BMO closes retail auto finance business as bad debts rise

MONTREAL — BMO Financial Group says it will close its retail auto financing business to redirect resources after rising bad debts.

Bank of Montreal also says the decision will trigger an unspecified number of layoffs in Canada and the United States

This comes after the company’s bad debt provisions more than tripled year-over-year to $492 million in the quarter ended July 31.

In retail banking, the bank’s provisions for loan losses rose 800 percent to $81 million in the most recent quarter, compared to $9 million a year earlier.

These dents in the profit and loss statement point to the financial strain on consumers who have struggled with a rise in interest rates over the past year and a half.

Higher borrowing costs have begun to slow loan demand and processing of some deals as Canadian banks compete fiercely for mortgage rates and concerns about a broader economic slowdown.

Bank of Montreal’s indirect retail auto lending segment works with car dealerships to arrange financing for car buyers, who in turn make monthly payments to those dealers. BMO’s commercial banking business, which supports auto dealers through inventory financing, is unrelated to the upcoming closure.

“By closing the indirect retail auto financing business, we have the opportunity to focus our resources on areas where we believe our competitive position is strongest,” BMO Financial Group spokesman Jeff Roman said in a statement to The Canadian Press.

He did not specify when the end of the dealer agreement would take effect.

“We are working closely with affected employees to support them and ensure they are treated fairly and respectfully,” Roman added.

In the most recent quarter, costs related to layoffs totaled $223 million before taxes, although the bank did not disclose the number of employees laid off.

This report by The Canadian Press was first published Sept. 17, 2023.