help shift away from a dependence on the consumer for overall economic growth.
He expects U.S. business loans will become a more dominant force in the banking industry this year.
"We're going to benefit from continued strong commercial and industrial loan growth and I think that's going to spill over into Canada," he said.
Downe said as consumers borrow less they will focus more on saving, which will benefit the wealth management business.
Scotiabank chief executive Brian Porter said he's comfortable with the credit quality from its customers and doesn't see any major concerns developing in the real estate market either.
"We would view supply and demand relatively in check across the country," he said.