Evidence of meeting #28 for Industry, Science and Technology in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was amendments.
A recording is available from Parliament.
President and Chief Executive Officer, Business Development Bank of Canada
It is correct. We are being asked to ensure that our return on equity is greater than our long-term cost of capital, which we've always done.
Conservative
Mike Wallace Conservative Burlington, ON
Are you ever in first position as a lender? How often are you in first position over a bank or credit union?
President and Chief Executive Officer, Business Development Bank of Canada
It's important to understand that we only do term lending, which is like project financing of a long-term nature on the lending side, which is the bulk of our activity. Every entrepreneur in this country deals with a bank in terms of operating line and chequing account, and so on. We are just there to do the term lending.
Conservative
Mike Wallace Conservative Burlington, ON
You are responsible for making a return. Your risk profile, which you talked about....You have a higher risk profile that you'll accept, but that doesn't mean you'll accept all risk. Is that not correct?
President and Chief Executive Officer, Business Development Bank of Canada
That is correct. We are a development bank, but we do expect to be repaid, so we will take a layer of risk higher than chartered banks, usually, but we will also price for risk which enables us, obviously, to end up with a positive number at the end of the year.
Conservative
Mike Wallace Conservative Burlington, ON
So the decision that has been made by government about the role of BDC, its legislation, is not your decision. It's been decided by the Parliament of Canada that you're a profit-making organization to return money to the taxpayer.
President and Chief Executive Officer, Business Development Bank of Canada
That is correct.
I'm not sure, candidly, if it was in the original BDC act of 1995 or it was a Treasury Board guideline issued at the same time. But certainly, since 1995, the thinking of the bank and the request of the shareholders—and I'm not sure in which piece of paper it was—is that in all cases we should earn a rate of equity greater than our cost of capital.
Conservative
Mike Wallace Conservative Burlington, ON
With respect to the issue in front of us today, which Ms. Bateman brought up, I want to be clear on something for my own understanding. The young entrepreneur organization does due diligence on who they'll lend to currently.
President and Chief Executive Officer, Business Development Bank of Canada
That's correct.
Conservative
Mike Wallace Conservative Burlington, ON
If they came to BDC currently, you would have to also do due diligence on whether to lend to that young entrepreneur.
Under the new system, the due diligence, or the bureaucracy required to get the cash, would be reduced somewhat, in that you are relying on the due diligence of the young entrepreneur organization. Because you've lent money directly to them, based on their due diligence they will turn over that money to the actual entrepreneur.
Is that correct?
November 6th, 2014 / 10:30 a.m.
President and Chief Executive Officer, Business Development Bank of Canada
That's exactly right.
What we're trying to do is eliminate one layer of paperwork. We will issue one loan to Futurpreneur Canada. They will then on-lend, and we will trust their due diligence. We will train them, if they have to be trained, to do it properly. Right now, as you say, there's a double effort that is unnecessary.
Conservative
Mike Wallace Conservative Burlington, ON
You are expected to have a return.
Have you worked out what your return will be from the young entrepreneurs organization?
President and Chief Executive Officer, Business Development Bank of Canada
We are expected to have a return, on average, over the whole portfolio.
At the present time the portfolio is about $19 billion. Young start-ups are a bit of a difficult environment to be in, so I don't expect much of a return on that particular part of the portfolio.
Conservative
Mike Wallace Conservative Burlington, ON
From the bank's perspective, this is an investment that you're making in youth. It may not return a huge amount to the taxpayer, but it will over time due to employment growth and manufacturing growth, growth in the business community in general.
President and Chief Executive Officer, Business Development Bank of Canada
That is exactly right.
These young entrepreneurs are building businesses that over the course of time will hopefully grow bigger businesses and will be good for the country. That's the reason we are focusing on helping young entrepreneurs.
Conservative
The Chair Conservative David Sweet
Thank you very much, Mr. Wallace.
I want to say thank you very much to our witnesses. I appreciate your testimony.
We're going to suspend before we go in camera for a short period of business. I'll ask everybody to say their goodbyes very quickly so that we can empty the room to go in camera.
We will suspended for three minutes.
[Proceedings continue in camera]