Big Six business lending offsets consumer slowdown

Investors fearful of a slide in shares of the country's biggest banks will find solace in the latest figures for commercial lending growth.

Recent headlines have suggested that the banks are destined to disappoint in 2013 because consumers already set new borrowing records, limiting how much more debt they can take on. What the pundits missed is that businesses still have ample room to borrow.

In this week's first-quarter results, many of the banks posted healthy double-digit commercial lending growth, and the country's two biggest banks, Royal Bank of Canada and Toronto-Dominion Bank, saw this form of borrowing jump 11 per cent and 13 per cent, respectively, over the prior year.

Another point to remember is that consumer lending growth is slowing, not going negative. The banks that already reported posted flat to mid-single-digit increases in the value of their consumer loan books. Yet we panic when we hear CEOs talk of moderation.

That said, booming commercial books can't fully compensate for a big drop in consumer borrowing, should it arise. "Business lending growth remains strong, but this provides only a partial offset," TD Bank chief executive officer Ed Clark said on a conference call Thursday.

For most of the banks, commercial lending amounts to between 15 to 20 per cent of all personal loans, comprised of mortgages, credit cards and lines of credit. Bank of Montreal is a noticeable exception, where commercial lending is 35 per cent of personal lending. (The loan values and growth rates for the four biggest banks that already reported can be found below.) There would have to be a whole lot of commercial borrowing to make up for a consumer drop off.

We shouldn't be surprised by the business-lending boom, as the banks actually telegraphed it for some time. During RBC's fiscal year-end conference call, for instance, CEO Gord Nixon said: "While we anticipate that the strong growth in consumer lending that we experienced this year will moderate, we continue to have good momentum in the higher-margin commercial business."

Sizes and growth rates for Canadian loan books (first quarter 2013 vs. first quarter 2012)

RBC
Consumer: $268-million, up from $255-million (5.1 per cent growth)

Commercial: $51-million, up from $46-million (10.9 per cent growth)

TD
 Consumer: $260-million, up from $248-million (4.8 per cent growth)

Commercial: $42-million, up from $37-million (13.5 per cent growth)

CIBC
Consumer: $192-million, flat with $192-million (No growth)

Commercial: $35-million, up from $33-million (4.7 per cent growth)

BMO
Consumer: $129-million, up from $117-million, (10.2 per cent growth)

Commercial: $46-million, up from $42-million (9.5 per cent growth)

*BMO's consumer strength stemmed almost exclusively from an aggressive mortgage strategy

(Tim Kiladze is a Globe and Mail Capital Markets Reporter.)

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