Canada commercial loans healthier than U.S.: PayNet

TORONTO (Reuters) - Canada's commercial lending industry remains more stable than its U.S. counterpart, with fewer small and medium-sized businesses behind in payments, although the recovery trend is promising on both sides of the border, PayNet Inc reported on Monday.

PayNet, a provider of risk management tools to the commercial lending industry, said loan information it collected in March showed that Canadian accounts in severe delinquency, which it defines as behind at least 90 days, fell to 1.01 percent from 1.06 percent in February.

This was the lowest level in 14 months, and compared with a U.S. rate of 1.31 percent. Last year, the Canadian rate rose as high as 1.54 percent in August.

"The fall in severe delinquency indicates that the worst of the financial crisis is behind us," said William Phelan, PayNet's president and founder.

"These small and medium-sized businesses in Canada are finding it easier to pay their loans on time and are exhibiting much less financial stress than they were in early 2009."

Phelan said the gap between the two countries is narrowing from where it was several months ago, however the Canadian small business economy is still much healthier.

In the fallout from the global financial crisis, Canada's economy suffered less than the United States, partly because its banking sector had little or no exposure to the subprime housing meltdown.

As the recovery takes shape, Canada has shown stronger economic growth, and unemployment levels well below those in the United States.

Phelan also noted that delinquencies by Canadian borrowers spiked later than their U.S. counterparts in 2009, and showed the sharpest decrease earlier.

"I think that's just an indication of maybe tighter management around the underwriting and collection practices," he said, while also pointing to a stricter Canadian payment structure.

Apart from bank-owned and independent finance companies, the commercial lending sector includes players such as truck makers and manufacturers of farm and medical equipment, whose loans and leases to customers are secured against the product sold.

Skokie, Illinois-based PayNet said that Canadian loan delinquencies behind at least 30 days, which it defines as moderate, actually rose to 3.31 percent in March from 3.23 percent in February,

However, Phelan said such pullbacks are common during a broader recovery trend and do not point to any clear indications of a double-dip recession.

"We would expect to see this kind of roller-coaster meandering, with the overall trend toward recovery showing in lower moderate delinquencies over time," he added.

Canada's moderate delinquency rate for March was still well below the 3.79 percent in the United States.

The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing in the United States, rose 4 percent in March, the first year-on-year gain since October 2007, two months before the recession began.

But the index is still 40 percent below its pre-crisis levels, said Phelan.

"We are optimistic that there is some recovery definitively occurring," he added.

"Now, having said that, it still is going to take years for that recovery to fully get to where it was before the financial crisis."

More on the Thomson Reuters/PayNet Small Business Lending Index is available at: here

(Reporting by Claire Sibonney; editing by Jeffrey Hodgson)