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37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Thursday, November 6, 2003

0910

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.))

Mr. Terry Campbell (Vice-President, Policy, Canadian Bankers Association)

0915

0920

The Chair

Mrs. Susan Kennedy-Loewen (Vice-President, Small Business Banking, Scotiabank; Canadian Bankers Association)

0925

The Chair

Mrs. Louise Mitchell (Vice-President, Business Markets, RBC Royal Bank; Canadian Bankers Association)

0930

Mr. Terry Campbell

The Chair

Mr. Nick Stitt (Vice-President, Small Business Banking, Toronto Dominion Bank; Canadian Bankers Association)

0935

The Chair

Mr. Robert Paterson (Senior Vice-President, Small Business Banking, CIBC; Canadian Bankers Association)

0940

The Chair

Mr. Pierre Dubreuil (Senior Vice-President, Greater Montreal and Southern Quebec, National Bank of Canada; Canadian Bankers Association)

0945

The Chair

Ms. Kathleen O'Neill (Executive Vice-President, Business Banking, and Head of Sales and Marketing, BMO Bank of Montreal; Canadian Bankers Association)

0950

The Chair

Mrs. Cheryl Gallant (Renfrew—Nipissing—Pembroke, Canadian Alliance)

Mr. Terry Campbell

Mrs. Cheryl Gallant

Mr. Terry Campbell

Mrs. Cheryl Gallant

Mr. Terry Campbell

Mrs. Cheryl Gallant

0955

Mr. Terry Campbell

Mr. Robert Paterson

The Chair

Mr. Larry Bagnell (Yukon, Lib.)

1000

Mr. Terry Campbell

Mr. Robert Paterson

Mr. Terry Campbell

Mrs. Susan Kennedy-Loewen

Mr. Larry Bagnell

Mr. Terry Campbell

1005

The Chair

Mr. Larry Bagnell

Mr. Terry Campbell

Ms. Kathleen O'Neill

The Chair

Mr. Terry Campbell

The Chair

Mr. Nick Stitt

The Chair

Mr. André Bachand (Richmond—Arthabaska, PC)

Mr. Terry Campbell

Mr. Pierre Dubreuil

1010

Mrs. Susan Kennedy-Loewen

Mr. André Bachand

Mr. Terry Campbell

Mrs. Louise Mitchell

M. Pierre Dubreuil

Mr. André Bachand

Ms. Kathleen O'Neill

1015

The Chair

Mrs. Susan Kennedy-Loewen

The Chair

Mr. Brent St. Denis (Algoma—Manitoulin, Lib.)

Mr. André Bachand

Mr. Brent St. Denis

The Chair

Mr. Brent St. Denis

The Chair

Mr. Brent St. Denis

The Chair

Mr. Brent St. Denis

1020

Mr. Terry Campbell

Ms. Kathleen O'Neill

Mr. Terry Campbell

Mrs. Susan Kennedy-Loewen

The Chair

Mr. Robert Paterson

The Chair

Mr. Brent St. Denis

The Chair

Mr. Nick Stitt

1025

The Chair

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance)

Mr. Terry Campbell

The Chair

Mr. Robert Paterson

Mr. James Rajotte

Mr. Robert Paterson

Ms. Kathleen O'Neill

The Chair

Mrs. Louise Mitchell

1030

Mr. Pierre Dubreuil

The Chair

Mr. James Rajotte

Mr. Terry Campbell

The Chair

Mr. Robert Paterson

Mrs. Susan Kennedy-Loewen

1035

The Chair

Mrs. Carolyn Parrish (Mississauga Centre, Lib.)

The Chair

Mrs. Carolyn Parrish

The Chair

Mrs. Carolyn Parrish

Mr. Terry Campbell

Mrs. Carolyn Parrish

The Chair

Mrs. Carolyn Parrish

The Chair

Mrs. Cheryl Gallant

Mr. Terry Campbell

1040

Mrs. Cheryl Gallant

Mr. Terry Campbell

Mrs. Cheryl Gallant

Mr. Terry Campbell

1045

The Chair

Mr. Nick Stitt

The Chair

Ms. Kathleen O'Neill

The Chair

Mr. Claude Duplain (Portneuf, Lib.)

Mrs. Louise Mitchell

1050

The Chair

Ms. Kathleen O'Neill

Mr. Robert Paterson

Mrs. Susan Kennedy-Loewen

The Chair

Mr. Claude Duplain

Mr. Terry Campbell

1055

Ms. Kathleen O'Neill

The Chair

Mrs. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.)

The Chair

1100

Mrs. Susan Kennedy-Loewen

The Chair

Mrs. Louise Mitchell

The Chair

Ms. Kathleen O'Neill

The Chair

CANADA

Standing Committee on Industry, Science and Technology

NUMBER 067

2nd SESSION

37th PARLIAMENT

EVIDENCE

Thursday, November 6, 2003

[Recorded by Electronic Apparatus]

¿ (0910)

[English]

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): Pursuant to Standing Order 108(2), a study of small and medium-sized enterprise bank lending, or SME financing, today we have with us members of the Canadian Bankers Association.

I'll introduce them all: Mr. Terry Campbell, vice-president, policy, Canadian Bankers Association; Susan Kennedy-Loewen, vice-president, small business banking, Scotiabank; Louise Mitchell, vice-president, business markets, RBC Royal Bank; Nick Stitt, vice-president, small business banking, Toronto-Dominion Bank; Robert Paterson, senior vice-president, small business banking, CIBC; Pierre Dubreuil, senior vice-president, greater Montreal and southern Quebec, National Bank of Canada; and Kathleen O'Neill, executive vice-president, business banking and head of sales and marketing, BMO Bank of Montreal.

I welcome you all here today.

Mr. Campbell, I understand you're going to be making the opening remarks. Then we're going to go to three or four minutes amongst the rest of the speakers. Mr. Campbell, would you begin?

Mr. Terry Campbell (Vice-President, Policy, Canadian Bankers Association): Thank you very much, Mr. Chairman.

On behalf of the members of the Canadian Bankers Association, I'd like to thank the committee for inviting the banking community to participate today in the discussion on SME financing.

You've met my colleagues. As the chairman said, I'll make a few introductory remarks on our observations about the state of competition in what is a very rapidly evolving SME marketplace. I'll then ask my friends and colleagues from the individual banks to provide a few short remarks about their individual perspectives.

To begin, let me say that Canada's banks compete actively and indeed quite aggressively with each other to gain and keep market share. That's true across the range of activities that banks are involved in, but it's particularly true of the SME marketplace. But as intense as that competition is, it's also important to note that individual banks compete with a very wide range of non-bank institutions, both regulated and unregulated, for the SME business. I'm going to touch on a few aspects of that competition this morning.

First let's look at the SME sector. We all know--and this committee knows for sure--the importance of SMEs to the Canadian economy. Over the past two decades, SMEs have created over three-quarters of all net new jobs. If we look at just the private sector, SMEs are responsible for all of the net new job creation since 1985. In addition, they have contributed an important degree of stability to the economy, and that's because small businesses have proved themselves to be particularly adept at creating jobs when the economy is otherwise performing poorly.

We all know we've had some challenging times since the year 2000, but economic activity in Canada has been sustained largely because the small business sector has been able to avoid the corporate downturn that has affected larger firms. By concentrating on services and by selling primarily to households, SMEs have been able to offset some of the slack in corporate spending. This important stabilization role has continued into the year 2003 despite the many shocks we've seen this year. Whether it's SARS, BSE, forest fires in British Columbia, Hurricane Juan in Nova Scotia, or the blackout in late August, the shocks have been unpredictable and they've demanded resourcefulness, flexibility, and patience on the part of all participants in the economy. In particular, we think this has demonstrated the importance of having a strong bank and small business relationship.

Throughout this period, Canada's banks have continued to support their customers by working with their clients on a case-by-case basis and not reacting precipitously to events beyond the control of businesses and beyond the control of management. We think and we hope that Canada's banks have helped enable their SME customers to successfully weather the uncertainties.

I'd like to spend just a very brief moment talking about competition, as I said up front. The benefits of competition to consumers, both to individuals and to small business consumers, are very well known: wide choice and access to high-quality products and services, all at competitive prices. As we reflect upon our own experiences in dealing with our small business clients and as we review the information from Statistics Canada and other third-party research and analysis organizations, our sense is that the financial sector is indeed highly competitive and, more importantly, going forward. The trend of that competition is to increase rather than diminish.

A measure of this is the number of new entrants into the marketplace. We've all seen a number of these new entrants, particularly from large foreign financial institutions. You were talking to the CFIB a couple of days ago, and I think they're seeing the same thing. Small businesses are increasingly using the services of institutions like ING, Capital One, GE Capital, Wells Fargo, MBNA, and Amex. I think this growth is all the more interesting given the fact that just a few short years ago, really, many of these institutions were not very well known or not even present in the Canadian marketplace.

As you know, while Canada's banks are important providers of debt financing to the SME sector, there's much more to this sector than just the big six banks and much more than just traditional debt financing. Indeed, Statistics Canada, when it surveys providers of financing, includes some 6,500 institutions with over $5 million in financial assets, all active in the provision of financing. Many of these, of course, are small. Many limit their activities, perhaps to individual sectors or areas of the country, but collectively these smaller firms provide close to $20 billion in financial capital for SMEs in Canada.

¿ (0915)

When we look at larger institutions, clearly the most well known are the 17 domestic banks. It's important to note, as I know the committee is aware, that as important as the domestic banks are, they really just represent under half of the approximately $150 billion in total credit authorizations to SMEs. There's a range of other important players as well, which collectively make up a larger market share than the domestic banks. That includes over 40 foreign-owned banks serving the Canadian market, more than 1,300 credit unions and caisses populaires, and some 100 independent finance companies. Fully one-quarter of total credit authorizations to SMEs was provided by finance companies and 18% came from credit unions and caisses populaires. That's just debt financing.

Let's look at lease financing. As you know, it's also a very important source of credit for small businesses and is sometimes more appropriate than debt financing. The SME marketplace, our SME customers, represents 60% of all the lease financing in Canada, the principal suppliers being finance companies, about 60%, and leasing companies, about 25%. I think the true extent of competition in the SME marketplace is even greater than that, because many of the providers are other than just financial institutions. For instance, 39% of SMEs use supplier credit--that is, credit from the suppliers of goods and services--in any given year. That total is quite a remarkable figure: $87 billion, representing one-fifth of the total liabilities of SMEs.

