CFIB warns against bank mergers

Credit unions continued to be the favoured banking partner for small companies…The CFIB described the performance of the big banks as "troublesome," and insisted that none of the big banks has taken a leadership role in servicing small and medium-sized businesses, even though they publicly stress the importance of the sector, which accounts for an estimated 45 per cent of the country's gross domestic product.

The Globe and Mail
October 8, 2003

CFIB warns against bank mergers
Consolidation would 'exacerbate' already insufficient competition, report says
Sinclair Stewart

Canada's banks should not be allowed to merge because consolidation would only "exacerbate" the already insufficient competition in the industry, the Canadian Federation of Independent Business warned yesterday.

According to a survey conducted by the CFIB, the vast majority of small and medium-sized companies have seen no improvement in banking competition over the past few years, despite attempts by Ottawa to create a greater spectrum of choice for financial services.

The survey of 9,565 respondents also found that loan rejection rates for small businesses have jumped sharply during that period. Banks refused 16 per cent of all loan applications to these businesses in 2003, a dramatic rise from 10.5 per cent in 2000, when the CFIB issued its last report on the financial sector.

"The Canadian banking industry is setting itself up for a major shakeup," the report stated. "If bank shareholders' interests prevail and the major banks receive the green light to merge, the Canadian banking industry of the 21st century will be one characterized by less choice and competition for banking services and financing."

Credit unions continued to be the favoured banking partner for small companies. They finished atop the overall rankings for customer satisfaction, followed by HSBC Bank Canada and ATB Financial.

Canada's five largest banks, meanwhile, were relegated to the middle of the pack, led by Toronto-Dominion Bank and Bank of Nova Scotia, which tied for fourth place. Bank of Montreal was sixth, while Canadian Imperial Bank of Commerce slipped to a seventh-place tie with Royal Bank of Canada.

The two dominant financial players in Quebec, Mouvement Desjardins and National Bank of Canada, finished at the bottom of the rankings for the second consecutive report.

The CFIB described the performance of the big banks as "troublesome," and insisted that none of the big banks has taken a leadership role in servicing small and medium-sized businesses, even though they publicly stress the importance of the sector, which accounts for an estimated 45 per cent of the country's gross domestic product.

CIBC's market share of the small-business sector has dwindled to just 12.6 per cent, down from 13.3 per cent in 2000 and 19.3 per cent in 1989. RBC has also witnessed its market share erode over that span. The country's largest bank now commands 20 per cent of the industry, compared with 21.2 per cent in 2000, and 24.3 per cent in 1989. Scotiabank's market share climbed to 14.2 per cent this year, well up from 11.2 per cent three years ago.

Rob Paterson, senior vice-president of small business banking at CIBC, challenged the findings, and maintained that the bank's information shows it is gaining ground among small businesses. In the six months ended June 30, he said, the bank had the third-largest market share of small business customers. CIBC's share of companies with loans of $100,000 or less grew to 17.1 per cent from 15.7 per cent during the period.

"I think it's fair to say that we disagree with the CFIB's conclusions as they relate to CIBC," he said, adding that the bank has taken a number of steps to target small business borrowers and improve its services.

David Moorcroft, a spokesman with RBC, disputed the CFIB's contention that competition is lacking in the banking industry. He said the fact that large banks have ceded market share is evidence that other players are making inroads and increasing their support to small businesses.

But he acknowledged that RBC could be doing a better job. "We're not happy with our ranking," he said. "We wouldn't be happy unless we're number one."

A total of 69 per cent of businesses that responded to the survey said competition has remained flat over the past few years. The remainder were divided on whether competition levels have improved or deteriorated since the last survey was released.


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