Canadian banks to launch big push into China
Vancouver Sun; D4; January 23, 2007
TORONTO -- Canada's financial institutions are set to make major inroads in China, despite criticism that they haven't invested enough in the booming Asian economy, according to BMO Capital Markets chief economist Sherry Cooper.
"Given the size of the Canadian financial institutions, I do think that a couple of them are hitting above their relative size and they're taking a disproportionately large stake in the financial system," Cooper said.
Still, Canada's fixation on "yesterday's U.S.-centric" economic model threatens the country's long-term financial interests, she added.
Her comments come a day after federal Finance Minister Jim Flaherty, who was on a week-long trade trip to China, passed on criticism from Chinese officials that Canadian banks have been too timid in investing in their country.
While other international institutions, such as HSBC, UBS and Goldman Sachs, have participated more in developing China's booming economy, they have also been able do so because they have much deeper pockets than their Canadian counterparts, Cooper said Monday, while releasing a new report on Sino-Canadian relations.
Up until this point, Canadian hesitation may well have been justified, she said. "Just like any business, there should be some trepidation because this is risky business," she said. "There are a lot of companies that have invested a lot of money into China that have yet to see a return on their investments and it's a very slow process as everyone is painfully becoming aware of."
When China joined the World Trade Organization, it agreed to grant foreign banks increased access to its financial services market after its five-year anniversary, which passed in December.
Flaherty's trip to Beijing was in part to help open doors for our financial institutions, particularly banks and insurers.
BMO, Scotiabank, and the Royal Bank of Canada are the major Canadian players in the Chinese market, and the recently lifted restrictions could be a major boon. China's middle class accounts for roughly 10 per cent of its population, and the ability to offer individual savings and investment vehicles, personal and commercial loans and credit card services present an enormous opportunity for foreign banks.
Small loans can have big impact for entrepreneurs
Vancouver Sun; B1; February 28, 2007
When east Vancouver's Andrew McCully lost his eyesight, it put the kibosh on his career as an animator-designer. Today, he's putting his sensitive hands and knowledge of the human body to work as a massage therapist.
With few assets and little previous business experience, the graduate of Vancouver's Emily Carr Institute of Art and Design anticipated difficulty borrowing the money he needed to buy massage tables and other equipment.
Banks typically aren't interested in very small business loans. Applicants are told to get a credit card and learn to live with double-digit interest rates.
Enter Vancity Credit Union with a micro-lending program that makes small loans available at prime plus four per cent to entrepreneurs who don't qualify for regular business loans and may not qualify for a credit card.
After drafting a viable business plan, McCully, 43, borrowed $10,000 last September on a four-year repayment plan. By renting space at clinics in East Vancouver and Burnaby, he paid off his loan in January.
"The loan helped out very much," said McCully, who expects to open his own clinic once he has a bit more experience in his new career.
Micro-lending was pioneered 24 years ago by Nobel Prize winning Bangladeshi economist Muhammad Yunus with the simple idea of granting small loans to small entrepreneurs in a bid to wipe out poverty. Today there are more than 3,000 institutions around the world providing micro-loans which average $150 US.
Vancity, Canada's largest credit union by assets, entered the field in 1996 with its "Business Heart" loan designed for people with a viable business plan who made up in character what they lacked in collateral or credit history.
Vancity went through $500,000 in six months, said Kevin Zakus, vice-president of business banking. He swears he can't recall the default rate, but says it was always expected that it would be higher than a normal commercial loan portfolio because business start-ups are typically high risk.
In 1997, Ottawa became involved through Western Economic Diversification Canada and agreed to pay 80 per cent of the credit union's net losses. Last week the current federal government renewed the program, pledging more than $1.7 million in loan support to both Vancity and Surrey-based Coast Capital Savings, Canada's largest credit union by membership.
Over the past decade the micro-lending program has helped 1,550 small businesses in Greater Vancouver, the Fraser Valley and Greater Victoria, to the tune of $20.6 million. That's a pittance in big banking terms -- Vancity's commercial loan portfolio exceeds $1 billion -- but it translates into an estimated 4,000 direct jobs and self-sufficiency for business owners who are often newcomers to Canada with few contacts, or people with disabilities, like McCully whose blindness is genetic.
They are people like:
- Lielong dog lover Alana Marie Jones, 33, who on Monday was approved for a $15,000 loan from Coast Capital to launch a doggie daycare near Metrotown specializing in small dogs -- the area is awash with condos and small dog owners.
- Full-time fashion store manager Ronnie Hill, 27, a woman who grew up loving Ninja Turtles on TV and who, after completing a government-sponsored self-employment program, borrowed $20,000 from Vancity to create a part-time business called Part-Time Ninja, a line of infant-toddler clothing sold both retail and online.
- Andrew Bruce, a man with no credit history because he had never borrowed from a bank or used credit cards, who combined skills learned from a government self-employment program and experience in the food service industry, to win a Vancity micro-loan and launch the Morning Glory Tea House on Commercial Drive.
- Yong Hun Jin, a Korean immigrant who received a micro-loan
from Coast Capital in 2005 to open JS Food Market, a successful
convenience store on Granville Street.
Eligible entrepreneurs are able to borrow up to $50,000 -- or $75,000 under the ABLED program (Advice and Business Loans for Entrepreneurs with Disabilities) used by McCully. Loans are for up to five years.
However, it's not easy money. Between one-third and one-half of all applicants are declined, typically because their business plan doesn't offer a high potential for success.
"If we don't see it working out, we don't want to get them into a loan that we don't believe will be successful," said Vancity's Zakus.
That sits well with Ron Sellen, operations manager of Western Diversification Canada in Winnipeg, who wants help given to as many people as possible with as few defaults as possible.
The program's default rate in the Vancouver area is about 15 per cent which, after the federal loan guarantee, leaves the credit unions with net losses of about three per cent when loans go south.
"That's still a little high for commercial lending and that's why we're pretty happy to have credit unions like Vancity and Coast Capital that actually feel the need to give back to the community," Sellen said in an interview.
Vancouver-area business that have moved from Vancity micro-loans to conventional lending and banking services include Artisan Bake Shop, Greenheart Conservation, Dutch City Bikes, Lotuswear Designs Ltd., Elite Earth Friendly Drycleaners, SPUD (Small Potatoes Urban Delivery), Eco-Industrial, Canadian Access & Doors, Refuse Holdings, Wild Fennel Restaurant, Solarcrest Innovations, Taylor Munroe, and Conscientious Innovations.