Talking about competition, strong competition and a wide-ranging choice of suppliers clearly lead to competitive pricing. The international evidence--and we've done some studies on this--indicates that Canadian SMEs are more likely to enjoy competitively priced products than are SMEs in other jurisdictions. For instance, one study, the recent World Economic Forum Global Competitiveness Report, found that loan spreads in Canada, that is, the spread between the deposit and loan rates, are lower than in most other countries they surveyed. In fact, according to this report, the spread in Canada is 100 basis points lower than it is in the U.S. or the U.K., almost 300 basis points less than Italy's, and more than 450 basis points lower than Germany's. I believe it's fair to say that businesses, whether big or small, are in fact reaping the benefits of efficiency and competition in Canada.

Today, Canadian SMEs are paying on average about 6% for loans. Larger SMEs will pay somewhat less for loans, about 5.3%, and smaller SMEs perhaps somewhat more, about 6.4%, but in all cases these loans are very low by historical standards.

The advantage in Canada is not just with respect to the price of loans. Canadian SMEs pay much lower fees than their American counterparts. For instance, a recent PricewaterhouseCoopers study found that Canadian retail service charges to small businesses were substantially lower than those in the United States.

Let's look at access to financing for a moment. According to surveys conducted by Statistics Canada, Canadian SMEs generally have ready access to financing when they need it, it seems to us. Now, only 18% of SMEs ask for debt financing in any given year, and of those, about 80% receive the amount requested.

Let's just turn that on its head for a moment. That means that 82% of SMEs do not seek financing in any given year. There's an interesting thing, though, about what Statistics Canada has found. When Statistics Canada asked SMEs why they did not seek financing, the vast majority, 86% in fact, said they don't seek financing because they do not need it. Another 5% indicated that they don't like to be in debt. The proportion indicating that they didn't seek financing because they expected to be rejected was minimal, quite frankly, at only 2%. The proportion indicating that they thought the cost of financing was too high was even lower, at 1.6%.

As we've discussed with members of this committee in the past, access to financing is but one of the issues facing small businesses today. Again, I know you spoke with the CFIB a few days ago. They ask their members what's on their minds. Access to financing is an issue, of course, but it ranks considerably down on the list, at number eight out of ten. It's surpassed by important issues that need to be considered: taxation, regulations and paper burden, government deficits across the country, a shortage of skilled labour, and more recently, concerns about insurance. We know from the CBA's seminar work with the small business community that 65% of small businesses are not aware of their obligations under the federal privacy legislation, which, as you know, is coming into effect in a scant two months' time, on January 1. It's important that we all collectively not lose sight of these other issues and how they impact businesses' ability to compete in the global market.

¿ (0920)

Just to conclude, on behalf of my friends and colleagues, I'd like to thank the committee very much for the opportunity to share with you our views on competition. At the same time, I don't want to leave you with the impression that we think the job is done, that there aren't important public policy matters that need to be addressed. We think there are. For instance, virtually all studies that are out there conclude that SMEs need better access to early-stage equity financing. That's an issue that has to be dealt with.

Mr. Chairman, what I'd like to do, if you don't mind, is turn to my colleagues for some brief remarks based on their own perspectives. With your permission, I'll ask Susan Kennedy-Loewen of the Bank of Nova Scotia to lead off.

The Chair: Please do so.

Mrs. Susan Kennedy-Loewen (Vice-President, Small Business Banking, Scotiabank; Canadian Bankers Association): Good morning, Mr. Chair and members of the committee.

My name is Susan Kennedy-Loewen. I am vice-president of small business banking with the Bank of Nova Scotia. It is my pleasure to be here today to speak to you about some of the things that Scotiabank is doing for small business, medium business, professionals, and entrepreneurs and to answer any questions you may have.

At Scotiabank we have an estimated 295,000 small and medium-sized businesses. Approximately 92% of those are small business customers.

In targeting the small business sector, Scotiabank has authorized loans of over $5 billion, almost $.75 billion more than the last time we appeared before the committee.

The past year has been challenging for the small business sector. As a major player in both the tourism and agrifood sectors, small businesses have felt the impact from the fallout of SARS, BSE, and the subsequent string of natural disasters that have occurred, the fires and flooding in B.C. and Hurricane Juan in the Maritimes. Through these challenges we've stood by our customers, working with them to develop solutions that are personalized for them.

There are still a number of factors that are squeezing the firms' margins, such as rising costs and limited availability of insurance.

The resilient outlook that has characterized small business over the past few years has resurfaced. A recent survey indicates that almost 30% of small business owners plan to expand their full-time payrolls in the next 12-month period.

At Scotiabank we're committed to helping small business in Canada. We want them to harness that optimism and the energy they have. That's why we've created a small business banking model that is customer-centric. It's focused on the two commodities that small business owners have, their time and their money, and they never have enough of either. We know that for small business there is a need to balance both.

When we last appeared before you, the members of the committee expressed concerns over high rates of interest being paid by the small business owners who were using credit cards to help finance their businesses. In recognition of the convenience of credit cards, we have responded by tailoring products that are specific to the needs of small business and address the high rates of interest.

Our ScotiaLine for business Visa card is a prime-based credit card with a 26-day grace period. It saves our small business owners both time and money and also provides good options for them, such as insurance for their purchases. Nearly 40% of our ScotiaLine for business Visa cards are at a rate of prime plus 2% or less, that is, our prime of 4.5% to 6%. The card also provides clients with clear transaction records and simple accounting.

As I mentioned earlier, rising interest premiums are an enormous concern for small business. While the rising insurance premium is beyond our control, and I understand it is something you are considering looking into, we do want to offer our customers options on how to deal with those unexpected operating expenses.

As such, we have started a pilot in British Columbia and in Quebec and are working with other provincial insurance broker associations to offer a prime-based insurance premium financing that provides small business owners with the flexibility to spread their payments over the course of a year. That will eliminate the pressure of upcoming lump sum payments annually.

We also recognize that banking is not just about borrowing. In fact, 80% of small business owners do not borrow. Rather, they look to their bank for effective solutions to balance both sides of the balance sheet. That's why we introduced this year Scotiabank's money master for business, a small business account that pays the highest rate of interest among the major five banks, right from the very first dollar saved. And there's no need to have a certain limit or maintain a certain balance. The interest grows daily and it's paid monthly. It's just another way we're working to help the small business community save time and money.

At Scotiabank we're proud of the relationships that we build with our small business customers. We have more than 1,600 small business champions in our 1,000 branches across the country. We're focusing on developing personal relationships in those communities that we serve.

Over the past two years I've participated in some 30 small business town hall sessions across the country. These sessions are the opportunity for small business people to get first-hand information from our senior economists and banking experts. They provide me with an opportunity to listen directly to the small business customers to find out what's keeping them up at night with respect to their financial service provider.

¿ (0925)

We also regularly solicit feedback and input from national business groups like the Retail Council of Canada and the Canadian Federation of Independent Business, who I understand spoke with you earlier this week.

By working with small business people and trade organizations, we're better able to address the needs of our customers. While we're very proud of the work we're doing, there are a number of areas that we still want to improve, that we need to continue to improve, and in which we're committed to making those improvements.

As an example, I'm currently working with a national small business group of women who are looking for ways to identify how we can better serve the needs of their members. In September I participated in Secretary of State Mitchell's round table on access to capital in rural Canada. Both areas have enormous opportunity.

Over the past two years we have introduced a number of highly successful small business products. We have focused on strengthening our relationships with our customers and providing small businesses with the services they need.

While it's fine for me to sit here and tell you that I think we're doing a good job, it's the small business customers who have to speak for themselves. In the last year alone we have increased our market share in small business loans outstanding, as compared to the seven major banks, by over 1%. It's the fourth year in a row that Scotiabank has been voted number one by our customers for customer service satisfaction. We're committed to our customers and it's showing.

In summary, Scotiabank is committed to serving the small businesses across Canada. We believe in the strength, vitality, and ingenuity of Canada's small business sector. We will continue to work with small business owners to develop simple, easy-to-use products and services that meet the needs of the small and medium business clients. We look forward to focusing on their business, not on the bank.

The Chair: Mrs. Mitchell.

Mrs. Louise Mitchell (Vice-President, Business Markets, RBC Royal Bank; Canadian Bankers Association): Good morning, Mr. Chair and members of the committee. On behalf of RBC Financial Group, I would like to thank you for giving me the opportunity to speak with you today.

My name is Louise Mitchell and I'm vice-president of business markets for RBC Royal Bank. I've been with the Royal Bank for nearly 20 years, with the majority of my career working in the small business area, including areas working directly with clients as an account manager.

I'd like to take a minute to talk to you about RBC's track record in how the small business marketplace is changing. While RBC is the market leader within the banking industry, serving over 20% of all Canadian small businesses, over the past few years we've had to work very hard to maintain this position. This is because the market is becoming very competitive as many traditional and niche players are actively pursuing this very attractive group of customers.

In order to better serve our customers we've learned the following things. First and foremost, we are a people business. To that end, we have over 1,200 account managers across the country serving this very special market. Because not all of our customers are the same, we have specialized in areas where customers have unique common needs.

By specializing, we've been able to deliver tailored advice, programs, and networks to our customers, helping them be more successful. Some of these areas of specialization include agriculture, knowledge-based industries, women entrepreneurs, young entrepreneurs, franchising, and aboriginals. By focusing on the unique needs of these customers, we've been rewarded with the lead market position in the majority of these areas.

Understanding our customers is key to our success. That also means we're able to better support them in good and challenging times. A good example of this would be the most recent BSE situation. Because the majority of our account managers are in fact professional agrologists, we've been able to work with our clients to help them explore options and tide them through this difficult period.

At RBC we spend a lot of time and resources every year trying to better understand the needs of our customers in the small business market. This is done through research both from our front-line staff and directly from feedback from our customers and the marketplace.

Customers have told us they don't only want us to provide banking solutions but they want us to use our size and our brand to bring value and resources to them. We think a key to our success is the ability to partner on initiatives with both the government and private industry.

Examples of successful collaboration include programs such as Community Futures in Quebec, where we've been able to help rural women establish their first credit rating and start businesses; and a joint initiative with the Business Development Corporation delivering a training program specially tailored for women entrepreneurs.

In the private sector we've worked with a number of corporations to bring resources, financing, and support to young entrepreneurs through the Canadian Youth Business Foundation.

This year, along with Queen's University and Canadian Manufacturers and Exporters, we conducted a study entitled Managing for Growth--Enabling Sustainable Success in Canadian SMEs to find out why more Canadian businesses do not grow into larger firms. We'll be working with Canadian Manufacturers and Exporters to look at how we can help Canadian manufacturing firms grow and be more successful.

