:
Thank you, Mr. Chair. Good morning.
My colleagues with me are Peter Conrod from RBC, Steve Murphy and Paul Seipp from BMO, and Craig Thompson from the Bank of Nova Scotia.
In the interest of time, I will be reading a shortened version of the opening remarks that I left with you.
It's my pleasure to be here today to participate in the committee's discussions of the Atlantic lobster fishery. I am joined today by colleagues from some of our major banks with expertise and experience in the fisheries industry, and together we would be pleased to answer more specific questions you may have. I have also provided you with an information package and a backgrounder related to our presentation today.
The CBA represents our 50 member banks, including domestic chartered banks, foreign bank subsidiaries, and foreign bank branches operating in Canada. Our members are present in virtually every community across the country, and they are key contributors to local and provincial economies as well as to the national economy.
Banks have a long history of helping their customers through difficult economic periods. Today, banks are doing the same with their business and personal customers. We understand that some customers are going through difficult times, and we're asking those customers to come in and talk with their banker to see what solutions can be worked out. We deal with situations on a case-by-case basis and we want our customers to succeed. Indeed, we succeed when our customers succeed.
It's important to remember that banks are traditionally about half of the business credit marketplace and only about a quarter of the total financing marketplace. Our response has been to try to fill the gap left by non-bank providers who have slowed the growth of their lending or pulled out of the market altogether. The latest Bank of Canada data tells the story. Year over year, bank financing of businesses is up over 6%, well in excess of the 3.7% growth in financing by all providers. Banks have stepped up to the plate to fill the gap left by others, but while we are trying to fill that gap, we can't do it all.
On the matter of interest rates, let me simply say that interest rates are falling. As the Department of Finance stated earlier this week, average interest rates have fallen steadily for both households and businesses. The average effective business interest rate was 4.16% in May, compared to 5.75% in December 2008. That's only over a six-month period.
In closing, Canada's banks are strong and secure, and Canadians remain confident in their banking system. This is an advantage for Canada that other countries do not have. Keeping that advantage will be crucial to the recovery of Canada's economy and to the long-term prosperity of Canadians.
Our banks will do their part. They will continue to lend prudently and protect their depositors' money. They will also be there to ensure that individuals and businesses continue to have access to credit and are able to afford to repay their loans. We will do this because we know that consumers and businesses are the drivers of the Canadian economy.
I thank the committee for inviting me here today. I will be pleased to respond to your questions, but first I invite my colleagues from BMO to make their presentation.
:
Thank you, Mr. Chairman.
We're pleased to have the opportunity to appear before you to discuss our activities in the Atlantic lobster fishery. I'm joined this morning by my colleague Paul Seipp, who is BMO's commercial area manager for Nova Scotia.
I am extremely proud of how our team has been working to serve customers in Atlantic Canada. On the commercial banking side, more than one in four businesses in the region have chosen to do business with BMO Bank of Montreal, and our market share continues to grow. We intend to continue that growth and reach the number one position.
We bring a strong commitment to our customers throughout Atlantic Canada, including those involved in the lobster industry and the wider fisheries industry. In fact, for loan authorizations under $5 million, BMO has provided $142 million to businesses in the saltwater fishing industry in Atlantic Canada. That's 35% of the market among banks.
As all of you know, the Atlantic lobster fishery has been hit hard. The economic downturn has led to falling demand, particularly in the important U.S. market. The result has been a collapse in prices to a 20-year low of below $3 a pound. No wonder Leonard LeBlanc of the Gulf Nova Scotia Fishermen's Coalition has said that the current price for lobster has made it cheaper than lunch meat.
BMO is committed to standing by our customers both in good times and in difficult ones, and we are committed to standing behind them now. Across the region, we have very seasoned bankers who know their customers well. Many of our employees live and work in the community and have seen first-hand the effect the current downturn in the lobster fishery is having on neighbours, friends, and family. We understand what they are going through.
When it comes to lobster fishers, we accept most requests for loans, and we are sticking with our clients when it's time for loan renewals. Our bankers are armed with high discretionary limits, which ensures that lending decisions are made by those bankers right in those communities--bankers like commercial account manager Rob MacLeod, who takes regular trips with his clients out to drop pots on the opening day of lobster season. Our message to our customers is this: come in and see us for a conversation about your financial situation so we can help you through this difficult time.
