The hefty allowances and provisions taken by trucking lender BMO in the third quarter did not slow credit deterioration in the fourth, and those financial steps to protect the bank against bad debt continued to rise.
BMO is a leading lender to the trucking sector, both in Canada and the U.S. Its quarterly earnings report, and its breakout of data on its lending sectors, including transportation, provides insight into credit conditions among borrowers. The transportation sector at BMO is believed to be made up of about 90% clients in trucking.
BMO’s provisions for credit losses in the transportation sector rose to CA$85 million ($60.46 million) in the fourth quarter ended Oct. 31, according to the earnings release published Thursday. (All figures below are in Canadian dollars.)
That is up from $77 million in the third quarter, $56 million in the second and $41 million in the first. A year ago, in the fourth quarter of 2023, the figure was $26 million.
That rising level of provisions in the past several quarters each marked a record since BMO purchased the transportation operations of GE Capital in late 2015, making BMO one of the biggest lenders to trucking.
The latest BMO report discloses a new series of data: a breakout of its business between Canada and the U.S. Of the $85 million in provisions taken in the quarter, $50 million was in the U.S. and the balance was in Canada.
Allowances – another method of a bank taking charges to protect itself against poorly performing loans – were also at a record $68 million in BMO’s transportation sector, up from $54 million a quarter earlier. A year ago that figure was $20 million.
However, allowances fell harder on Canada than the U.S.: $46 million for Canada, $22 million for the U.S.
The Fincylopedia online tool describes allowances and provisions as “at times used to denote the same meaning: a management’s estimate of a certain probability that may adversely impact the value of its assets, whether based on historical data (as is the case with an allowance) or a future prediction (as is the case with a provision).” The impact of an allowance shows up on a bank’s balance sheet; provisions hit the estimate of income.
The BMO figure for gross impaired loans rose as well. That category takes a wider look at loans that are potentially not likely to be recovered.
Gross impaired loans and acceptances in the transportation sector at BMO rose to $464 million from $424 million in the third quarter and $305 million in the second. A year ago it was $170 million.
Canada again had the majority of that troubled debt: $246 million versus $218 million.
Net impaired loans are calculated as the gross impaired loans minus allowances. That was $396 million in the fourth quarter, up from $370 million.
The size of the book of business at BMO’s transportation group declined slightly. The gross book fell to $14.6 billion from $14.8 billion. It is also down about $1 billion from where it stood a year ago.
The breakout of the geographic data shows that gross loans and acceptances in the fourth quarter were $4.76 billion from Canada, $9.82 billion in the U.S. and $94 million listed as other. That’s about 32.4% in Canada, 66.9% in the U.S. and less than 1% as other.
Write-offs in the sector were at a record $63 million and were a sharp reversal from the trend of the third quarter. That period had write-offs of $38 million, down from $52 million in the second quarter. But the trend didn’t stick, and BMO wrote off more in its transportation sector in the fourth quarter than it had in any previous three-month period.
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