Finance Committee on June 9th, 2020

[Julie Dzerowicz, Liberal, Davenport, ON]

Perfect. Thank you.

My next question is with regard to entrepreneurs.

You talked a bit about how, moving forward, you're going to continue to be sharing your market insights with government, which I think is going to be very appreciated and much needed.

Do you get a sense of how this whole pandemic, and how we move out of it, is going to change the way entrepreneurs do business moving forward? Have you started getting some sense of whether it's moving to digital, whether it's pivoting to different parts of their businesses or whether it's focusing? Do you have any insights that you might be able to share at this point?

[Michael Denham]

I think there are many, but the most important one that you referenced is the shift to digital.

What has become clear since mid-March for companies that never really had a digital presence and didn't think digitally is how relatively easy it is to stand up and enable a business through e-commerce. I may get some of these specifics wrong, but if you look at Canada, you'll see that something like 50% or 60% of Canadians do their buying online, but that something very low like only 5% or 6% of Canadian businesses have the means to effect transactions through e-commerce. Canada was actually behind where it should have been and where other countries were, going into the crisis. This has convinced us collectively of the need not only to catch up, but to go beyond.

I look at the conversations we're having now between our advisory services teams, in particular, and entrepreneurs. We're having orders of magnitude and more conversations on the need to digitize and to have an e-commerce capability than was the case. This is, I think, one of the good, lasting implications of what we're going through right now.

[Julie Dzerowicz, Liberal, Davenport, ON]

Is that support that you provide?

I ask because I talked to a lot of entrepreneurs and small businesses, and I'll tell you that there's an unevenness to how far along the role they are.

Is that a support that BDC actually offers at this time, or is that a need that has yet to be filled?

[Michael Denham]

We offer the support. Right now, we don't offer the support at the scale required, so it's something we're looking at.

[Julie Dzerowicz, Liberal, Davenport, ON]

That's great.

That pivots me to my next question. This is for the BDC. I want to get a sense from you, as you're moving forward, how the needs of entrepreneurs are changing in terms of the demands on you, and whether you have started looking at that.

You've talked about digital. Are there any other aspects that you're starting to see might be a need from BDC?

[Michael Denham]

I think you all know that we're going to have some ebbs and flows as the weeks and months progress.

Right now, because of the credit provided through the banks and because of some of the government measures like CEBA, as we speak, the global demand on us for loans is a lot lighter than it was. I think that will change over time as we recover and as the economy progresses.

We are beginning to see—and this is pronounced in BDC Capital, where Jérôme has responsibility—companies begin to look to make acquisitions. Asset values are low. Some companies have weathered the storm quite well. They will have either attractive share prices right now or money in the bank. Bit by bit, we're seeing more activity and interest around acquisitions, as companies look to try to consolidate their presence and possibly integrate either horizontally or vertically.

That's another theme that's emerging as we look at the demands on us right now, in addition to discussions around e-commerce and digital.

[The Chair, Liberal, Wayne Easter]

We're a little over, Julie. Do you have a quick supplementary question?

[Julie Dzerowicz, Liberal, Davenport, ON]

No, I think I'm good. Thank you, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Then we'll go to Mr. Ste-Marie and after that to Mr. Julian.

Gabriel.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Good afternoon, ladies and gentlemen.

Thank you for being here at the end of the afternoon to answer our questions.

We know that the Business Development Bank of Canada is a key partner for businesses. It's a business partner in just about every sector in normal times, and as you showed in your presentation, particularly during the crisis. I found it very interesting that you do random surveys of your members and non-members. You gave some figures that seem quite encouraging.

In your surveys, do you do a breakdown by economic sector or by industry?

If so, what conclusions do you draw from your analysis of these breakdowns?

[Michael Denham]

I don't have that breakdown in front of me. I'm looking at my colleague Karen to see if we have it.

Whatever type of breakdown we have in the data I will happily provide to the committee.

[The Chair, Liberal, Wayne Easter]

Does Karen want to come in? She's welcome to come in if she has a point.

[Michael Denham]

Karen, do you know?

[Karen Kastner, Vice-President, Partnerships and Government Relations, Business Development Bank of Canada]

Thank you, Mr. Chair.

I don't have that information on hand, but we will undertake to check to see if we can provide an industry breakdown.

[The Chair, Liberal, Wayne Easter]

Thank you.

