Bank of Montreal (BoM) in Canada to Cease Operations in Indirect Retail Auto Finance

19 Sep, 2023

Bank of Montreal (BoM) in Canada to Cease Operations in Indirect Retail Auto Finance

Canada's third-largest bank, the Bank of Montreal (BoM), is in the process of winding down its indirect retail auto finance business. This strategic shift aims to redirect the bank's focus towards other areas, albeit with the consequence of an undisclosed number of job losses.

The decision, publicly announced by the bank, affects its operations both in Canada and the United States. This move comes on the heels of a notable increase in BoM's overall bad debt provisions, which surged to C$492 million, up from C$136 million in the same quarter a year ago. The rise in bad debt provisions serves as a clear indicator of the mounting financial strain faced by consumers, driven by the rapid escalation of borrowing costs.

In the realm of indirect retail auto finance, the bank collaborates with car dealerships to facilitate financing arrangements for vehicle buyers, who subsequently make monthly payments to the lender.

Explaining the rationale behind the decision, BoM stated in a communication to Reuters, "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."

The bank has expressed its commitment to support employees affected by the impending job cuts during this transition.

In a letter dispatched to car dealerships, Paul Hunsley, the head of the business, outlined that the termination of dealer agreements would take effect on September 15th. Nevertheless, the bank will honor all contracts submitted and approved prior to this date.

As of the end of July, BoM's consumer installment and personal loan portfolio amounted to C$104 billion, encompassing C$54.7 billion in home equity loans. The remaining loans within this portfolio are predominantly auto loans but also include financing for various other assets such as boats, recreational vehicles, and motorcycles, as highlighted by Edward Jones analyst James Shanahan.

Data from the Bank of Canada indicates that delinquency rates for vehicle loans have now surpassed pre-pandemic levels, underscoring the financial strain faced by consumers as they grapple with increased financial obligations. This decision by BoM reflects the bank's strategic response to these evolving market conditions, as it seeks to reallocate resources and adapt to changing financial landscapes.