Banks 'committed to doing what they can,' Flaherty told at 'productive' meeting
Published Monday January 5th, 2009
TORONTO - Canada's banks say they are lending to creditworthy borrowers, amid perceptions that they are butting heads with Finance Minister Jim Flaherty over the availability of loans to businesses and individuals.
The federal minister and senior bankers conferred privately Monday, while cries grew for the government to do something to make credit easier to get.
The meeting was "productive" and "many of the economic challenges facing the country were discussed," Nancy Hughes Anthony, president of the Canadian Bankers Association, said in the only public statement after the lengthy session, which was also attended by Bank of Canada governor Mark Carney.
"We assured the minister that the banks are committed to doing what they can to help Canada weather the recession and that they will continue to lend to creditworthy individuals," Hughes Anthony stated.
"At the same time, as the recession continues, we expect demand for credit will decrease because of economic uncertainty."
Flaherty didn't speak with reporters but is scheduled to meet the media Tuesday morning in Montreal. The bank CEOs who met with him Monday also avoided commenting directly.
The minister said just before Christmas that he is "hearing across Canada concerns about access to credit" and bank loan practices are "a major issue going into 2009."
The banks say their lending has remained robust even as financial markets and the economy have deteriorated.
But Catherine Swift, head of the Canadian Federation of Independent Business, said Monday that "there's no question it's tightening."
She said a CFIB survey of its small-business members found 28 per cent were worried about access to credit in December, up from 18 per cent in September and 13 per cent in December 2007.
Duff Conacher, co-ordinator of Ottawa-based advocacy group Democracy Watch, blames decades of "negligence" by finance ministers in not tightening bank disclosure and accountability.
"The banks have all the information about how many businesses apply for credit, how many are approved, how many are rejected, and for what reasons," Conacher said, and they "will never be held accountable until this information is required to be disclosed."
A TD Bank analysis late last month said household borrowing in November was 12.1 per cent above year-earlier levels. It also found that bank loans to businesses had in fact accelerated, perhaps because other sources of corporate financing have evaporated.
However, Canadian Manufacturers and Exporters reported last month that more than one-third of 327 companies it surveyed were "experiencing difficulties" getting adequate financing.
Jayson Myers, president of the manufacturers and exporters group, said Monday that orders to factories are tumbling and companies are increasingly anxious about renewing lines of credit. He said the crunch has hit especially hard in the automotive sector, where "some" banks have effectively stopped lending.
Meanwhile, non-bank sources such as venture capital and asset-backed financing "have pretty much dried up," Myers said from Ottawa.
At the banks, he added, loan policies may not be changing, but "the problem is that it's getting riskier to lend - that the risk profiles of Canadian business are much higher now."
He favours a variety of government measures, including loose monetary and regulatory policies, more lending from the government's Export Development Canada and Business Development Bank, and creation of a new federal institution to take equity interests in big corporate projects.
CFIB's Swift said the government "could lean on the banks - they do regulate them, so they wield a pretty big stick."
The CBA's Hughes Anthony said in her written statement that banks are trying to fill the gap as non-bank lenders pull back.
"While banks understand the importance of providing credit to individuals and businesses, banks also have a responsibility to protect their depositors' money," she noted.
"Banks in Canada have been prudent lenders and, because of this, largely avoided the financial difficulties and subprime mortgage issues that have plagued banks in other countries."
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