By the way, Mr. Chairman, for the benefit of my fellow bankers here today, we're delighted to see their customers too.
Voices: Oh, oh!
Mr. Steve Murphy: In fact, I'm happy to share with you something we have been doing for some time to help our customers manage in the downturn, including those in the lobster fishery. We are working with our customers to see what kinds of arrangements can be made to get them through, including deferral on loan or mortgage payments and special accommodations for commercial customers on a case-by-case basis. As I said, we stand behind our customers in their time of need.
Mr. Chairman, I want to assure you and your colleagues on the committee of our commitment to continue supporting the lobster industry and the fishery in general. I want to voice our support for efforts to provide direct assistance to those affected by the current difficulties, such as those announced by the federal government yesterday, but I also call on all Canadians to stand behind our lobster fishers by buying more lobster this summer.
I encourage everyone to bring more lobster home, invite your neighbours, and enjoy one of Atlantic Canada's real treasures in your own backyard. You'll be having a treat and helping out your fellow Canadians at the same time.
Thank you very much.
:
Good morning, ladies and gentlemen. Thank you for allowing Royal Bank of Canada to contribute to the discussion on the lobster fishery and access to credit. My name is Peter Conrod, and I've been an executive officer with Royal Bank for six years. As regional vice-president of commercial financial services in the Atlantic region, I hold responsibility for our commercial business in Atlantic Canada and lead a team of 114 people dedicated to serving our commercial business clients.
Roughly 31% of commercial businesses in Atlantic Canada would consider RBC to be their primary banker, and RBC holds the lead market share in both business loans and business deposits. Recent numbers indicate we have $202 million in authorized business loans to the fishing industry, with outstanding loans totalling $111 million. Sixty-six per cent of our fishery loan portfolio is extended to processors and wholesalers, with 23% being provided to our harvester clients. The remaining 11% of the portfolio is extended to the finfish segment. Of the $202 million in authorized business loans, approximately 89% is to the shellfish segment, with most of that to the lobster sector.
As it pertains to your area of interest, RBC has been active in providing financial support to the lobster fishery by way of term loans to the lobster fishers to finance the purchase of both vessels and licences. We provide term loans to the lobster fisher to finance equipment purchases, and provide operating loans, term loans, and foreign exchange facilities to lobster pound operators.
Of most interest to this committee may be our support to the lobster fishers. Roughly six years ago we designed a term lending program to support the purchase of a vessel and a licence. The program provides up to 75% financing of both the vessel and the licence, with the vessel loan being structured to be repaid over 10 years and the licence loan over five years. In effect, given the typical split, this provides roughly seven years' financing of the combined assets.
This is purposely done over seven years, as we knew from our years of experience in the industry that there would be challenging years for our lobster fishers, and this structure allowed us to waive principal payments in those years when they were cashflow challenged. This past winter we saw another of those challenging years in which prices at the wharf were low and demand for the product in the United States and Europe was soft. We reached out to have one-on-one conversations with our clients, and where they were cashflow challenged, we offered to waive the semi-annual principal payment typically due on the loan: approximately 25% of our clients took us up on that offer.
The same offer is being made to our clients this month, as our loan structures typically have a second principal payment due the end of June. It's too early to determine how many of our clients may take us up on our offer to waive the principal payments this month.
Our fishing industry clients are typically served by RBC commercial account managers who work and live in the same communities where our clients live, such as Barrington Passage, West Pubnico, Yarmouth, Church Point, and Digby.
In summary, Royal Bank of Canada has been an active supplier of debt capital to the lobster fishery, and we will continue to serve this segment well. Our lending policies remain unchanged over the past six years, despite today's very challenging times, and we are open for business to support industry participants who are not clients of RBC today.
Thank you.
:
Thank you very much, Mr. Chairman.
[Translation]
Good afternoon. Thank you for having invited me. I'm very pleased to be here with you today.
