MONTREAL — BMO Financial Group plans to close its retail auto finance business in order to reroute resources, as borrowers dig deep to stay on top of recent interest rate hikes.
The decision will also trigger an unspecified number of layoffs in Canada and the U.S., the Bank of Montreal said.
It comes after the company's bad debt provisions more than tripled to $492 million in the quarter ended July 31 compared to a year earlier. In its retail line, the bank's provisions for credit losses rose 800 per cent to $81 million last quarter from $9 million the year before.
Those dents on the income statement hint at the financial strain facing consumers, who have struggled to cope with a spike in interest rates over the past year and a half.
The higher borrowing costs have begun to slow some lending demand and deal-making amid heavy competition among Canadian banks on mortgage rates and wider concerns about a general economic slowdown.
The Bank of Montreal's indirect retail auto loans segment works with car dealerships to arrange financing for car buyers, who in turn make monthly payments to the lender — the bank. BMO's commercial banking business, which backs auto dealers through inventory financing, is unrelated to the upcoming shutdown.
"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," BMO Financial Group spokesman Jeff Roman said in a statement to The Canadian Press.
The end of the dealer agreement took effect Sept. 15, with the bank still planning to fund contracts approved before that date.
"We are working closely with affected employees to provide support and to ensure they are treated with fairness and respect," Roman added.
Last quarter, costs related to layoffs totalled $223 million pre-tax, though the bank did not disclose the number of employees let go.
This report by The Canadian Press was first published Sept. 17, 2023.
Companies in this story: (TSX:BMO)
The Canadian Press