Survey of Suppliers of Business Financing

Canadian businesses reduced slightly the total debt they owed to the major suppliers of financing for a second consecutive year in 2002. A decline in the debt load of large borrowers offset increased debt among smaller borrowers.

As of December 31, 2002, suppliers of financing reported their business clients owed them $358.5 billion, mainly in the form of loans, mortgages and lines of credit. This was a 0.4% decline from 2001, which was less than the 0.7% decline recorded in 2000, as economic growth strengthened in 2002.

Lease amounts outstanding grew for the second consecutive year, posting a 4.2% increase to $22.8 billion in 2002. This followed growth of 8.3% in 2001.

Smaller borrowers owed more, larger borrowers less

Large borrowers, those authorized to borrow $1 million or more, saw their debt load fall 1.4% following a similar decline of 1.5% in 2001.

Lower exports to the United States in 2002, along with declining inventory levels and lower capital investment, may have reduced the financing needs of these businesses. As well, suppliers may have become more selective in their lending to large borrowers as a result of the increased loan losses they experienced in the latter part of 2001 through 2002.

In contrast, smaller borrowers, those authorized to borrow less than $1 million, increased their debt over the past two years. It rose 1.4% in 2001 and 2.4% in 2002.

Smaller borrowers are mainly smaller businesses, which tend to serve only the domestic market, while large borrowers are much more likely to sell into export markets.

Combined with historically low interest rates, the relative strength of the Canadian economy over the past two years, compared with that of our principal export market to the south, may have encouraged smaller borrowers to take on more debt.

Dominance of domestic banks slips

Domestic banks remained the dominant suppliers of financing to businesses, but their share of the market slipped. As of December 31, 2002, they had total outstanding debt amounting to $196.0 billion.

Domestic banks, with 77% of their loan portfolio outstanding to large borrowers, experienced a decline in their market share. It fell to 54.7% in 2002 from 56.8% two years earlier.

The next largest suppliers were finance companies, other banks, insurance companies and credit unions and caisses populaires.

As debt outstanding to large borrowers has declined since 2000, so have the market shares of most lenders who supply primarily large borrowers.

Insurance companies, which have 96% of their loans with large borrowers, experienced a decline in market share from 11.5% to a 10.7% between 2000 and 2002. Other banks, with 84% of loans to large borrowers, recorded a smaller decline.

Conversely, finance companies and credit unions and caisses populaires posted increases in market share as their loan portfolios continued to be focussed on small borrowers.

The market share of finance companies, whose loan portfolio is evenly split between smaller and large borrowers, rose to 11.8% from 10.2%.

Credit unions and caisses populaires, with 71% of their loan business with smaller borrowers, saw their market share rise to 8.6% from 7.3%.

Improvement in loss rates

Suppliers reported total losses of $2.1 billion on their business lending in 2002, a substantial drop from the year-earlier level of $2.7 billion. Credit losses in 2001 and 2002 originated from volatility in the telecommunications, energy and aerospace sectors.

The loss rate, that is, total losses in 2002 as a percentage of total debt outstanding at December 31, 2002, improved to 0.59% from 0.76% the year before.

Most suppliers saw their loss rates decline in 2002 from the previous year. Exceptions included the domestic banks, which saw loss rates increase to 0.50% from 0.46%, and finance companies, where rates rose to 0.71% from 0.65%.

Loss rates also fell across all authorization sizes in 2002, although they generally remained higher for lending to smaller borrowers compared to large borrowers.

Leasing showed growth

Lease amounts outstanding grew for the second consecutive year, posting an increase of 4.2% to $22.8 billion in 2002. This followed growth of 8.3% in 2001.

Finance companies led the way. They reported a 15.7% jump in amounts outstanding in 2002. Two healthy years of growth have propelled the share of the leasing market held by finance companies from 40.6% in 2000 to 47.2% in 2002.

Domestic banks were the next largest suppliers of lease financing, as they accounted for 29.1% of total amounts outstanding. They reported only a small 1.0% increase in amounts outstanding in 2002 and, consequently, saw their market share slip from the year-earlier level of 30.1%.

Definitions, data sources and methods: survey number 2514.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Mike Paju (613-951-1522; mike.paju@statcan.gc.ca) or Bruno Morin (613-951-0396; bruno.morin@statcan.gc.ca), Industrial Organization and Finance Division.