(Montreal) Bank of Montreal is foregoing indirect auto loans to reallocate resources after a spike in bad debts, the financial group announced.
She also noted that this decision will result in an unspecified number of layoffs in Canada and the United States.
This comes at a time when bad debt provisions more than tripled compared to the same period last year to $492 million for the quarter ended July 31.
In the retail lending sector alone, BMO’s provisions increased 800% from $9 million to 81% in one year.
This loss of revenue for BMO is indicative of the increasing financial burden on customers who are unable to make ends meet due to rising interest rates over the past 18 months.
Additionally, rising borrowing costs have begun to slow demand and transactions as competition among Canadian banks over interest rates is intense and concerns grow about a general economic slowdown.
Bank of Montreal’s indirect lending division works with car dealerships to help customers finance vehicle purchases, who then repay those loans through monthly payments.
Bank of Montreal will continue to do business with merchants, particularly through inventory financing.
“By ending indirect vehicle financing, we retain the ability to focus our resources on areas where we are stronger,” BMO spokesman Jeff Roman said in a statement to The Canadian Press.
He did not say when the end of the agreement with the dealers would come into effect.
“We will work closely with affected employees to support them and ensure they are treated fairly and respectfully,” Mr Ronan added.
In the most recent quarter, costs related to layoffs totaled $223 million before taxes, but the company did not disclose the number of employees laid off.
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