TORONTO: Bank of Montreal (BMO) is shutting down its retail auto financing business and shifting focus elsewhere, resulting in indefinite job losses, Canada’s third-largest bank said Saturday.
The move, applicable in Canada and the United States, comes after BMO’s retail bad debt provisions rose to C$81 million ($60 million) in the quarter ended July 31, compared with a recovery of $9 million .CAD a year ago, which is a sign of the increasing stress consumers are facing due to a rapid increase in borrowing costs.
“By closing the indirect retail auto financing business, we have the opportunity to focus our resources on areas where we believe our competitive position is strongest,” BMO said in a statement to Reuters.
The bank is working closely with employees affected by the job cuts to provide support, it said.
In a letter sent to car dealers and seen by Reuters, the company’s boss Paul Hunsley said the termination of the dealer agreement will be effective Sept. 15, but the bank will fund any contracts submitted and approved before that date.
With indirect car financing for private customers, the bank provides financing to the vehicle seller rather than directly to the buyer, who makes monthly payments to the lender.
Gross loans in the automotive retail business rose about 34% year-over-year to C$17.36 billion in the third quarter and accounted for 2.7% of the bank’s total loans, according to BMO’s most recent financial report, released in August became.
A rapid rise in interest rates is slowing the Canadian economy, and banks are providing more resources to deal with the expected increase in bad loans. Last month, BMO announced that provisions for loan losses rose to 492 million Canadian dollars, compared to 136 million Canadian dollars a year ago.
It said commercial impairment losses in the United States rose 10 basis points from the previous quarter, driven by a large provision in the retail sector.
As markets in Canada remain saturated, BMO is turning to the United States for new growth opportunities. Earlier this year, the company spent $16.3 billion to acquire Bank of the West and expanded into 32 states in the western United States, including California.
The United States now accounts for more than a third of BMO’s total profits.
The move, applicable in Canada and the United States, comes after BMO’s retail bad debt provisions rose to C$81 million ($60 million) in the quarter ended July 31, compared with a recovery of $9 million .CAD a year ago, which is a sign of the increasing stress consumers are facing due to a rapid increase in borrowing costs.
“By closing the indirect retail auto financing business, we have the opportunity to focus our resources on areas where we believe our competitive position is strongest,” BMO said in a statement to Reuters.
The bank is working closely with employees affected by the job cuts to provide support, it said.
In a letter sent to car dealers and seen by Reuters, the company’s boss Paul Hunsley said the termination of the dealer agreement will be effective Sept. 15, but the bank will fund any contracts submitted and approved before that date.
With indirect car financing for private customers, the bank provides financing to the vehicle seller rather than directly to the buyer, who makes monthly payments to the lender.
Gross loans in the automotive retail business rose about 34% year-over-year to C$17.36 billion in the third quarter and accounted for 2.7% of the bank’s total loans, according to BMO’s most recent financial report, released in August became.
A rapid rise in interest rates is slowing the Canadian economy, and banks are providing more resources to deal with the expected increase in bad loans. Last month, BMO announced that provisions for loan losses rose to 492 million Canadian dollars, compared to 136 million Canadian dollars a year ago.
It said commercial impairment losses in the United States rose 10 basis points from the previous quarter, driven by a large provision in the retail sector.
As markets in Canada remain saturated, BMO is turning to the United States for new growth opportunities. Earlier this year, the company spent $16.3 billion to acquire Bank of the West and expanded into 32 states in the western United States, including California.
The United States now accounts for more than a third of BMO’s total profits.
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