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Dave Casper, head of North American commercial banking at BMO, said their discussions with clients are suggesting a faster-than-anticipated recovery. He also said the bank sees itself as having backed more “winners,” and that winners can sense opportunity.
“They’re pulling back, they’re laying off people, they’re managing their expenses, and they’re ready to pounce on less-disciplined competitors,” Casper said. “So I see, as this thing turns around, they will be opportunistic, as we will to bank the winners, grow the business.”
Canada’s Big Six banks saw their commercial and corporate loan portfolios shrink eight per cent for the three months ended July 31 compared to the previous quarter, as clients paid down lines of credit or tapped stock and bond markets for financing, credit-rating agency DBRS Morningstar said in a September report.
So while BMO management likened its commercial customers to “coiled springs,” according to National Bank Financial analyst Gabriel Dechaine, “these same customers are cutting expenses and capital expenditures in order to weather the downturn, indicating that credit demand is far from normal conditions.”
BMO’s commercial lending may have helped profits, but the lender has had to defend the strategy in the face of a COVID-caused recession that has hammered a number of businesses.
Like other banks during the pandemic, BMO has offered loan-payment deferrals to clients, affecting 13 per cent of its commercial loan portfolio. Around five per cent are still being deferred, BMO says. Moreover, the lender says only about 1.7 per cent of loans on which deferrals have ended are delinquent or in default as of mid-September.
“Our greater weighting to business lending is by design,” said Pat Cronin, the bank’s chief risk officer. “And that’s founded on our experience that business lending has lower loan-loss rates than consumer lending over long periods of time.”
Financial Post
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