In a sign of just how sluggish the market has become for Canadian banks trying to lend money to the business sector, one of Canada's banks is putting up $10-billion for new loans, hoping to drum up more borrowers.
Bank of Montreal , Canada's fourth-biggest bank by assets, said it is making the money available over the next three years in an attempt to grow its commercial businesses lending by about 25 per cent.
However, the move is more of a marketing ploy than a strategy to capture pent-up demand for business lending. Even amid historically low interest rates, the business sector has not been borrowing coming out of the recession. Many small and medium-sized companies with good credit ratings have been keeping to the sidelines, and have cash on their books after slashing costs and paying down debt during the financial crisis.
With low interest rates, the federal government is hoping business investment and expansion will help fuel an economic recovery, but that force has been slow to materialize.
Frank Techar, head of personal and commercial banking at BMO, said the bank is hoping to spur more borrowing with the move. He acknowledged in an interview there may not be businesses clamouring to take advantage of the increased lending, given their own balance sheets, but the bank is taking an "if we build it they will come," mentality.
BMO boosted its small and medium sized business lending in 2008-09 by $1-billion during the depths of the economic downturn and most of that money was eventually borrowed, Mr. Techar said.
In a similar move last summer, BMO's U.S. banking operation, Wisconsin-based Marshall & Ilsley Corp., offered up an additional $5-billion of lending to businesses in the United States Midwest over the next two years. A BMO spokesman said it is too early to tell if that money will be fully borrowed.
Mr. Techar said the bank isn't loosening its underwriting standards to take on riskier borrowers. Banks wanting to grow their loan books in the past year have had to face the decision of whether to adjust the conservative underwriting approaches they took after the credit crisis.
"This new money will provide small and medium-sized businesses with more certainty of available credit," Mr. Techar said in a statement Thursday morning. "Businesses are in good shape and interest rates have never been more attractive, and the Canadian dollar is strong."