[Michael Denham]

It's self-evident, as you know, that certain sectors, such as accommodation, travel, retail, restaurants and entertainment, have been hit incredibly hard. I'm sure when we get the data breakdown, you'll see that the level of concern from entrepreneurs in those sectors is significantly higher than that from entrepreneurs in other sectors.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

In my view, it would be very important for the government to monitor and map the economic sector by territory, company size and sector. I'm really interested in your surveys. If you could provide us with a snapshot of the information you have, we would appreciate it.

At the moment, we feel like we're sailing in the dark. The economy is picking up in certain sectors and regions. However, in order to properly modify emergency measures to support businesses during the crisis, we need this information and an understanding of how the situation is evolving.

According to the figures you gave in your presentation, there was a clear improvement between the months of March and May. We can expect a further improvement in June. In my opinion, it will be important to support the sectors that are considered sustainable and important for our economy, those that will need help and are slower to restart.

As you were saying, Mr. Denham, with regard to the tourism sector, restaurants, hotels, and so on, it will obviously be very important to ensure a follow-up.

You also mentioned in your presentation that you provide loans to businesses and that you have made a decision to increase your risk tolerance when financing businesses. Can you tell us more about that?

You may have some information with you that could be made public. Under normal circumstances, what is the percentage of funds invested that may not be repaid? When we talk about risk-taking, that's what we're talking about. What would be the difference between these levels of variation?

[Michael Denham]

We're what we call a responsible lender. We lend to companies that we deem creditworthy. As I said, we take four times the risk that traditional banks and private financial institutions do, so we're taking a lot of risk. However, we're very careful in our lending models and loss models to make sure that we are lending to companies we think will repay their obligations.

We're not in the business of lending to companies that we know in advance won't have the ability to repay. It's important to note this for a couple of reasons. First, as you would all know, it doesn't help a struggling company to burden itself with debt that it can't pay. That's in nobody's interest, so that's one thing that we try to avoid. Second—and this is important—we have a million dollars of capital to lend and we do what we think we're good at, which is to focus on the companies that represent some risk but can pay back the loan.

As for the way the modelling works, with this million dollars we have we can actually lend out $7 million. We get a lot more reach and a lot more support, and it's a lot more efficient. However, to overstate it a bit, if we do lend to companies that won't and can't pay back a loan, we're stuck lending only that million.

In terms of not burdening individual companies and getting as much reach out of this scarce capital that exists, it is very important for us to do our best, while taking a lot more risk than banks do, to make sure we are providing loans to companies that we think have the ability to repay us and that think they can too.

That was a long answer to your question, but I hope you found it useful.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Yes, thank you.

Does the BDC conduct analyses of the current situation taking into account the entire economy?

We're in a crisis with regard to supply management. Because of the health rules that have been imposed, companies have had to close their doors. Now they are gradually resuming their activities. However, we are also in a crisis as far as demand is concerned. I am concerned that, at this time, consumers may prefer to stay home and pay their debts rather than go out and spend. Have you analyzed this aspect?

Considering this item and the income support measures that have been introduced, is the multiplier effect as great as you would expect?

That's a broad question. I'd ask you to answer it in a few words, if you can.

[Michael Denham]

To your first point, we have a chief economist, a gentleman called Pierre Cléroux. He has been, because the economy has been in such flux, regularly analyzing the state of the economy, which is to both your points in terms of issues around demand as well as issues around supply. That's led to, again, particular focus on industries where both those factors are particularly challenging.

Again, in terms of the various support measures that have been taken, we haven't analyzed the efficiency of these measures. I can't comment on that, but what I can comment on is the fact that liquidity has been very important for the survival and the continuation of many, many companies. Again, we see that in terms of reduced demands on us for financing.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

[The Chair, Liberal, Wayne Easter]

We'll go to Mr. Julian, followed by Mr. Morantz.

Peter.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thanks very much to our witnesses for being here. We hope that your families are safe and healthy.

I have a series of questions, so I'll just put them right out. I hope to get responses.

We heard from EDC that, in the BCAP program, they currently had 400 applications that were in the process of being signed. I think you indicated, Mr. Denham, that there were 18 financial institutions with whom BDC has signed agreement around the BCAP.

Could you tell us the number of applications that are currently being considered, though we understand you can't tell us the number that have been approved?

[Michael Denham]

I'm going to give you an answer that is a bit long—let me just preface it with that—because the nature of the EDC product and what we do is quite different.

The way that co-lending works is that it is entirely with the banks to do the adjudication and the decisions. We've written the contract so that the expectation on the banks, what they signed up for, is to make sure that they use this credit enhancement for less, to make sure that they lend in a way that reflects the specific challenges and circumstances of COVID. We're asking them to get beyond their traditional risk appetite to level the risk.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Okay.