Canadian Banks See a Huge Increase in Bad Transportation Loans

Canadian Banks See a Huge Increase in Bad Transportation Loans

Canadian truckers are having a tough time making payments on their rigs due to rising fuel prices and falling freight rates, according to Reuters. This has led banks to write off tens of millions of dollars in bad loans. The big five Canadian banks—Bank of Montreal (BMO), Bank of Nova Scotia (BNS), RBC (RY), TD (TD), and CIBC (CM)—have nearly C$54 billion in transportation loans, which make up about 3.4% of all business loans. Still investors didn’t seem too concerned, as shares were little change in today’s trading.

Bank of Montreal has the most exposure with C$15 billion in transportation loans and C$305 million in impaired loans. To highlight the severity of the situation, BMO only had C$91 million in impaired transportation loans a year ago and C$230 million in the first quarter,

Truckers who bought new rigs during the early pandemic surge are now struggling as freight rates remain low. Only about 20% of those who entered the market then are still operating. Unfortunately, experts believe the trucking industry’s recovery will be slow and drawn out. As a result, given the high interest rates, banks are now more cautious with new borrowers in order to reduce the number of bad loans or simply not add to their existing ones.

What Is the Best Canadian Bank Stock to Buy?

Out of the aforementioned firms, Wall Street analysts believe that TD is the best Canadian bank stock to Buy. In fact, they expect the price to increase by 23.3% from current levels to C$91.54 per share, as pictured below. 

Canadian Banks See a Huge Increase in Bad Transportation Loans