Bank of Montreal (BMO), the third biggest bank in Canada, said it would be winding down its retail auto financing business and shifting its attention to other areas. This decision, announced on Saturday, September 16, will result in the termination of an undefined number of jobs.
Bank of Montreal, Canada's third-largest bank, said it will terminate its retail car finance business and focus on other areas.
Ending the Retail Auto Financing Division
The move is applicable in both Canada and the United States. This was made after BMO's provisions for bad debt in retail trade skyrocketed to C$81 million (U$60 million) in the quarter that ended on July 31. This is in comparison to a recovery of C$9 million (U$6.6 million) in the same quarter a year ago.
Reportedly, this is a sign of the growing stress that consumers face as a result of an upsurge in borrowing expenses.
According to a statement that BMO sent to Reuters, the organization said: "By winding down the indirect retail auto finance business, we have the ability to focus our resources on areas where we believe our competitive positioning is strongest."
The bank said efforts are also underway to offer assistance for workers whose employment may be cut as a result of the restructuring.
In a letter addressed to vehicle dealers, CEO Paul Hunsley said that starting September 15, the dealer agreement would be terminated. However, the bank would still finance contracts filed and authorized prior to that date.
The bank offers financing to the car seller rather than directly to the customer under the indirect retail auto finance business model. The buyer is the one who is responsible for making monthly payments to the lender.
According to the most recent financial report that BMO provided in August, gross loans in the company's retail vehicle sector increased by almost 34% from the previous year's third quarter to a total of C$17.36 billion (U$12.8 billion). This represented 2.7% of the bank's total loans.
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Operations in Canada and US
Canada's economy is slowing down due to the quick increase in interest rates, and banks are putting aside more capital to cope with the anticipated increase in defaulted loans. Provision for credit losses at BMO increased to C$492 million (U$363 million) in the most recent month, up from C$136 million (U$100 million) a year earlier.
In the US, commercial impaired losses increased by 10 basis points over the previous quarter due to a substantial provision in the retail trade industry.
BMO has been looking to the US for fresh growth opportunities as markets in Canada have become more competitive. Earlier this year, BMO spent $16.3 billion to purchase Bank of the West and extend its operations into 32 western states, including California.
The US is responsible for over a third of BMO's total earnings.
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