Mr. Chair, as you can see, small business is very important to RBC. We believe that our people-based approach focusing on unique client needs, listening to our customers, and partnering to deliver value has led to our leadership position. We will continue to look for ways to improve and increase our presence with this important segment of the Canadian economy.

I thank you for your attention and will be pleased to take any questions when the presentations are concluded.

¿ (0930)

Mr. Terry Campbell: Mr. Chair, we should turn to Nick Stitt.

The Chair: Mr. Stitt, please.

Mr. Nick Stitt (Vice-President, Small Business Banking, Toronto Dominion Bank; Canadian Bankers Association): Mr. Chair and members of the committee, my name is Nick Stitt. I am the vice-president of small business banking at TD Canada Trust.

TD Canada Trust is proud of the strong relationships we have built with our 540,000 small business customers and the progress we have made in serving their banking needs better. I appreciate this opportunity to appear before you today to share with you some information on our activities.

Small business banking has been identified as one of several growth opportunities for TD Bank Financial Group. We have set a course with what we believe are fairly challenging goals. In determining our course, we first did extensive research to find out what small business customers wanted from their bank. The two key drivers that were clearly apparent were easy access to banking services, and quick and error-free service.

First, I would like to talk about access. Because branch banking is so important to small business customers and small businesses are located throughout Canada, we decided to offer small business banking in every one of our thousand branches. This is no easy feat, because it means offering a consistent level of service and expertise to a group of customers that represent about 8% of our total retail banking population. It has required a much greater investment in training branch staff and improving our branch systems. It has also meant that we have had to come up with new ways of delivering some specialized services required by some small business customers, for example, cash management services.

Small business owners are typically very busy people who work long hours. They can take advantage of our longer branch hours, which means they can do any transaction at any branch regardless of where their account is.

TD Canada Trust branch hours per week are on average 49, which is 11 hours more than our closest major competitor, and if our customers still can't get to the bank on time, we have made a significant investment in improved web banking services for small business customers where they have 24/7 access. Even though branches remain important to small business customers, over 50% of our small business customers now have access to web and phone banking as well.

The other key customer requirement is quick and error-free service. In the past two years we have increased the number of dedicated business service wickets in branches by 100% and we now have these in about 50% of our branches. We have also made numerous process improvements and are making major investments into a complete rebuild of our account opening system and our credit system to make things quicker and easier for our small business customers.

So how do we know if we're making progress? For service, we survey our customers monthly to measure their satisfaction levels on a number of key attributes that they told us were most important to them.

We're still not where we want to be, but our scores are good and have improved 11 percentage points in the past two years. From a growth perspective, we look at volumes and a number of market share stats. As you know, there are only two ways to grow. You can grow with market through new business formations, or you can attract customers from your competition.

Credit has typically been the most effective way of attracting new customers, other than the ones who just walk into your branch. In order to acquire new small business customers we have been very active in offering credit. For example, since November 2001, when we last appeared here, we have made over 500,000 direct mail credit offers to Canadian small businesses and conducted several direct response advertising campaigns, all of which generated total new credit authorizations of almost $200 million. In addition to this, we continue to be an active participant in the CSBFA program and have participated in a number of other government-sponsored programs. As a result, we have increased our market share of credit since our last appearance by 1.2 percentage points.

Throughout the ups and downs for small businesses in the past couple of years, we have maintained a consistent approach to both credit underwriting and credit management. I think this is well reflected in both our approval rates for new and existing customers, which have remained relatively stable, and our growth in new customers.

As I said earlier, we have set an ambitious course to grow small business banking at TD Canada Trust. I believe we're making good progress in serving our small business customers better and that we are well prepared to support small businesses in Canada as they lead our economy to stronger growth in the coming year.

Thank you very much.

¿ (0935)

The Chair: Thank you.

I understand that Mr. Paterson is next.

Mr. Robert Paterson (Senior Vice-President, Small Business Banking, CIBC; Canadian Bankers Association): Thank you, Mr. Chair.

Let me begin by thanking you and members of your committee for inviting us here today.

CIBC recognizes that the Canadian small business sector is on a solid path of expansion and that small business is a huge growth area for Canada. The number of small business owners in Canada is projected to grow. CIBC expects that one in five Canadians will be self-employed by the end of this decade. The factors contributing to small business growth include demographic forces, the increased tendency for immigrants to be self-employed, and the role of technology in driving the transition from boardrooms to basements.

The growth can also be partly attributed to more corporate downsizing and a greater tendency for companies to outsource non-core functions to external providers. A recent CIBC survey conducted by Decima found that downsized employees account for more than 20% of small business owners. The survey also found that almost 50% of small businesses received outsourced or subcontract work from other companies.

In addition to a rise in self-employment among Canadians over the age of 55 as a result of downsizing, CIBC's March 2003 small business economic report noted that self-employment is rising among very young Canadians aged 15 to 24. New graduates from high school and university are turning to self-employment in part as an alternative to the difficulty of finding high-quality paid jobs.

CIBC is committed to helping these Canadian small businesses thrive. We consistently monitor their key needs and issues, both through industry surveys and telephone polls. By understanding the unique challenges of our small business customers, we are able to continually refine our products and services to deliver even greater value for our customers. We are also able to function as a more effective partner with our small business customers and contribute directly to their business success.

While small businesses want their issues to be heard and their challenges to be acknowledged, they also want to see action from their financial service provider. CIBC is making progress in addressing the two biggest issues in small business banking: access to capital and account manager turnover. We know we have more to do, but we are starting to get there.

To improve access to capital, CIBC has streamlined and simplified our credit application process. Entrepreneurs now have access to fast and simple loans and lines of credit for amounts up to $100,000, usually with instant decisioning. In addition, the new credit process does not require business plans or detailed financial statements.

CIBC has also introduced a simpler business account opening process, straightforward fee packages, and access to online and telephone banking at no additional charge.

CIBC also appreciates the challenges that many small business owners are facing when applying for a mortgage. With the growth in micro-businesses and home offices, we felt a strong need to react and design a mortgage product that is entrepreneurial friendly. That's why CIBC launched a special mortgage product for self-employed people, which features a no-hassle approval process, with often no proof of income required.

Micro-businesses, those with less than five employees, are the most dynamic segment of the Canadian small business sector. Micro-businesses comprise 80% of small businesses in Canada and approximately one in five Canadian households has a member who operates some form of home-based micro-business.

We are making it easier for these entrepreneurs to get started. CIBC offers credit up to $30,000 for business less than two years old, with no business plan or financial statements required. This is not only the right thing to do; it makes good business sense.

The second major issue in small business banking is account manager turnover, especially in urban markets. CIBC has a business advisory team approach in place. This means that more than one business adviser is required to be familiar at all times with each small business customer and his or her unique business banking requirements. Our approach provides small business customers with the continuity they require in their banking relationship.

CIBC is also making concerted efforts to improve our service levels on an ongoing basis. To do this, we recently introduced national service standards, a set of foundational standards intended to enhance the customer experience in small business banking. We also have a problem resolution put in place, as well as a complaint handling kit, to support staff in their efforts to provide a consistent high level of service when addressing customer concerns.

CIBC is committed to being the number one bank for Canadian small businesses, and we're going to get there by listening to the needs of our customers, enhancing and simplifying our processes so that our customers can do business with us as quickly and easily as possible, and transforming our customers' requirements into market-leading products that are easy to understand, easy to buy, and easy to use.

Although we have made progress, Canadian small businesses want more from their bank. At CIBC, we are committed to the small business marketplace. As the needs of entrepreneurs change, CIBC will adapt to meet those challenges.

¿ (0940)

I hope my brief remarks have brought you up to date. I look forward to any questions you might have.

The Chair: Thank you very much.

Mr. Dubreuil.

Mr. Pierre Dubreuil (Senior Vice-President, Greater Montreal and Southern Quebec, National Bank of Canada; Canadian Bankers Association): Good morning, Mr. Chair.

On hearing my colleague speak, I realize that National Bank is in quite a different situation because of our regional concentration. We are recognized in Quebec as a small and medium-sized bank and have been recognized as such for a number of years. We estimate our market share to be currently at about 40% of all the SME loans in Quebec, probably the same as our competitor, Desjardins.

The survival of National Bank rests mostly on our success and our strategy to generate more business in small and medium-sized loans in Quebec. We have put in place a decentralized structure with regional vice-presidents. We have about 550 account managers covering every area of Quebec. We have put in place various specialized teams to cover specific areas where requirements are specific, such as agriculture, forest products, technology, etc. We have set up dedicated treasury teams that are spread across the province, while improving our offer of products other than loans and deposits.

We also have diversified our product offering to include flexibility in response to market demand. We've set up, for example, mezzanine financing. In cases of mergers and acquisitions, we have delayed payment options, electronic payment solutions, etc.

This year was the tenth anniversary for the SME recognition program in Quebec. We have set advisory committees to recognize the importance of SMEs. They are consulted before we launch strategies and new products.

The challenges they're facing are slow economic growth, the rising Canadian dollar, low capital investments, and general uncertainties such as SARS, etc. We've been working with them to provide intelligent solutions and to provide them with relief when there's a need for that.

The challenges for National Bank are to improve the quality of our service--you've heard about turnaround for account managers--through better processes, qualified people, and better technology. We're also striving to expand our product offering, especially in terms of risk management tools, distance banking, ancillary products, etc.

I want to stress that National Bank has set aggressive growth targets for SME business in Quebec. As I mentioned before, survival basically depends on that. We are quite sure we will be successful in achieving that.

I thank you for your time and attention.

¿ (0945)

The Chair: Thank you very much.

Ms. O'Neill from the Bank of Montreal is next.

Ms. Kathleen O'Neill (Executive Vice-President, Business Banking, and Head of Sales and Marketing, BMO Bank of Montreal; Canadian Bankers Association): Thank you very much for the opportunity to speak with you today, Mr. Chair. I'm very pleased to be here on behalf of the BMO Financial Group. I also would like to extend my thanks to members of the committee who are here today.

You should have received from us earlier this year three research reports about the small business sector, and for your information, we've also brought some today. We've also included in your packages today our business banking coach series as part of our ongoing effort to work with our customers to educate them on their banking needs and to work with them to understand their needs.

We as Canadians care deeply about this sector because small business is the engine of growth in this economy. Over the last 20 years, SMEs have accounted for 78% of all net new jobs created in Canada, so this is a fundamental area of the economy that we all collectively are interested in growing with.