I understand that within the context of your study of the Atlantic lobster fishery, you would like to know what the BDC is doing to improve access to financing. I would like to give you an overview of the BDC's activities, including a description of its participation in recent budget initiatives intended to ease access to financing. I will then tell you about the support we are offering to the fishing industry. But first of all, a brief description of the BDC:
We have a staff of 1,800 employees working out of 100 branches across Canada, including 13 offices and 150 employees in the Atlantic provinces. We offer three types of support: financing services, venture capital and consultation. We support 28,000 entrepreneurs. These clients carry out their activities in all sectors of the economy, including the fishery.
With approximately 3% of the term financing market, BDC is relatively small. Our network of branches is modest in comparison with the roughly 6,000 branches of the 6 big Canadian banks, but our 600 account managers are in direct contact with thousands of entrepreneurs every month. These conversations give us a good idea of what is happening in the market.
Currently, we can see two forces at work. The first is the recession. Many entrepreneurs are reluctant to launch new projects. They are waiting to have a better appreciation of what is in store. We see that the number of entrepreneurs seeking project financing is, as a result, lower than usual.
The second force is the tightening of credit conditions. This situation is the result of three factors: (1) the withdrawal of certain foreign banks and unregulated financial institutions because of the sharp decline in the securitization market; (2) a difficult bond market; and (3) the difficulty, for financial institutions, of giving out loans in a climate of economic uncertainty.
[English]
For those entrepreneurs who are seeking credit, what does that mean? If he or she has a long-standing business relationship with the Canadian banks or credit unions, they are less at risk. If they are operating in a sector that is strongly affected by the recession, they are at greater risk. Their risk rises again if they have lost their financial partner and are trying to establish a relationship with a new financial institution. For Canadian banks, the exit of foreign non-regulated peers means that we are straining to meet new significant demand. This is certainly the case at BDC. New increased demand has caused our portfolio to grow more than anticipated. Also more mid-size companies are approaching us, and transactions over $5 million have increased 50% year over year.
The recent budget had two initiatives to improve business access to credit, the business credit availability program, the BCAP, and the Canadian secured credit facility, the CSCF. Both are on track. I'll start with BCAP and then turn to the CSCF.
BCAP is a program in which BDC, Export Development Canada, and private sector banks are participating to help ensure that at least $5 billion in loans and credit support is made available to creditworthy businesses whose access to credit would have been restricted otherwise. It is best understood as an enhanced cooperation between private sector financial institutions and BDC, to refer creditworthy clients when there is a desire to share in the risk. Thus far, BCAP has five components.
The first one is the working capital support. BDC provides either partially secured or unsecured working capital to Canadian businesses so they can sustain their operations. In general, these businesses targeted by this program carry out too much risk for most banks. At the time of the transaction, BDC will have to make a judgment call as to the ability of the business to succeed even if it is having temporary difficulties. This part of the program will end in 2012.
The second component is referrals. Other financial institutions direct clients to BDC when they want to share risk with us. In some cases we share the term loan pari passu, half and half. At other times, the financial institution will retain the operating facility and we will take the term loan.
The third component is syndication. BDC participates in financing syndicates with others, by invitation from other financial institutions, usually to replace departing players.
The fourth component is the purchase of commercial mortgages. BDC buys a 50% share in small bundles of commercial mortgages. Our goal in doing so is to liberate capital so the other financial institution can then put it back in the market.
Finally but not least is refinancing. BDC acts as a buffer to replace departing foreign players that have exited or are exiting the market, leaving good companies without proper financial support.
We have completed all the work related to the creation of a new operating line of credit guarantee, which I understand has been of interest to your constituents. It gives financial institutions the means to guarantee an incremental portion of their clients' operating line of credit. We, BDC, provide the guarantee to the financial institution that holds the client account and act as the behind-the-scene partner throughout the process. So businesses interested in the operating line of credit guarantee should request it directly from their financial institution, which will in turn contact us.
The new BCAP collaboration is working very well. Entrepreneurs are getting more opportunities to make their case, potential deals are being referred, and businesses are benefiting in general. You may recall that in November 2008 the government announced a $350 million capital injection for BDC. We have received and already put to good use $250 million of this via our regular services and the BCAP. We recently received the other $100 million, which is to support the new line of credit guarantees. We will therefore be ready to proceed as soon as the final agreements with financial institutions are signed.
