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Banks (Finance)

Banks' Commitments to Small Business at Odds with Lending Figures

Strategic Insights

— 2 min read

A recent flurry of commitments to small business by the Big Six banks seems to contradict government figures showing a significant decline in lending since 1990, with banks reining in lending and shying away from sectors such as home building. The volume of small business loans under $200,000 has decreased to $17.9-billion in mid-1993 from a high of $21.7-billion in late 1989. This decline has been most pronounced in sectors like construction and forestry, with logging and forestry loans tumbling over 35% in the year ended September 30, 1993. Executives from Bank of Montreal and Bank of Nova Scotia have denied any blame for the credit squeeze, attributing the decrease to other factors.

Key Takeaways:

  • The volume of small business loans under $200,000 has decreased from $21.7-billion in late 1989 to $17.9-billion in mid-1993, according to the Office of the Superintendent of Financial Institutions.
  • The sector with the greatest decline in lending was construction, with a 35% drop in the year ended September 30, 1993.
  • Bank of Montreal's senior vice-president, Ronald Rogers, denied any blame for the credit squeeze, stating that the bank has aggressively pursued the small business lending market since 1990, increasing its portfolio by 49.6% to $5-billion.
  • Bank of Nova Scotia's vice-chairman, Bruce Birmingham, also denied any selective withdrawal of credit from industries or regions, stating that the bank has boosted commercial loans of less than $1-million by $600-million to $3.5-billion in the past two years.
  • Liberal MP Dennis Mills expressed skepticism about the banks' commitments to small business, stating that his experience is that these commitments do not translate into action when small businesses go to their branches.
  • The Canadian Construction Association charged that banks have targeted the construction sector as one to avoid, due to a lack of understanding of the industry.

Statistics:

  • $17.9-billion: The current volume of small business loans under $200,000 in mid-1993.
  • $21.7-billion: The high volume of small business loans under $200,000 in late 1989.
  • 35%: The decline in logging and forestry loans in the year ended September 30, 1993.
  • $5-billion: The increase in Bank of Montreal's small business loans portfolio since 1990, representing a 49.6% rise.
  • $3.5-billion: The value of commercial loans of less than $1-million held by Bank of Nova Scotia in the past two years, representing a $600-million increase.

Sources:

  • "Big Six banks at odds with government figures on lending to small business" by Barrie McKenna, Ottawa ONT -- BY BARRIE McKENNA Parliamentary Bureau OTTAWA.
  • Office of the Superintendent of Financial Institutions.
  • Bank of Montreal.
  • Bank of Nova Scotia.
  • Canadian Construction Association.
  • Royal Bank of Canada.
  • Canadian Imperial Bank of Commerce.

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