Over the last two years, since the last time we appeared before this committee, the business climate, as we know, has been extraordinarily challenging for everybody, but in particular for small businesses.

What has not changed over this period is our commitment as a bank to stand by our customers in good times and in bad. Our philosophy is that we develop a relationship with our customers. We have a longer time horizon and a better sense of what the ups and downs of a business cycle mean for our customers. We have seen evidence of the challenges over the last couple of years.

We have business bankers in place in every major community from coast to coast, with very little turnover in our business advisers. They are authorized to make all the decisions small business owners need and expect, and should expect, from their banker. It does not need to be sent up the line. Our managers can provide approvals for up to $3 million within hours, and nearly two-thirds on the spot. It is important to always be close to your community.

We believe in customizing our approach to our customers' needs, because not all SMEs are the same. They are all actually quite different. We take the time to get to know our customer's business in depth. Applying this approach, we have built and continue to build special programs designed to assist this segment. Many of these programs allow us to provide more non-traditional financing and to recognize in small businesses the intrinsic value that is often not reflected on their balance sheet.

The programs that we have are quite varied and include franchising programs and programs for insurance brokers, accountants, dairy farmers, poultry producers, financial planners, and funeral home operators, to name a few. We try to reflect what Main Street is interested in.

Similarly, when our customers are faced with crises, we respond again with programs tailored to their needs, such as the SARS assistance program, drought relief, and most recently, both BSE and hurricane relief on the east coast.

This explains, in part, why we continue to have such tremendous success growing our business with the SME sector, but it also reflects the commitment of our organization, from our chairman right through the whole organization.

When Tony Comper, our chairman and CEO, appeared before the House of Commons finance committee earlier this year, he made the following observation, and I think it tells us all about what we believe is critically important for the success of our business customers. He said: “By consistently keeping the credit tap on through bad times as well as good, we have more than doubled our small business lending market share since the recession of the early Nineties.”

While the BMO Financial Group may be Canada's fourth bank in size overall, we are in the number two spot in the SME market, a market that is fiercely competitive and fiercely contested, and our pace of growth has well exceeded our competitors.

In short, I believe strongly that small and mid-sized businesses in Canada are being well served by BMO Financial Group. By building and developing a reliable relationship with our customers, our bankers can provide advice to our customers, both in good times and in bad.

Mr. Chairman, I, along with my competitors, look forward to answering your questions.

¿ (0950)

The Chair: Thank you very much. I will go to questioning for about seven minutes each, to start.

Ms. Gallant will lead off, for seven minutes.

Mrs. Cheryl Gallant (Renfrew—Nipissing—Pembroke, Canadian Alliance): Thank you, Mr. Chairman.

I would like to begin by thanking CIBC for taking the position and allowing our veterans in Canada to have poppies sold in their institutions. I am speaking on behalf of all veterans and Canadians, for that matter, when I say that we really appreciate that.

It is my understanding--and please correct me right away if I'm wrong--that in addition to Canadian chartered banks, you also represent foreign banks?

Mr. Terry Campbell: That's correct.

Mrs. Cheryl Gallant: Okay. Now, in the smaller areas outside Toronto and Calgary, small and medium-sized businesses find it very difficult to access these particular institutions. What are the challenges that these institutions are facing in getting to the people who would like to have access to the products and services they provide?

Mr. Terry Campbell: Are you talking about the smaller foreign institutions that I mentioned?

Mrs. Cheryl Gallant: Yes.

Mr. Terry Campbell: By way of answering your question, what I would say is that if you look at the array of providers out there, domestic banks, foreign banks, as well as others, you're going to get an array of sizes, specializations, and emphasis on an array of delivery channels. In other words, one size and one approach doesn't fit all. There are different niches you can target and different approaches you can adopt.

A number of the institutions, which I listed in my opening remarks, that have increasingly made a presence in the Canadian marketplace have chosen particular business models. They've chosen particular delivery systems. Whether it's online, whether it's a mail approach, or whether it's over the telephone, that's their business model. They're serving a particular niche. Now, other institutions may choose to go in a different direction.

I also believe that the CFIB, in its remarks or its studies, saw as well that regarding foreign institutions, not only are there more new entrants in the marketplace, but they are growing market share. So I think they are responding to a need.

Mrs. Cheryl Gallant: There seems to be some serious disconnect between the statistics you quoted from Stats Canada and those we received from the Canadian Federation of Independent Business. For example, everyone here has claimed that they are serving the SMEs very well, yet we hear from CFIB--and I must say, in my constituency I hear the same thing--that 59% of business owners are not satisfied with the banking services they receive.

With that in mind, and knowing and acknowledging that bank loan applications have been decreasing over time, I would suggest that perhaps it's not totally because there's not a need for them. The complaint we get overwhelmingly is that businesses cannot expand because they do not have the access to capital. One reason they haven't been going to the banks is that the loan amounts they are applying for are a fraction of what is demanded in terms of collateral. The amounts are just disproportionately larger. I know the excuse is that the assets might not sell for 100¢ on the dollar, but a 10-to-1 ratio, collateral to loan, that's still way out of line.

SMEs are literally unable to obtain commercial mortgages through chartered banks. People have to mortgage their homes and use that equity to put into their business. So again, this is a serious failure on the part of the chartered banks. It reflects not at all on the success of the businesses that would like to acquire more commercial property.

I'd like you to comment on that.

¿ (0955)

Mr. Terry Campbell: I think I'll look to some of my colleagues here, but I'll just make a couple of introductory comments. I know Rob Paterson from CIBC would like to make a few remarks, and perhaps others.

As we look at the statistics out there and the array of data, commenting first, I guess, on the CFIB material, I think it's useful material to get a sense of what's on the minds of small businesses and what issues are topical in a directional sense.

However, I guess the caution we would have, and it's a caution I would share with the committee, is that the CFIB's membership is a small subset of the whole of the SME marketplace. While their surveys are useful to give a sense of direction and what's on people's minds, in terms of the process in that it's a mail-in survey and they rely on those who simply mail back, it is kind of a self-selecting approach. It's useful as an indicator, but it's a caution that I would share about using that to form very hard and specific and precise measures of market share.

Statistics Canada, in our view, is a highly respected organization. It has a very rigorous survey methodology. The value of it is that it surveys the whole of the SME marketplace, the whole range of providers, to try to get the big picture. I take your point that there are different views out there, but we've tended to look to Statistics Canada because it has worked very hard to put its program in place, and it is working even harder to make it more complete.

With those comments, Rob, would you like to add a few comments?

Mr. Robert Paterson: Sure.

One of the things I can touch on from a CIBC perspective is how much lending has changed in a relatively short time period, and I'm going to the last nine months, again from a CIBC perspective. The majority of the lending needs of the market are less than $100,000. About 70% of all lending applications in the industry are in that range.

We've introduced our instant credit decision up to $100,000, which only requires a personal guarantee. It does not require any hard security, pledging of assets, or leveraging of the cashflow of the business.

We've also introduced a start-up financing product. For a lot of those home-based businesses, the ability to now get--and again, only a personal guarantee, no hard security taken and no pledge of any assets--up to $30,000 to build that home office, buy the computer or the initial inventory....

You mentioned the commercial mortgage marketplace. There really hasn't been a lot in the $250,000 to $1 million range, which is where there has been a lot of demand. This year we've introduced products specifically for the $250,000 to $1 million range. Again, because it is a very competitive market, we are trying to drastically re-engineer our lending products to make them easier and more accessible without detailed financial statements and without businesses having to pledge a lot of hard security to access them.

Those are a lot of the changes. We actually did sit down with CFIB and Catherine Swift to talk specifically about the fact that while we're seeing market share gains as a result of these innovations, their study indicated that there still might be a strong view on this.The debate kind of centred on the fact that, you know what, a lot of the individuals could have been borrowing in previous years.

So there has been a significant move this year to make it easier, again because of the high growth rates that we're seeing in the small business marketplace. CIBC wants to be the number one bank, so that's why we've done a lot of the things.

The Chair: Thank you very much, Mrs. Gallant. We'll be back.

Mr. Bagnell.

Mr. Larry Bagnell (Yukon, Lib.): Thank you all for coming. I'm one of the biggest supporters of the chartered banks. I think they're generally great. I'd like to congratulate you on having so many women vice-presidents. I do not think that would have been the case 20 years ago.

I'm surprised that in all the consulting you've done, no one has mentioned the biggest problem that small business has brought up, which is insurance. But I'm very happy that BMO is talking about its various crisis funds.

You don't have to comment on this now, but I would like you to consider standard accounts, both for businesses and even non-businesses--that we might legislate an identical account that every bank has to have, because how they would compare among banks is so confusing to the consumer. However, that's not my question. My question relates to tourism.

We had a number of operators, and I believe it was the Commerce Bank and several others, although I don't know who the other ones are--it may be all of them--who basically told their customers that they were getting out of tourism because it was not a prime sector and that they really couldn't afford it.

In at least two jurisdictions in Canada, Yukon and P.E.I, it's the number one or second part of the economy. We just can't afford the basis of our banking system to just eliminate sectors like that. We have to have a provision for financing all sectors in our economy.

Perhaps people would like to comment on that.

À (1000)

Mr. Terry Campbell: I will look to my colleagues.

Mr. Robert Paterson: I will just speak to the CIBC reference. I think it was in there.

By no means are we getting out of the tourism industry. In fact, one of our recent studies pointed out that tourism had been very hard hit by things like SARS, the blackouts, and the problems in the Atlantic with Hurricane Juan. We've been working very aggressively with all of our clients, including tourism clients, to make sure their impact is minimized by looking at ways to restructure lending and deal with any of the needs they have.

So by no means are we looking at getting out of that industry at all.

Mr. Terry Campbell: Are there other banks that would like to comment?

Mrs. Susan Kennedy-Loewen: I want to say two things.

First I would like to mention that one of the things we're working on at Scotiabank is removing that persona around high-risk industries. Because with the perspective of all industries, there are good businesses regardless of what's happening in the economy or what's happening to a specific industry.

So focusing in on a specific business, what it's doing and how it's doing it, is more important than focusing on any one specific industry and saying you're in or out of it. We clearly have taken a position that we want to be in all industries in Canada, because there are success stories and great value in all of those areas.

It's also important that we understand the ancillary effects that occur when you have tourism. It's not just the tourism industry that is impacted; it's all of the industries that it deals with that would be impacted by what's happening with them.

