Finance Committee on June 11th, 2009

[John McKay, Liberal, Scarborough—Guildwood, ON]

Mr. Halde, you decided to go around purchasing 50% of mortgage portfolios as a kind of quick in on the BCAP program. On the face of it, it makes perfectly good sense, but how do you know that has actually stimulated further economic activity?

[Jean-René Halde]

The assumption is that the banks that are contacting us to do this are saying that capital is limited in some of the various categories they're in, and that our ability to take half of the commercial loan enables them to basically keep capital for other purposes. That way the market has access to credit in a bigger way, because part of it is assumed by BDC.

[John McKay, Liberal, Scarborough—Guildwood, ON]

It's an assumption rather than any empirical evidence, I should think.

Now, you said you're in on pari passu. Is there any part of that 50% where you're actually the lower end of the pari passu, or is it entirely—

[Jean-René Halde]

No, generally it's fully pari passu.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Okay, thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McKay.

We'll go to Mr. Bouchard, s'il vous plaît, pour cinq minutes.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chair.

Welcome to both of you. My first question is about credit insurance.

Let us take the example of a business that sells lumber to the United States and that has customers in Quebec and in Canada. Let us imagine that some of its representatives meet with you and tell you that over the next six months, the company must provide certain quantities of lumber to its customers. If I understand correctly, you could provide that company with insurance on its accounts receivable. Then, those same representatives would go see their banker and tell him that they need money and that they have insurance on their accounts receivable. I assume that a loan would be granted. Are there any savings on the interest rate? As compared to credit insurance, what would be the savings for this sawmill?

[Stephen Poloz]

Are you referring to the rate paid by the Canadian company?

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Yes.

[Stephen Poloz]

EDC operates on a commercial basis. Its rates are determined by the commercial market. This is very important, because the EDC does not give subsidies to businesses. That would go against international rules set by the World Trade Organization. It is very useful for Canadian companies. Its rates are established based on the commercial market.

The company pays EDC, which in turn takes the risk of non-payment. After having checked the quality of the buyer and determined whether it is a sound company and whether there is a performance record, we assume the risk. This insurance can also be obtained through a bank, which does not take on any risk because the loan is guaranteed by EDC. The bank converts this insurance into cash for the company.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Very well.

Let us take another example, an equipment manufacturer that works for AbitibiBowater. It is the spring, and the equipment manufacturer notices that some machinery must be replaced. The company must purchase machinery, it must make an investment, so it needs a loan. It goes to see its bank and is told that the bank cannot lend it any money.

So the equipment manufacturer comes to see you. What do you tell it? Are you prepared to help it? Can you lend it money? Could an equipment manufacturer that works for AbitibiBowater take out a loan with you?

[Stephen Poloz]

I am going to respond hypothetically, because I cannot discuss specific transactions. If a Canadian export company comes to see us and requests funding for machinery and equipment that will improve its ability to export, EDC will certainly be able to grant it a loan. In such a case, it is clear that this loan will depend on the quality of the Canadian company and its financial situation. Such loans would not be granted to businesses that are not creditworthy. The risk must be commercially justifiable, but it may be higher than what is acceptable for a charter bank. Usually, EDC tries to find a solution with the company's banker in order to share the risk or increase the company's financial capacity.

[The Chair, Conservative, James Rajotte]

You have 30 seconds left, Mr. Bouchard.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

I will be brief.

I can see that the rates will necessarily depend on the risks.

You spoke briefly about the trade agreement. Do you respect the softwood lumber agreement when you grant loan guarantees? Is the softwood lumber agreement between Canada and the United States respected? Is it all legal? When you grant these loans, are they legal?

[The Chair, Conservative, James Rajotte]

Okay, keep it brief, please.

[Stephen Poloz]

Thank you, Mr. Chair.

Yes, the agreement is respected. EDC must comply with international legislation, which governs the agreement, and therefore, the commercial rate must definitely be commensurate with the risk. If we share the risk with another bank, we are sure to have the commercial rate because we are on an equal risk basis with the same conditions. In such a case, the softwood lumber agreement and other international agreements are definitely respected.

[The Chair, Conservative, James Rajotte]

Okay. Merci.

Mr. Kramp.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you, Chair. Welcome again, gentlemen.

Mr. Halde, I'd like to thank you and your staff for responding to some specific sector information that we were looking for. I appreciate the efficiency of that response. You mentioned in your opening remarks that your annual report will be soon sent to the Minister of Industry. When is “soon”?

[Jean-René Halde]

I believe the report is being sent some time next week, and then it's going to be up to the Minister of Industry to table it in Parliament. It may not be next week; it might be the week after, but we're talking weeks.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

We're not talking six months?

[Jean-René Halde]

No, we're talking weeks.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

In that report, there's some information I'm looking for. If it's in there, fine. If not, I would like to see it presented to this committee. I'd like to know if there are any statistics on the loans that have been issued in the last 6 to 12 months. You mentioned in your report that this year you had an 11% increase in loans. I'd like to know the size of these loans—$250,000, $500,000, $1 million, or over $1 million—and to what sectors they have been allocated. We need to see where the loans are going. If that information is not in the report, I'd like for you to comment on it, or give the committee access to some of it.

[Jean-René Halde]

Some of that information will be in the annual report and some will not. But that information is available, and we'd be happy to share it with you on our next visit.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you very kindly.

Has your priority for security changed during this recession period? In other words, have you moved your yardsticks on the availability of credit with respect to terms and conditions? The devil's in the details, and any loan application can have onerous terms that can't be met, rendering the credit unavailable. Are you easing the availability of credit, or is it just business as usual?

[Jean-René Halde]

The reaction of many financial institutions at a time like this is to tighten up credit terms and conditions. We have not done that. On the contrary, we are trying to go the other way as best we can, always remembering that we have to deal with creditworthy businesses. We will, for example, provide a holiday on capital repayment if we think the business is going through a tough time but has a good future, a good management team, and a good business model. We will actually release a company from repaying capital for up to six months. We're trying to go as far as we can and still be prudent bankers.