Gross impaired loans for BMO customers climbed higher for its latest quarter, which ended July 31, reflecting transportation customers’ repayment troubles.
The issue skyrocketed at the bank at that time, rising 39% from the prior quarter to a new level of C$424 million (about $315 million at the time of its Aug. 27 earnings release).
“Based on our extensive portfolio monitoring and where we are in this credit cycle, we expect impaired provisions to remain elevated over the next couple of quarters and subject to variability,” BMO Financial Group Chief Risk Officer Piyush Agrawal said on an earnings call, noting other notable increases in commercial real estate and manufacturing.
“As rates fall, and unemployment stabilizes, we expect credit performance with a trend towards long-term averages through 2025,” he said.
Transportation customers in Canada collectively saw the value of their gross loan impairments rise 77%, while U.S.-linked loan troubles rose less severely when looking at the portfolio as a whole, based on investor presentations for Q2 and Q3. Consequently, both markets had roughly equal amounts of capital at risk.
BMO officials have suggested that any lasting resolution to the freight recession will hinge on the timing and pace of the Federal Reserve easing interest rates.
Despite the repayment challenges, the trucking segment is seeing early signs of stabilization, Agrawal said. Capacity leaving the industry and equilibrium are also occurring, the bank’s head of transportation finance, Dan Clark, said in a statement.
Through the promising potential of rate cuts and unemployment improvement, the bank expects more normalcy through next year.
But relief might take time.
“I don’t see the rate reduction having any real effect on the growth of the transportation industry over the next few months, until hopefully the cuts spur consumer purchases,” Clark said.
