TORONTO, Sept 17 (Reuters) – Bank of Montreal (BMO) (BMO.TO) is winding down its retail auto finance business and shifting focus to other areas in a move that will result in an unspecified number of job losses, Canada’s third-largest bank. The bank said on Saturday.
The move, implemented in Canada and the United States, comes after BMO’s bad debt provisions in retail rose to C$81 million ($60 million) in the quarter ended July 31 compared with a rebound of C$9 million a year ago, signaling Of the increasing pressures consumers face from rapidly rising borrowing costs.
“By terminating our indirect retail auto financing business, we have the ability to focus our resources on the areas where we believe our competitive position is strongest,” BMO said in a statement to Reuters.
He added that the bank is working closely with employees who will be affected by the job cuts to provide support.
In a letter sent to car dealers and seen by Reuters, company president Paul Hounsley said the termination of the dealer agreement would be effective from September 15, but the bank would finance all contracts submitted and approved before that date.
Under the indirect retail auto financing business, the bank provides financing to the car seller rather than direct financing to the buyer who makes monthly payments to the lender.
Total loans in the automotive retail sector rose about 34% in the third quarter from a year earlier to C$17.36 billion, representing 2.7% of the bank’s total loans, according to BMO’s latest financial report released in August.
A rapid rise in interest rates is slowing the Canadian economy, and banks are setting aside more money to deal with an expected rise in bad loans. Last month, BMO said provisions for credit losses rose to C$492 million, compared with C$136 million a year earlier.
It said U.S. trade impairment losses rose 10 basis points from the previous quarter, driven by significant provisions in the retail segment.
BMO is turning to the US for new avenues of growth as markets remain saturated in Canada, spending $16.3 billion to acquire Bank of the West earlier this year and expanding into 32 states in the western US including California.
The United States now accounts for more than two-thirds of BMO’s total profits.
Reporting by Nivedita Balu in Toronto, Editing by Denny Thomas, Jane Merriman and Susan Fenton
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