©Reuters. FILE PHOTO: A Bank of Montreal (BMO) logo is seen outside a branch in Ottawa, Ontario, Canada, February 14, 2019. REUTERS/Chris Wattie/File Photo
By Nivedita Balu
TORONTO (Reuters) -Bank of Montreal (BMO) is scaling down its indirect auto financing business and shifting focus to other areas in a move that will result in an unspecified number of job cuts, Canada’s third-largest bank said.
The bank, which announced the move on Saturday, has carried out these activities in Canada and the United States. The move comes after BMO’s total bad debt provisions rose to C$492 million, from C$136 million a year earlier, for the quarter ended July 31, in a sign of increasing stress consumers are facing due to a rapid increase in borrowing costs.
As part of its indirect retail car financing activities, the bank works with car dealers to arrange financing for buyers, who make monthly payments to the lender.
“By winding down 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 who will be affected by the job losses to provide support, the bank said.
In a letter to car dealers seen by Reuters, the company’s head, Paul Hunsley, said the termination of the dealership agreement would take effect from September 15, but that the bank would finance all contracts submitted and approved before that date .
At the end of July, BMO’s consumer installment and other personal loan portfolio stood at C$104 billion, including C$54.7 billion in home loans.
The remaining loans in this portfolio are primarily auto loans, but also include other loans, including loans for boats, recreational vehicles and motorcycles, according to Edward Jones analyst James Shanahan.
Bank of Canada data shows that auto loan delinquencies are now higher than before the pandemic, highlighting the strain on consumers’ pockets as they also struggle to repay their mortgages in a high-interest environment interest rates.
A rapid rise in interest rates is slowing the Canadian economy, and banks are setting aside more money to meet the expected increase in bad loans.
BMO has turned to the United States for new growth opportunities as markets in Canada remain saturated. It spent $16.3 billion this year to acquire Bank of the West and expand it in 32 states in the western United States, including California.
The United States now accounts for more than two-thirds of BMO’s total profits.