Through BCAP, we at BDC have provided more than $600 million in new financing to Canadian businesses since February. If we add to this financing the regular financing we provide as part of our usual business, this rises to almost $1.1 billion.
Secondly, the new budget created the Canadian secured credit facility, CSCF, to provide liquidity to the equipment, vehicle loan, and lease financing market. It has an allocation of up to $12 billion to purchase term asset-backed securities. Its primary objective is to stimulate economic activity by supporting sales and leases of cars and equipment in Canada. The CSCF is now up and running. We have already allocated in excess of $10 billion through two rounds of allocations to two distinct groups.
Allow me now to turn to BDC's involvement in the fishery sector, which we know is experiencing challenging times. We fully understand these challenges. We support the fishing industry across Canada. We currently have $160 million of our portfolio in support of fishermen, fish processors, wholesalers, and retailers. And this does not include the last 90 days of credit approval.
Those of you from Newfoundland will recall how our support grew after the mid-nineties cod moratorium, which saw several financial institutions reduce their presence. We are committed to continuing our support and are looking at various ways of doing so. Following the Saulnier decision of the Supreme Court of Canada, we are reviewing the value we attribute to licences and are meeting with DFO officials.
I would like to conclude now with two fundamental points, if you will allow me, Mr. Chairman.
First, it is essential to remember that BDC is an instrument of public policy and has a very specific mandate. The BDC Act requires us to limit our support to projects in which the person—the entrepreneur—is engaged, or is about to engage, in an enterprise in Canada. Second, the entrepreneur must have a continuing commitment to the business. And third, the enterprise must have a reasonable chance of success. That is the law for BDC.
While we limit our support to viable projects proposed by creditworthy businesses, we do take a greater degree of risk than private sector banks. And we price for that risk to protect our capital base, which is public money. We ceased to be a lender of last resort in 1995. We cannot support failing businesses, and we do not offer grants and subsidies.
The second essential point to remember about BDC is that its sole mandate is to promote entrepreneurship, that we actually exist to support entrepreneurs. We give every entrepreneur who approaches us a fair hearing and an opportunity to make his or her case. This, of course, includes entrepreneurs in the fishery sector.
I thank you very much for listening to me today, and I am open for questions, Mr. Chairman.
:
Do you mind if I answer in English? It's easier for me. Banking terms are all in English, unfortunately.
Let's talk about marketing. You are right, BDC is perhaps not as well known as it should be, simply because of our size. If you compare BDC to the size of the financial institutions that were here an hour ago, it's very different. As I said, we have 100 branches; they have 6,000. We can do some publicity, but that's not going to solve it all by itself.
BCAP, in my view, is going to help us much more, because it is forcing financial institutions before they decline a loan, if they feel it is a creditworthy company, to refer the business to BDC. That's helpful. Having relationships with the financial institutions, with other crown corporations, with all of you here in this room, is what we need, so you need to talk about BDC and its role.
We invest every year in marketing and we try to do it across Canada. Having said that, the main goal of BDC and why we're able to sustain ourselves is to give it back to entrepreneurs. The main goal of BDC is to provide financing, consulting and so forth, not necessarily to only do marketing. We try to balance the two.
BDC is starting to be much more known during this recession than before, so that is a good thing for us. It's an opportunity for us at the moment, that we are grasping with all our passion.
Your third question is one that requires a little bit of reflection, because you're basically asking what is in the best interest of the industry. That's what you are asking. What is in the best interest of the industry may not be in the best interest of every player, hence the difficulty we are facing today.
In good times it's easy to get into business. It's easy to start a business and it's easy to make money--or not, but when things are going well, there's lots of money in the marketplace. In a recession, we are going into a contraction. Offers exceed demand today. That is the issue. Therefore, it is going to be painful, and some form of rationalization will have to occur. The difficulty is there, and I think the minister understands this. I had a chance to sit down with her about 30 or 45 days ago, actually, and we had a discussion around that, and I believe she understands this deeply.
An hon. member: Thank you.
Ms. Edmée Métivier: You're very welcome.