Second, on the insurance front, we are specifically designing and piloting a program right now to help small businesses smooth their cashflow. We know that small businesses are faced with the high cost of insurance, plus the fact that they have to pay it once a year in a lump sum. Both of those things can be very challenging to businesses, whether they're in tourism or have seasonal incomes that may not match to the timing of their expenses. So we're working specifically on programs that move forward in that area.

Mr. Larry Bagnell: It's good that the banks are self-regulating, but the Federation of Independent Business again gave examples of where they were having trouble with compliance. My colleagues might be able to help with the details. I think you work with them. Are you taking steps to ensure the compliance that was not being followed is now going to be followed?

Mr. Terry Campbell: In terms of compliance, there are a couple of things. First of all, there are self-regulatory codes and there's quite an extensive Bank Act. We take compliance very, very seriously. It's the environment we live in. We're a very heavily regulated industry, and that's appropriate. It's the environment we live in.

The point I would like to make is that there are complaints; it's a very huge industry and there are bound to be complaints. To the extent that there are complaints, it's very important to bear in mind that there are two or three systems that everyone--small businesses, retail customers--is encouraged to avail themselves of.

Every bank has a very efficient, effective free ombudsman system, a complaint redress system. The bulk of the complaints are addressed through that system. To the extent that they are not, there is an industry-wide organization, and it's independent. It's got an independent board. It is the Canadian banking ombudsman, which is now called the Ombudsman for Banking Services and Investments. Again, it is there to deal with these issues.

In addition, the government has put in place over the last few years a regulatory body that is dedicated to dealing with complaints and regulatory compliance issues that may come up. The Financial Consumer Agency of Canada is a new agency, but it's there. We do take our compliance role very seriously. It also comes down to the fact that we don't want to upset customers. We don't want unhappy customers. We want to work with them. They're our business. But to the extent that there are problems, there are these avenues that we really encourage people to use.

À (1005)

The Chair: One more question, Mr. Bagnell.

Mr. Larry Bagnell: Cheryl and I have experienced this, and the Federation of Independent Business basically described two worlds for bank accessibility to capital. One is the rural areas and one is the urban areas. In the urban areas there's good access to a lot of services. What are you doing to help improve access in the rural areas that are having problems getting access to capital?

Mr. Terry Campbell: I'll turn to my colleague Kathleen O'Neill.

Ms. Kathleen O'Neill: At BMO Bank of Montreal we recognized some of the challenges that our customers face when they're outside urban centres. We do a couple of things.

First, all of our business bankers are mobile. They go to the customer. If the customer is in a more rural location, they'll go visit the customer. It's particularly true in areas such as the area you represent that it is difficult. The whole focus has to be on going out to visit and meet with the customers.

I'd also say that there are unique aspects when you get outside urban markets into rural markets. You've got agriculture. Agriculture is certainly very important to our organization. It's a key sector that we play in, and we've seen very significant growth in that sector. We try to focus on a sector and then direct our issues to the customer.

The aboriginal banking community is very similar. In the aboriginal banking community, we dedicate resources. One of our senior executives is very active in dealing with aboriginal banking issues. We again are second in that area, we believe.

As with many of my colleagues here, our customers have access to the telephone. They have access to online banking at BMO Bank of Montreal. We also have a dedicated direct bank for business. All of our account managers in the direct bank business are commercially qualified and therefore the outreach and in-reach programs can cover all of the remote locations.

The Chair: Mr. Campbell, did you want to add something?

Mr. Terry Campbell: I'll just turn to my colleague Mr. Stitt, if that's okay.

The Chair: Mr. Stitt.

Mr. Nick Stitt: In addition to that, I know that TD Canada Trust as well as Scotiabank have done some third-party agricultural lending programs, because it is easier to deliver credit remotely than it is to offer full banking services on the phone or the web. We have looked at ways of delivering credit remotely.

One of the things we did in 2000 was start a program whereby we offer financing for crop input costs through farm supply dealers. It started from zero, and we now have 300 farm supply dealers across the west and in southern Ontario primarily offering credit up to $250,000. Most of it is under $50,000 to farmers to finance crop input costs and fuel costs. I think we now have 3,000 customers using that program, and it's up to about a couple of hundred million dollars. In most of those locations, TD Canada Trust doesn't have a branch. It has been very successful.

The Chair: I'll now switch to Mr. Bachand, s'il vous plaît.

[Translation]

Mr. André Bachand (Richmond—Arthabaska, PC): Thank you, Mr. Chairman.

Thank you very much for coming here. First of all, I wish my colleagues from the other provinces had been able to get the background material on the National Bank. While I don't wish to do any advertising on the bank's behalf, as Mr. Dubreuil mentioned, this institution is very much involved at the regional level. My region is one such example. As you said, the fact that this institution's operations are concentrated mainly in Quebec may not be something positive, but the fact remains that this concentration gives you nearly 40 per cent of the SME market.

I have a few quick questions for you. On the subject of small business start up, do you know what percentage of loans are awarded under various federal programs, what we commonly referred to in Quebec as the Small Business Loans Act, or in partnership with the CDIC, that is under federal development funding programs? What is the percentage of loans guaranteed under a federal or provincial program versus the percentage of loans that are not guaranteed?

[English]

Mr. Terry Campbell: Unless my colleagues have some answers on that, I'm not sure I have that information, sir. As I understand your question, it's the percentage of loans that are secured by federal or provincial programs versus unsecured loans that would be made outside. I think that was the question.

Perhaps my colleagues have answers. I'll turn it over to them.

[Translation]

Mr. Pierre Dubreuil: I could give you figures for Quebec. In the case of the National Bank, the majority of loans awarded by this institution are unsecured, that is not guaranteed by the federal government, in particular small business loans. I believe that is what you were referring to. We almost never go this route, because we did so a great deal in the past and exceeded the limits set. Currently, all loans are awarded are the basis of the collateral put up by the party requesting the loans.

À (1010)

[English]

Mrs. Susan Kennedy-Loewen: I don't have the information on a regional basis available to me today, but in Canada approximately 10% of our financing to small and medium businesses is government guaranteed financing, as we would call it, loans that are secured through the programs. Approximately 30% of all of our operating financing in Canada is unsecured. So 30% is unsecured and an additional 10% is secured by the government guarantee program. Those would be statistics from the most current year.

[Translation]

Mr. André Bachand: Thank you very much.

With respect to regional development, mention was made of small businesses. My colleague talked about tourism, a tertiary industry or sector that drives the economy. It's a fact that most financial institutions, whether provincially or federally regulated, are abandoning the tertiary sector, for example, the food and restaurant or other high risk sectors.

Having said that, in the regions, a number of businesses develop with the help of the tourism sector and with export assistance. I'm curious as to the kind of assistance you can lend to small businesses wishing to export their products, since this is one growing market in a state of considerable flux. Specifically, what areas do you focus on when considering export assistance for small businesses seeking help under certain export assistance programs? As bankers, what role do you play in this process?

[English]

Mr. Terry Campbell: Mrs. Mitchell.

Mrs. Louise Mitchell: Exporting is probably one the biggest predictors that a company is going to be high growth, so we're incredibly interested in that aspect of businesses. We're doing a couple of pilots right now working with manufacturers in the GTA and also in Montreal, because there is a huge concentration of exporters in those areas. We're working with the Canadian Manufacturers and Exporters to figure out some of the things that we can do to help their members and also our clients around things like lean manufacturing. We're looking at some of the new products that EDC is introducing, and it is introducing some fabulous products.

We are setting up seminars for our account managers, our risk managers. We think that for them to be able to provide good financial advice, they need to be aware of the options. Business owners are very busy running their businesses and lots of times they can't know all the programs that are available. Educating our staff is first on the options particularly available, and second is to bring clients in so they know that they have these options.

[Translation]

M. Pierre Dubreuil: The National Bank appoints international products directors for each region of the province. These directors work with entrepreneurs to help them develop their export market. The bank offers services such as factoring of receivables abroad, letters of credit and letters of guarantee, and helps them to obtain assistance from Investment Quebec and the federal government with a view to increasing their chances of developing their sales abroad.

Mr. André Bachand: Our time is running short.

One of the major problems likely encountered everywhere in Canada—although I'm mostly familiar with the situation in Quebec—is the whole question of the second generation of small businesses. Unfortunately, as we're seeing more and more, businesses are not surviving. When they are taken over by the second generation, they are either sold or closed down. People don't know who to turn to for assistance. We hear a lot about SMEs. However, the longevity of the second generation will ensure the longevity of generations yet to come. The subject often comes up in the regions.

[English]

Ms. Kathleen O'Neill: I'd like to respond to that.

BMO Bank of Montreal actually is the only bank that offers a comprehensive range of integrated succession planning and succession financing services for retiring owners and their successors. We believe that's a critically important area. We're certainly seeing it right across the country, particularly when you get to the smaller businesses. Agriculture is a major area where succession financing and succession planning both together are really important.

It's a full suite of services that needs to be provided. It's not just about financing and buyout; it's about finding the right options, evaluating the options, looking at various trust planning issues, legal issues, and trying to have that trusted adviser bring things together for you. Not only is it a very difficult issue from a business perspective, but for many people it's also very difficult emotionally. You really have to work with your customer who is looking at moving on in their business.

À (1015)

The Chair: Did someone else want to comment?

Mrs. Kennedy-Loewen.

Mrs. Susan Kennedy-Loewen: In addition to that, at Scotiabank one of the things we do is make sure that our small business champions in all our branches are very clearly attached to the team with that expertise. This is a very unique part of the market that has not been effectively dealt with in the past. We've had some very robust discussions with CFIB because this is a major advocacy issue for them as well. Clearly we need to educate our bankers on the emotional side of this.

There is a very high propensity in Canada for business owners' children to become business owners, and they will clearly be our future in this area. We do spend a lot of time making sure we look at the emotional side, not just training our bankers but ensuring we have specific expertise in this area that we offer through our trust. That also includes the financial options that come together for it.

It is an important part of the future of Canada. It's an important part of the future of what we need to focus on.

The Chair: Mr. St. Denis.

Mr. Brent St. Denis (Algoma—Manitoulin, Lib.): Thank you, Mr. Chair.

Thank you very much for being here.

There is no argument: we need a strong banking sector in order to provide services to consumers and all levels of business.

That said, we're here because there are questions. Our constituents ask us questions. They think we control the banks. They think we control the phone companies.

Yes, there is a place for government in terms of regulation and so on and so forth, but at the end of the day we do accept that you have to be profitable.

