Long considered a major barometer for the health of the trucking industry, Canada’s Bank of Montreal (BMO) reported a rise in impaired loans in the transportation sector for the second quarter of 2020. About 90% of BMO’s business is done with U.S. companies.
A loan is considered impaired if not all of the related principal and interest is expected to be repaid. Impaired loans rose nearly 20% to C$189 million in the second quarter which ended April 30, a significant loss compared to the same quarter in 2019 when that number was only C$147 million.
About 75% of BMO’s transportation sector portfolio is tracking-based so these losses tend to indicate that the overall trucking loan market is seeing hard times. In fact, write-offs (when a debt is declared uncollectible) leaped 40% from C$25 million to C$35 million. In 2019, write-offs were only at C$14 million.
Since the trucking industry peak in 2018, BMO has seen a consistent rise in impaired loans in every quarter except for a brief decline in the second quarter of 2019. In 2019, more than 600 North American trucking firms filed for bankruptcy.
Despite these losses, BMO’s loans to the transportation sector actually rose in the second quarter from C$12.2 billion to C$13.3 billion. BMO entered into the transportation sector as a large-scale lender in 2015 on the heels of its purchase of the transportation unit of GE Capital for $8.7 billion.
Comments made just after the release of first-quarter earnings by Dave Casper, the head of BMO’s personal and commercial loans in the U.S. sounded optimistic. “A number of our competitors get in when things are really good and get out quickly. And we’ve seen that recently a couple have gotten out and that just makes it better for us. We’ve got the best team to run this through the cycles and I’m very, very happy with it,” said Casper.
During the most recent conference call regarding second-quarter earnings, however, bank officials barely mentioned BMO’s recent losses in the transportation sector.