Canadian Banks Rush For Commercial Loans
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UPDATED: Nov 7, 2012
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The Royal Bank of Canada, Toronto-Dominion Bank and several other Canadian banks are ramping up efforts to increase their market shares of the $18.4 billion commercial loan market.
“We find it as an attractive area to grow in Canada, which is a relatively slow-growth market for us. It remains a priority, because we see growth,” said Richard Waugh, CEO of Bank of Nova Scotia, in an interview with Delaware Online.
According to Benjamin Tal, deputy chief economist at Canadian Imperial Bank of Commerce, the country will experience an “unprecedented boom in new business” over the next decade. He predicts that 150,000 new businesses will begin in the next decade.
The banks have increased their pool of advisers in order to become the best suppliers of commercial loans up to $250,000. Royal Bank of Canada, the country’s largest lender, has begun courting small business owners by offering seminars and educational sessions. It has also increased its legion of “relationship management team members” to 580 strong. Canada’s fourth-largest bank, the Bank of Montreal, has added an additional 180 small-business officers since March of 2011.
Fortunately for the banks, they have seen a 10 percent increase in small business commercial loans in the third quarter of the year. Canada’s second-largest bank, Toronto-Dominion, has lent 1,420 commercial loans over the last five years.
“Business borrowers – whether small-and-middle market commercial or larger corporate clients – are on aggregate carrying a much lower level of debt than Canadian consumers. So while business lending is a smaller portion of the book for most banks, it’s also an area that should have more capacity for growth in the interim when compared to the highly leveraged position of the consumer,” said Sumit Malhotra, an analyst at Macquarie Capital Markets, in an interview with Delaware Online.
Unfortunately for the banks, business owners are less satisfied than retail customers in their dealings with local branches. Additionally, banks are facing increasing competition from angel investors, which are simply investors willing to fund businesses with their own personal money.
“There’s a lot of entrepreneurs across Canada that are sitting there saying, I’ll try the banks first and if that doesn’t work, I’ll go to these angel investors. There are people advertising saying, ‘I’m an investor.’ Five, seven years ago you never saw that,” said James Treliving, a small business owner, according to Delaware Online.