With that as a preamble, following up on a question that my colleague Larry Bagnell had about the rural and the urban, one of the things that comes to my attention fairly often is that in the old days, so to speak, you dealt with a local bank or loan officer. I have 60 little towns in my huge northern Ontario riding, not all with banks, but banks were sprinkled throughout the riding, of course. In the old days, they dealt locally with somebody. For most cases, decisions were made locally. If there was a problem, they could go in, sit down, and try to work things out.

It seems it's evolved to the point where more of the responsibility at the local level is being reduced. Correct me if I'm wrong, but anecdotally that's what I hear: that the approval limits for local managers or credit officers have been lowered and more decisions are being made in the larger centres, in places where they don't even know where these little towns are. That is a reality.

It's this face time that we seem to have lost. The pressures of high technology and competition certainly necessitate banks being efficient, but I'm wondering what is in place of the person-to-person contact in all of this, because in the long sweep of things, I think that is where customers will go: where they can deal with a person.

I have stopped dealing with some businesses because their telephone systems are totally inadequate. When you try to call, you get bounced and bounced. However, I will tell you that the bank I am with happens to have one of the better systems of all the ones I've experienced.

Mr. André Bachand: Which one is that?

Mr. Brent St. Denis: Is TD here?

The Chair: Shall we get to your question?

Mr. Brent St. Denis: I've recommended that phone system to some other companies.

The Chair: Mr. St. Denis, shall we get to your questions?

Mr. Brent St. Denis: Yes, Mr. Chair, but our comments are valuable too. I know--

The Chair: Yes, they are. So are the questions.

Mr. Brent St. Denis: --you will accept that, because it's important to have context. They asked me which bank it was, so they were prepared for the answer, and I'm not saying that any Bell system's bad.

It's just that face time: how do we deal with that? I think that 10 years from now the banks that are going to be successful will be the ones that have gone back, to some extent, to that old way of doing things

À (1020)

Mr. Terry Campbell: I suspect that a number of my colleagues here would wish to answer that. I know that Kathleen O'Neill would.

Ms. Kathleen O'Neill: Thank you for the opportunity to address that specific issue. We believe that the branches are critically important to our success as a bank. Last year we actually opened four new branches across the country. We have plans to open more, a significant number, and have redeveloped a number of branches.

That being said, you're absolutely right, the most important thing is that local decision-making authority is in place so that the small business owners feel like they're dealing with a person in a position of authority. In our case, we have business bankers in every major community who do have authority to approve loans up to $3 million in their location. They do not have to send it up the line for approval. I'd also add that we actually have very little turnover in our business bankers, which means that they tend to get known in the community and they know the issues of the community. On special issues, clearly, they refer to experts, but they do have the local decision-making authority.

Mr. Terry Campbell: I could turn to my colleague Susan Kennedy-Loewen, if that's okay, Mr. Chair.

Mrs. Susan Kennedy-Loewen: Thank you.

Four and a half years ago, I sat in a branch as manager, in Fort McMurray, Alberta, which is five hours north of just about anywhere. That was at the time the Bank of Nova Scotia started to work through our centralized processes, bringing into a central location regionally, for regions across the country, our key experts who really understood how to finance for small business, how they could structure loans to better improve them. It was a difficult thing for me to let go of personally.

I have to admit, though, that now, four years later, we are approving more loans more consistently in all areas of the country by keeping those individuals focused, understanding, and very much in the expertise of structuring and restructuring small business.

They do not do that without the local input in the branches. It is really key. Yes, there's still some local decision-making that occurs, but centralized assistance in structuring and financing for small business is key. It is unique. It's as unique as every business that's out there. What we have found is that the branch bankers now truly feel that they are part of the team and they're the experts in that area.

It's really key, because when we ask our bankers, “What is it you want to do?”, more times than enough they'll say, “I'd rather get out and get to that business owner's place of business than try to analyze a credit, which will take me longer and provide less value”. The whole goal that we're really working to is how you make sure that the bankers are educated and the discussions are of high value to the business owner and truly give them something that they can take back to help grow their personal financial value or grow their business.

So it's about finding that match. Yes, there are local decisions, but we want to get those bankers out of their chairs. We want them in front of the small business owner engaging in really good, solid discussions.

The Chair: Mr. Paterson, did you want to comment on that?

Mr. Robert Paterson: Yes, I was just going to add that at CIBC we found that the right mix is what's important in using the technology and the credit scoring to help increase the approval rates to lend to those areas we might not traditionally lend to because of the modelling, and then in the rural areas specifically, to use the front-end expertise. We have our agrologists and we have credit commercial specialists who will, for the larger deals, actually go out to the client's location and spend time looking at the operation, working with the customer to get the deal put through.

Our front-line people we have as advocates, really, to make sure we see the total picture of the client and to make sure we can get them the financing they need to run the business.

The Chair: Mr. Stitt wanted to comment.

Mr. Brent St. Denis: I have another question to ask.

The Chair: Shall we let Mr. Stitt answer?

Mr. Nick Stitt: I'd just like to agree with Rob and Susan. I think centralized credit processing has been beneficial to small business customers. I think it's reflected in the approval rates. I think it's also probably reflected in the cost, the rates, and fees we charge for credit, which are fairly low, as Terry mentioned. Delivering credit in each branch and letting them make decisions is a very time-consuming, costly process. If you can make that more efficient while increasing the approval rate, you not only can deliver at a lower cost, which means lower rates to the customer, but you also can deliver better service.

I think we probably have to do a bit better job of increasing the expertise of the people in our retail branches in dealing with small business customers. As I said, we deliver small business banking in 1,000 branches now. We have 2,500 financial advisers. We have 4,300 financial service representatives. We have 100 small business advisers. We have a mobile group of sales specialists. We have 150 agriculture specialists. There's a lot of support out there for small businesses.

But it means, when you're delivering through 1,000 branches and through all those people, that we have to make a major investment in training them. We have to make sure they understand how to talk to a small business customer, understand their needs, communicate those needs, articulate them well to the centralized group in acting as their advocate, and make sure that when the decision comes back they understand the decision and communicate that back to the customer.

That's what we're putting a lot of effort into right now: improving our system, simplifying processes, and training the front-line staff. The relationship with the customer is fundamental. As for who makes the credit decision, as Susan said, it's better to have someone doing it who's very skilled at it instead of having a hit-and-miss approach across 1,000 branches and many people who have varying degrees of credit expertise.

À (1025)

The Chair: Thank you very much.

I'm sorry, Mr. St. Denis, but we must move on.

Mr. Rajotte.

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thank you very much, Mr. Chairman.

Thanks to all of you for coming in today and providing us with this information.

I want to follow up on the issue we've just been talking about, because it was a main point presented by the Canadian Federation of Independent Business on Tuesday.

One of their main concerns and one of the concerns they presented from their members was account manager turnover, which I think we've just been touching upon. I know there's anecdotal evidence, and they could probably provide anecdotal evidence, but do you have some statistics within your banks that can guide us in terms of how long account managers typically stay in an area? You all talk about the importance of building those personal relationships, which is very true, but do any of you have statistics that can guide us? Can you say that account managers do typically stay in a community for, say, 5 years, 6 years, or 10 years and do provide long-term advice to your clients?

Mr. Terry Campbell: I suspect that many of our members will wish to respond. I know Rob has indicated a preference, and I think Kathleen as well, and others.

The Chair: Please do so.

Mr. Robert Paterson: I don't have the specific numbers, but I can tell you about one thing I said in the opening remarks around how we've tried to deal with the issue, and that is by having what we call business advisory teams, where multiple individuals actually know the small business customer's financial affairs, so that in case there is turnover for any reason, we have someone there who actually knows the customer, knows their business, and can provide them with support.

We have found that our account managers stay in rural areas longer than they do in urban areas. Turnover definitely does occur, though, but the advisory team concept is something we've introduced to really try to ensure that there is someone there who is familiar and can help them, and so there isn't a retraining process.

Mr. James Rajotte: How many people?

Mr. Robert Paterson: There are three members on an advisory team within a given market.

Ms. Kathleen O'Neill: I would add that over the last 10 years we have totally re-engineered--I'd call it that very loosely--our small business banking processes. We've had automated lending decisions for close to 20 years, but our focus has always been on the people and making sure our account managers who deal with the business sector know the business and know the community.

Particularly on the business side, we actually have had very little turnover. We've been focused on maintaining the relationships in the area. That's not to say we don't get turnover; we do, but we also focus on building a team. As for the core account managers for the businesses, we've had maybe 10% turnover a year.

The Chair: Ms. Mitchell, do you want to comment? Please do so.

Mrs. Louise Mitchell: Very much like my colleagues, I think we don't have an issue with turnover in rural areas. In fact, not only do clients usually have the benefit of account managers who have been in their roles a long time, but to go back to local decision-making, our risk managers tend to be specialized and stay in their local areas for longer periods of time. In urban areas, we're very much pursuing team concepts. We buddy up account managers and make sure clients know there are one or two people within RBC who know their business, so that they have that continuity if turnover occurs.

À (1030)

Mr. Pierre Dubreuil: At the National Bank, we have a policy that account managers must stay in the same position for least three years before they're considered for a move somewhere else, so it gives us a bit more stability. We're also using the team concept, but each of the members will be on that team for at least three years.

The Chair: Mr. Rajotte.

Mr. James Rajotte: My second question, Mr. Chairman, deals with access to financing. It was raised in the first presentation on page 7, when Mr. Campbell talked about how “82% of SMEs do not seek financing in any given year” and “the vast majority...indicated that they do not seek financing because they do not need it”.

I want to use that as a backdrop, because again, what the CFIB said to us on Tuesday is that in fact the loan rejection rate is increasing. I believe that in the figures they gave us--I'm just going from memory here--they use this as a percentage: in 2000, 10% of the loan applications were rejected, and in 2003, 16% of the loan applications were rejected. Now, they didn't give us a gross figure as to what those numbers actually were, but they said that as a percentage the trend is very much going up in terms of loan rejection rates.

Is this true in the case of your organizations? Can you give us, perhaps in macro numbers, how many? Or do you have an optimum number, looking at, say, 90% of loans you'd like to approve? Or do you just look at it on a case-by-case basis?

Mr. Terry Campbell: I suspect my colleagues will wish to respond with their own perspectives, but I have a couple of comments.

I don't want to make too much of this, but I'll just caution that the CFIB survey, by its very nature, is a narrow slice. It's a self-reporting mail-in and in a sense perhaps is directional. I would be cautious about using it as hard, precise statistics.

