As per the trusted reports, Bank of Montreal (BMO) is strategically exiting its indirect retail auto finance operations in both Canada and the United States, resulting in job cuts amid heightened bad debt provisions.
The decision, announced recently, comes as BMO's bad debt provisions soared to C$492 million for the quarter ending July 31, up from C$136 million the previous year. This rise reflects increasing challenges faced by consumers due to surging borrowing costs.
The indirect retail auto finance segment involved collaborating with car dealerships to facilitate financing for buyers, who made monthly payments to the bank. BMO stated that the move allowed them to reallocate resources to areas where they have a competitive advantage.
The bank is actively supporting affected employees during this transition. In a letter to car dealers, Paul Hunsley, the business head, announced the dealer agreement termination with effect from September 15. However, all contracts submitted and approved before this date will be honored.
As of July, BMO's consumer installment and personal loan portfolio stood at C$104 billion, with a substantial portion in home equity loans. The remaining loans primarily comprise auto loans, along with loans for recreational vehicles, boats, and motorcycles, according to Edward Jones analyst James Shanahan.
Notably, data from the Bank of Canada has shown a rise in delinquency rates for loan on vehicles, surpassing pre-pandemic levels, underscoring the financial strain on consumers as they grapple with repaying both vehicle loans and mortgages in a high-interest rate environment.
Rising interest rates are slowing down the Canadian economy, prompting banks to set aside more funds to address the expected rise in non-performing loans.
BMO's growth strategy has included expansion into the United States, most notably its acquisition of Bank of the West for $16.3 billion, enabling its presence in 32 states in the western United States, including California. This move has significantly contributed to BMO's overall profits, with the United States now accounting for over one-third of its earnings.