Reduced provision for credit losses contributes to $347 million profit
As Canada’s economy emerged from recession and the flow of private sector credit available to small business gradually improved, the Business Development Bank of Canada (BDC) continued to provide strong support to Canadian entrepreneurs.
In fiscal 2011, BDC clients accepted a total of $3.3 billion of financing. BDC also authorized $95.3 million in venture capital investments, $150 million in asset-backed securities and started 2,300 consulting mandates. Consolidated net income reached $346.7 million. This was reported in BDC’s annual report which contains its financial statements for the fiscal year ended March 31, 2011.
“Close to half of our profitability this year is attributable to the reduction of the amount of money we set aside for potential losses, which means that our clients’ financial positions have improved since last year,” said Jean-René Halde, BDC’s President and Chief Executive Officer. “We are delighted with what our profitability tells us about the rising financial health of our clients.”
Supporting entrepreneurs through a tentative economic recovery
This past year, the Canadian economy emerged from recession and began a slow, uneven recovery with modest growth. Entrepreneurs’ optimism about their firms’ prospects and business investments gained momentum, reflecting stronger financial positions and easing credit conditions.
However, while entrepreneurs were shifting their operational priorities from recession to recovery, they were worried about a lack of capital to finance day-to-day activities or longer term, strategic projects. BDC responded with the new Economic Recovery Loan, a pre-approved working capital loan for clients. More than 3,700 clients took advantage of the opportunity.
Lending activity returns to pre-recession levels
In fiscal 2010, deteriorated credit conditions had seen BDC lend more money to entrepreneurs than at any other time in its history. Similarly, as credit conditions improved, fiscal 2011 saw the dollar volume of BDC’s lending activities return to pre-recession levels. BDC clients accepted $3.3 billion in financing compared with $4.4 billion in 2010 and $2.9 billion in 2009.
“Private sector financial institutions now have more liquidity available for business financing, which is good news for Canadian entrepreneurs,” said Jean-René Halde. “This also means that BDC did fewer deals this year than last year, when the economic crisis was at its most severe. This is to be expected given our complementary mode of operation.”
Fiscal 2011 highlights
BDC reports on five business lines: Financing, Subordinate Financing, Venture Capital, Consulting and Securitization.
BDC Financing clients accepted $3.2 billion in new loans through 9,795 transactions. Income totalled $294.4 million in fiscal 2011, compared to $76.2 million in fiscal 2010. This significant increase was mainly due to lower provision for credit losses and higher net interest and fee income resulting from the growth of the portfolio. The closing portfolio, before allowance for credit losses, rose to $14.5 billion from $13.3 billion, an increase of $1.2 billion, or 9%, over 2010.
BDC Subordinate Financing clients accepted a total of $105.1 million in new financing, involving 97 transactions. Income totalled $11.1 million, $0.9 million higher than reported last year. BDC’s Subordinate Financing portfolio reached $250.4 million as at March 31, 2011.
BDC Venture Capital, with $60 million in direct investments and $35.3 million in fund investments authorized in fiscal 2011, was the most active venture capital investor in Canada according to reputed industry source Thomson Reuters. The recorded loss of $18.6 million was a $55.5 million improvement compared to loss recorded in 2010. The improvement was due to significantly lower net fair value depreciation of the portfolio and an important sale of one of BDC’s investee companies. In fiscal 2011, BDC did a comprehensive review of Canada’s venture capital industry and of its own operations to better understand how it can most effectively play its role. It has established a new strategic direction and business model that takes into account the industry’s challenges and strives to build on BDC’s role as an industry catalyst in helping meet them.
BDC Consulting started 2,300 consulting mandates in fiscal 2011 in order to help entrepreneurs become more competitive. Despite entrepreneurs’ general optimism about the future financial health of their business, they have been reluctant to buy consulting services or to start new projects. As a result, consulting revenues decreased by $3.5 million, compared to the 28.1 million recorded last year. BDC Consulting recorded a $10.4 million loss in fiscal 2011, $5.7 million higher than last year’s loss.
BDC Securitization authorized a total of $150 million in investments under the Multi Seller Platform for Small Originators (MSPSO), which is designed to expand financing options for small and medium-sized Canadian auto and equipment finance and leasing companies. BDC Securitization recorded an income of $70.2 million for its first complete year of operations. On March 31, 2011, the asset-backed securities portfolio was $3.1 billion, $0.2 billion less than at the close of fiscal 2010.
Remaining commercially viable
BDC is a profitable organization. It pays dividends to its sole shareholder, the Government of Canada. On June 30, 2011, a total of $50.1 million dividend was paid, mainly based on fiscal 2011 performance.
Canada’s business development bank, BDC, places entrepreneurs first. With more than 1,900 employees and more than 100 business centres across the country, BDC offers financing, subordinate financing, securitization, venture capital and consulting services to 29,000 small and medium sized companies. Their success is vital to Canada’s economic prosperity.
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