If you look at Statistics Canada, what you note is that in fact the authorizations, that is, the credit that individual banks and other providers make available to small businesses, far exceeds the amount that is drawn down. In fact, I think the authorizations exceed outstandings; that is, the amount that is made available to small business customers relative to how much they decide to actually draw down in any given year--the authorizations exceed that by $14.5 billion. That is for small businesses. For SMEs as a whole, the authorizations again exceed outstandings by $28 billion.

In other words, the financing facilities, the authorizations are there. The institutions are choosing to draw down or not choosing to draw down based on their own business cycle.

With that open comment, I will turn to my colleagues. Rob has his hand up.

The Chair: Mr. Paterson.

Mr. Robert Paterson: Mr. Chair, one of the things I can talk to from the CFIB perspective is that we have been seeing the authorized limits obviously going up like others, but we have actually introduced products in new markets. There is the ability to have start-up financing available for businesses of less than two years, re-engineering our core lending processes so that we can get higher approval rates in the traditional markets up to $250,000 and $500,000, as well as introducing the commercial mortgage that we did this year.

We have seen drastic changes in market share as a result of introducing new products into new markets, but also in making credit readily available in all of our branches, through our call centres, with our low rate credit card, all those types of things. In fact, we have seen gains as a result of the changes.

Mrs. Susan Kennedy-Loewen: I would like to speak to the CFIB numbers because I think you are referring to Scotiabank's number in that.

We take that information very seriously. We went back and compared it to our internal data, which would reflect that two things were happening in that CFIB study at that time. Scotiabank was gaining a significant amount of market share by standards of market share growth in small business. At the same time, we had a greater opportunity through that period to look at more applications, including reviews of opening up accounts for merchant Visa services as well.

On a relative basis, going back and looking internally, our statistics are still proving that our trends in authorizations and approvals for small business, including the CFIB members, continue to increase on the whole.

There is a selective group that has been brought forward within that survey. We are comfortable, looking at our internal data, at that particular segment of our small business customers, that approvals are still moving forward very successfully and positively.

On your other point, I want to come back because I have some statistical data. At Scotiabank we have an average tenure in our branch managers of about 22 years and in our account managers of small business of 15 years. That doesn't mean they have been at the same branch for that length of time. We also want to make sure they have both business and personal acumen, when they sit in that desk, for the business owner. The business owner needs business and personal skills.

One of the things we are working very hard on is to help our business owners have a banker in front of them who truly has a passion for small business and loves their job. Statistically, we now have an internal study that tells us whether our bankers like what they do, and our small business bankers exceed the scores of the balance of our bank.

We are very pleased with the direction we are taking. Turnover still keeps us up at night.

À (1035)

The Chair: I will move on to Mrs. Parrish.

Mrs. Carolyn Parrish (Mississauga Centre, Lib.): Thank you very much.

I am not a regular member of this committee any more. About 10 years ago when I was first elected, the first function I had...and I think Mr. Lastewka and Mr. St. Denis were on the committee with me that looked into banking. When we looked down to the end of the table, they were all scary looking guys. They all had dark suits, they all had grey hair, and they all were grumpy. My compliments to the change in attitude.

The Chair: Try to be nice, Mrs. Parrish, try to be nice.

Mrs. Carolyn Parrish: These are great people. It is like the movie Back to the Future. I wish that 10 years ago, Mr. Chair, we could have listened to what we have heard today. Do you remember? People were telling us how difficult it was. They were complaining that they had to mortgage their house and their firstborn child to get a small loan at the bank.

Listening this morning has been the most refreshing thing I have been through. I consider myself somewhat of a small business owner in that I have staked two of my kids' house loans. I did it through Scotiabank. It has an incredible plan. You can go between your mortgage and your line of credit up to a certain amount. It has been easy, and it has been a pleasure to do business. Actually, I do business with four different banks.

It is important also to note that you've touched on the self-directed surveys. When I get surveys in my office, unless I'm cranky about a subject, I don't bother filling them out. When I was first elected 10 years ago, the complaints coming into my office from people about banks were enormous--and we all love to hate banks--and I have not had a complaint about a bank probably in the last three years.

I just wanted to compliment you. I do not want to ask any questions. You've done an incredibly fine job, even to the point where I had a 24-year-old in my office the other day saying that three banks were competing for his first start-up small business loan, which I found amazing because he's got purple hair and funny coloured nails. He is a hairdresser.

The banking industry has come a long way. Part of it is due to the industry committee and the diligence of people like our chairman who have been working on this subject for years and years and years. It is partially due to a better economy--let's be realistic--and partially due to the fact that you've made a really sincere effort. I compliment you.

I wish we could have had a view to the future 10 years ago, because it was a very depressing committee to be on, and I wasn't very happy there. I joked around and said that I always thought that if there was a cheque left in the book, I still had money in the bank, and they all just pulled their hair out. But it is not a joking matter. There were people there who were very unapproachable. There was a wall built between people and banks.

I think you guys and all of us have taken that wall down. I compliment you. It is a treat for me to be here this morning, because things really have changed.

The Chair: I think there is a question in there somewhere.

Mrs. Carolyn Parrish: No. I have already told them there are no questions. I took the opportunity to make a speech.

Mr. Terry Campbell: On behalf of my friends and colleagues, thank you very much. You're right about the role of this committee. We've listened, and thank you very much.

Mrs. Carolyn Parrish: You're welcome, and thank you.

The Chair: I must admit it is a change from 10 years ago. Is there anything further?

Mrs. Carolyn Parrish: No.

The Chair: Mrs. Gallant.

Mrs. Cheryl Gallant: Before I ask a question, I just want Mr. Campbell to clarify the response to the initial question with regard to foreign banks. You were referring to niche markets. Am I to understand that the foreign banks really are not interested in financing SMEs?

Mr. Terry Campbell: No, I did not mean that at all. There is a range of niches. Some of the foreign banks are very large and have what we would call a full service. Others are small and they tend to focus on business and corporate loans.

When I used the word “niche”, what I was trying to refer to is that out of the whole range of providers, banks and non-banks--and I guess it is one of the functions of the kind of market and the economy we have--you will have people or institutions that can focus on particular areas, niches to serve needs. The point I was making is that it is a very competitive marketplace. You're always going back and forth in terms of competing with the other guy to get clients. The fact that some of the foreign banks we have seen enter the market in the last several years have increased market share and people are using them more is an indication that there is a niche they can fill, that they are addressing it.

That was not the intention I was meaning to convey.

À (1040)

Mrs. Cheryl Gallant: What can municipalities do to encourage an actual physical presence, an establishment of foreign banks in their communities?

Mr. Terry Campbell: That is a very good question. It goes again to the individual institution. Every institution is going to be different.

You can think of some institutions that have chosen as their business model an approach to go without branches. That is their business model. They've chosen to do that. They are able to offer a certain array of products that are tailored to that. Others say that they wish to have branches or a physical presence and they seek out business opportunities to do so. It is very hard to generalize across the board, because one size doesn't fit all.

I am relatively new to the banking industry myself. It has been an education for me to see how much even among the larger institutions but certainly across the board, individual institutions really and truly have their own business model. They will focus on some areas and perhaps not on others. They will emphasize a delivery channel and perhaps not others. It is very hard to generalize.

Mrs. Cheryl Gallant: In the coming years, if not months, we are going to be asked to comment and perhaps even be on a committee where we are going to have to play a role in ruling on approvals for bank mergers. There seems to be a positive correlation between the merging of financial institutions and the decreased availability and decreased service and competitiveness to the SMEs as these occur. Given this and the cattle crisis right now, farm equipment dealers are having their lines of credit cut off even though they have never missed a repayment.

How can we justify to our constituents the fact that the banks want to merge, which will decrease competition? The response is that it is better for people in the long run but they are getting decreased service and access to capital.

Mr. Terry Campbell: I suspect some of my colleagues may wish to comment about lending in the agriculture area.

On the issue of mergers, it is hypothetical at this point. The government has indicated that it wouldn't be prepared to entertain proposals until well into next year. It is a hypothetical question. Even in that context, the process is in place to consider mergers should they come forward. There is a process in place that is precisely designed to vet those issues and put them on the table, and all the available stakeholders have an opportunity to comment on and consider that. As well, the institutions would put proposals on the table that could address concerns.

Reference was made earlier to some hearings at the House finance committee earlier this year. Talking about the issue of branches, there was a lot of interest on the part of smaller institutions to say that if there were a merger proposal and if it did impact on branches, they would be very interested in taking over those branches to help them be a stronger competitor in the marketplace. To the extent that there may be concerns, they will be flushed out in the process and there will be ways to address them.

Before I turn to my colleagues in case they wish to comment further, the other thing to bear in mind is that the main determinant of granting access to credit is whether the business owner has a good business plan, has demonstrated capacity and strength going forward, and has a plan in place. That's really the key determinant. That's probably more of a determinant than the structure of the marketplace, though those specific questions would be hypothetical at this point.

Are there any others who wish to comment on it?

À (1045)

The Chair: Mr. Stitt.

Mr. Nick Stitt: I can comment through recent experience because TD and Canada Trust merged in the last few years. The actual fact is that small business customers benefited because they got the best of both institutions.

From Canada Trust they had a great service model, which meant longer branch hours. I mentioned that our average hours per week now are 49 hours versus the closest competitor at 38 hours. That was adopted across the whole network; all 1,000 branches got the benefit of that model. Any branch banking was part of the Canada Trust service model. That was adopted across the whole network, so customers can bank at any branch now.

From the TD's perspective, they had a long history in business banking, whereas Canada Trust didn't. All former Canada Trust customers and former Canada Trust branches now have complete access to a complete range of business credit products and cash management services. Canada Trust was not in agriculture services before. Now former Canada Trust customers and Canada Trust branches have access to agricultural services and they all have access to more branches at the end.

We actually measure service. We called 45,000 small business customers this year after they did some kind of business with us. That is what prompted the calls. We asked them a number of questions. That index is measured at each branch. There is a goal for each branch and a goal for the bank. We track that very closely. Since 2001, as I mentioned, the customer satisfaction index for business customers has increased 11 percentage points. That speaks well for what has happened.

The Chair: Ms. O'Neill, and then I have to move along.

Ms. Kathleen O'Neill: Thank you Mr. Chair.

Very quickly, our chair and CEO, Tony Comper, appeared before the House of Commons finance committee earlier this year and talked specifically to the issues of mergers. I'd actually refer you to his presentation.

Clearly, he laid out a set of guidelines that he thought would be appropriate in any merger circumstance for financial institutions or banks to follow. I agree with Terry that it's the process that's going to be incredibly important.

