BMO Financial Group has announced plans to terminate its retail auto finance business. This strategic move is aimed at diverting resources in the face of burgeoning bad debt. The resolution is said to lead to an unspecific number of job losses both in Canada and in the United States.
BMO Financial Group’s decision arises after an alarming increase in bad debt provisions, which have skyrocketed over 200% to $492 million in the quarter ending July 31, compared with the same period a year earlier. A detailed look at the bank’s retail segment reveals an 800% surge in credit loss provisions, climbing from $9 million the prior year to $81 million in last quarter.
Such steep increases on BMO’s financial statements allude to the pressure consumers are enduring, grappling with soaring interest rates that have been steadily escalating over the past eighteen months. As a result, higher borrowing costs are starting to hamper lending demand and throttle finance deals. This slowdown is exacerbated by fierce competition among Canadian banks regarding mortgage rates and escalating apprehension surrounding a potential broad economic deceleration.
The Bank of Montreal’s retail auto financing branch liaises with car dealerships to secure financing for vehicle consumers, who then remit monthly payments to the dealerships. It’s worth noting this service is separate from BMO’s commercial banking side, which supports auto dealers with inventory financing and will remain unaffected by the impending closure.
Explaining the move, Jeff Roman, BMO Financial Group spokesman, stated, “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”. However, he fell short of providing a specific date when the auto dealer agreement would cease.
Roman further emphasized that the bank is committed to supporting the affected employees and ensuring they are treated respectfully and fairly. This comes as layoff-related costs in the last quarter soared to $223 million before tax, although no clear number was given regarding the employees affected by this decision.