Finally, with respect to your comment on equipment dealers in the agricultural sector, our organization--and I'm sure my colleagues here also--put in place very specific programs to deal with the drought crisis over the last year and to deal with the BSE issues, which covered not just the agriculture providers but all the ancillary providers, to ensure that we worked with them as they dealt with the crisis in extending the terms of their credit and providing them with some interest rate relief over that period.

The Chair: Thank you very much.

Monsieur Duplain.

[Translation]

Mr. Claude Duplain (Portneuf, Lib.): Thank you. You've answered one of the questions, at least in part, that I was planning to ask about women entrepreneurs. With respect to the agricultural industry, as you know, the special committee set up by the Liberal Party has issued a report on women entrepreneurs. Do banks genuinely take such reports into consideration?

Have you read the report? What is your opinion of it? Do you concur with its findings? How do banks approach reports that are published either by the government or by certain parties?

[English]

Mrs. Louise Mitchell: First of all, we had the pleasure of appearing before the task force and we helped make some of the recommendations. Three of our recommendations were adopted by the task force. Not only do we think the market is incredibly important to us, it is important because it's really good business for us. It's a growing market and it's a market that we want to be in.

So first of all, we're interested in the market, so we pay attention to it. We also believe in partnering. We think that these kinds of reports and these kinds of studies are very important in influencing decisions that we want to make. We were involved in the preparation of the report. We hosted many communities across the country. We hosted the hearings that the task force had with not only our customers but other women entrepreneurs that were in those communities. We're very pleased to be part of those processes.

À (1050)

The Chair: Ms. O'Neill.

Ms. Kathleen O'Neill: As a woman, I would like to provide some comments. My background is that I'm a fellow of the Institute of Chartered Accountants, and prior to joining the bank I was a corporate tax partner at a major accounting firm and had gone through various stages in my own practice. I've spent the last 25 some years operating in the business world. So I think I'm very familiar with the issues of women entrepreneurs.

At BMO Bank of Montreal, we also, much like the Royal, have spent a lot of time dealing with and thinking through women entrepreneur issues. We've recognized for a long time that women are opening new businesses proportionately faster than men are. We also appeared before the task force and found that, on average, their success rate actually tends to be higher than that of men.

As an employer, we believe that part of demonstrating our commitment to entrepreneurs, regardless of their sex, is that we are a friendly organization to entrepreneurs, whether they're male or female.

I'd also like to point out that we're a founding sponsor of the Canadian Woman Entrepreneur of the Year Award, which is a week next Thursday. We'll be honouring Canadian business women in five categories: start-up, lifetime achievement, innovation, impact on local economy, and export.

Mr. Robert Paterson: CIBC takes women entrepreneurs very seriously. It's one of the fastest growth areas. We're not going to be able to achieve our goals if we don't do things specifically there.

We made a submission to the task force and actually hosted it in Toronto. It's definitely an area that we're listening to and finding out what we can do to enhance it. Women entrepreneurs are going to be key drivers of the Canadian economy.

Mrs. Susan Kennedy-Loewen: One of the things that Scotiabank did three years ago was take an individual who was a chartered accountant and operated a business that provided services to almost 1,000 businesses, most of which were women. We took that individual across Canada to talk to our small business bankers about how to deal with women in business. Some of the most exciting things that came from those meetings were, what does your banker say and what does the small business owner hear and vice versa?

There has been a disconnect in the communication, which has been absolutely key in helping us to understand better execution and delivery to market. I'm very proud of the fact that our market space, of approximately 52% of small business, is either owned or co-owned by women.

At Scotiabank, approximately 52% of our account managers are women. It doesn't mean that women want to deal with women. It means that we can have a very engaged, diverse discussion and make sure we're covering that communication. It is about getting community grassroots focused in order to execute effectively and give value to the business owner.

The Chair: Monsieur Duplain.

[Translation]

Mr. Claude Duplain: I might have another question about agriculture because earlier, the witnesses, in particular Royal Bank of Canada representatives, noted that banks gave farmers various options for dealing with the mad cow crisis. Surely you all offered or devised special programs, but when Canadian SMEs and farmers are faced with a serious problem such as mad cow disease, what do banks in general do to deal with such a situation? Did you meet with the Minister of Agriculture? Obviously, farmers look to the government for needed financial assistance and so forth. However, in these situations, banks are very important partners. How do you coordinate your efforts with the government? Getting back to the example of mad cow disease, did you meet with the Minister of Agriculture to see how government and banks could work together to help farmers? I'm sorry, but special steps need to be taken to help farmers.

[English]

Mr. Terry Campbell: That's a very good question, and I thank you for that. Last month we were before the House of Commons agriculture committee answering questions and addressing that very question. I think it's an excellent one. In fact, the banking industry has met several times with Minister Vanclief and we've met several times with provincial agriculture ministers across the country--in the west, Quebec, Ontario, and elsewhere--to work through it.

There have been countless meetings. I think we're up to 10, 30, 40, 50 meetings with department officials at both the federal and provincial levels. We've had at least two full good meetings with Minister Vanclief, and more with his staff, to hear his concerns and reports on progress. I'm very pleased to see, as we're beginning to see in the press, that it looks like things are beginning to move in a certain direction, at long last, after that single case.

For our part, we have been trying to reassure--and I hope we've been able to do so--Minister Vanclief as well as provincial agricultural ministers that the banking industry is not going to act precipitously on this. We're not going to be pulling loans because of BSE.

We understand that's an issue beyond the control of individual producers or individual agribusinesses. We want to work with them. We are going to do it on a case-by-case basis. Every case is very different, and we'll work through it.

We know that the agriculture industry is a cyclical one. There have been problems in the past, whether it's drought or something else. We talked about having long-term specialists in that area. That's certainly true in the agriculture area. We try to work through it with our clients. The message we conveyed to Minister Vanclief, as well as to the agriculture committee, was that that's precisely how we're doing it.

À (1055)

Ms. Kathleen O'Neill: I have with me today my colleague Don Wither, who actually appeared before the committee with Terry. I can absolutely attest that our organization has spent an enormous amount of time and energy working with our agricultural customers. I now know more about cows than I ever knew.

During the crisis--and not only the current BSE crisis but, quite frankly, during the drought that we dealt with just over a year ago--we have been working very hard with each of our clients on a case-by-case basis to help them through this time. We've launched a disaster assistance program that provides flexible options for our customers that have been impacted.

I want to make a small statistical comment. Over the last year, our organization's growth in outstanding agricultural loans was over 11%, compared to the 3% overall market share growth for all banks combined in the agricultural sector.

The Chair: Thank you very much. I must move on.

I want to give Ms. Jennings a chance to ask a question. She is a former member of the industry committee.

[Translation]

Mrs. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Merci, monsieur le président. Thank you very much.

I'm sorry I missed your oral presentations, but I have read your written submissions. As the chair noted, I was once a member of the committee and one of my main concerns was SME access to capital, not only by women but by ethnocultural communities and visible minorities as well. Therefore, like Ms. Parrish, I too am delighted to see bank officials who are younger than I am. However, I do see that you are all Caucasian.

You referred to several programs and products that have been developed specifically for women entrepreneurs, for young entrepreneurs and for aboriginals. Are any program or product components designed specifically for cultural, ethnocultural and visible minority communities that have very limited access to capital? Let me elaborate. Studies show that persons of Black ancestry are under-employed and encounter racism across the social spectrum. Therefore, when you refer to a program geared to women entrepreneurs, are you also including Black women in this category? Are you also targeting visible minorities who have fewer financial resources and fewer opportunities to accumulate wealth within their own communities?

I welcome your comments.

[English]

The Chair: Some quick answers, please. We'll go around the table.

Á (1100)

Mrs. Susan Kennedy-Loewen: First and foremost, we have done some very extensive work in many of the ethnic communities, primarily starting that work and founding it through the Greater Toronto Area. Our regional vice-president there has taken a specific initiative and has placed managers in the ethnic communities that can speak the language. We are working very hard in ensuring that our account managers of small business are conversant.

We have a central location that helps us understand that if individuals come to our branch and their mother tongue is other than English or French, they can enter and be able to speak comfortably in that language, or that banker could actually go to them. That's been a key component that has taken us into television channels such as Omni. We actually deliver key messages through television to allow small business owners to know there are people who can help them and work through these situations with them.

I would hope that the colour of my skin would not reflect to you the ethnic background that I might come from as well as that of my team of small businesses. I have a young lady who is of Chinese descent who has done some tremendous work for us in the Chinese community. She has helped us understand how many entrepreneurs do not speak English, and the key communication modes that we can use to move forward and help them understand how we can deliver to small business owners.

The Chair: Ms. Mitchell.

Mrs. Louise Mitchell: At RBC, we've found that the best way to reach out to these communities is to do it from a policy standpoint. We've actually started to look at some of our credit policies, particularly around new immigrants, because there are some nuances there that you have to address.

To be successful at targeting a growing segment of the population, you have to get into those communities. We have local champions across the country who actually work with the local business associations.

The Italian advisory board is one that comes to mind in Toronto. We also have Sikh communities in Toronto with which we work very closely. We encourage our account managers to get out and work with those communities because that's really the easiest way to break down the barriers and make us more approachable.

The Chair: Ms. O'Neill.

Ms. Kathleen O'Neill: In fact, both Asian and aboriginal multicultural reports come to me as part of the organization. We actually have very specific services. Our policy and values are founded on diversity. That's incredibly important for us not only from within our own employee base but also in the dealings with our customers.

To understand an industry, you have to understand the culture, because there are cultural differences. I consider industry differences just as important as cultural differences. In fact, our business banking series is published in Cantonese and Mandarin. We go through the community and try to understand the diversity and the changes in our community. We try to reach out to that community to ensure we're addressing its needs, including having the right account managers who can deal with the needs of that community.

The Chair: Thank you very much. I want to make a comment before I leave and close the meeting.

We had a number of discussions from both the opposition and the government referencing the CFIB report. We heard one thing on Tuesday; we heard other things today. I notice some banks are working with Canadian Manufacturers and some banks are working with the small business section of the Canadian Chamber of Commerce. I just wonder, is it time for the banks and the other three organizations to get together and do a survey or an analysis with the small business community? As some people mentioned, CFIB represents 125,000 small businesses, but there are two million of them across the country. Would it be good to do an all-encompassing review in order not to get into the position where some people are saying that the manager turnover is too much and that there's no approval at the local area?

We heard differently here today. As Ms. Parrish said, I too want to commend you on the changes that have been made over the last number of years and wish you well. We'll have you back soon.

Thank you very much. This meeting is adjourned.