Montreal, June 8, 2009
Archived - Minister of Finance Announces Financing Measures Are All in Operation
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The Honourable Jim Flaherty, Minister of Finance, and the Honourable Tony Clement, Minister of Industry, today announced that all of the measures in Canada's Economic Action Plan to improve access to financing are in place and fully operational.
"To date, over $115 billion has been provided to improve the availability of financing for Canadian households and businesses, all of it on a commercial basis to protect the taxpayer," said Minister Flaherty. "This has had a real impact on credit conditions in Canada. Household and business credit is growing and average interest rates have fallen steadily. This is good news for all Canadians."
Minister Flaherty also announced that allocations under the $1-billion Small Enterprise Tranche of the Canadian Secured Credit Facility (CSCF) have been made, ensuring the facility reaches smaller participants in the loan and leasing market. Lenders from a cross-section of the vehicle and equipment financing industry have received the allocations. This brings the total allocated under the CSCF to $11 billion. A further $1 billion will be allocated in August.
"Giving smaller lenders in the loan and leasing market a chance to access credit is wholly consistent with Canada's Economic Action Plan," said Minister Clement. "Support for the financing of vehicles and equipment in Canada will also help bolster confidence in the Canadian auto industry at this critical time."
Canada's Economic Action Plan takes unprecedented action to improve access to credit and financing for Canadian families and businesses. Measures include the:
- Business Credit Availability Program
- Canadian Secured Credit Facility
- Insured Mortgage Purchase Program
- Canadian Lenders Assurance Facility
- Canadian Life Insurers Assurance Facility
For more information on Canada's Economic Action Plan, visit www.actionplan.gc.ca.
For further information, media may contact:
Office of the Minister of Industry
Office of the Minister of Finance
Department of Finance
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A Comprehensive Plan to Improve Access to Financing
The Canadian financial system has weathered the global financial crisis very well, but the global credit crunch has still had an impact on the Canadian economy. Creditworthy businesses have been finding it more difficult to get the financing they need to invest and create jobs. Creditworthy families have had trouble getting credit on reasonable terms to do things like buy cars or improve their homes.
Canada's Economic Action Plan takes unprecedented action to improve access to credit and financing for Canadian families and businesses through the Extraordinary Financing Framework (EFF).
All of the elements of the EFF are in place and fully operational. To date, over $115 billion has been provided to improve the availability of financing for Canadian households and businesses, all of it on a commercial basis to protect the taxpayer.
New Support for Vehicle and Equipment Financing
The securitization market in Canada has faced serious challenges. As a result, consumers and businesses have had a more difficult time obtaining leases and loans on reasonable terms for vehicles and equipment. This has caused a drop in sales and added to the struggles that our manufacturers have already been facing.
To address this, the Government has rolled out the Canadian Secured Credit Facility (CSCF). Through the CSCF, the Government is purchasing up to $12 billion of newly issued term asset-backed securities backed by loans and leases on vehicles and equipment and floor plan (inventory financing) loans. This gives lenders who were holding these securities extra financial room to extend new loans and leases for those who need them.
Under the Large Enterprise Tranche of the CSCF, allocations to 15 Canadian lenders were made in mid-May.
Allocations under the $1-billion Small Enterprise Tranche have also been made, ensuring the CSCF also reaches smaller market participants.
In total, $11 billion has been allocated under the CSCF.
The remaining $1 billion will be allocated no later than August 2009.
Direct Support for Small and Medium-Sized Business
Through the Business Credit Availability Program (BCAP), the Government will provide at least $5 billion in direct lending and other types of support to businesses affected by the credit crunch.
This incremental credit, delivered through Export Development Canada (EDC) and the Business Development Bank of Canada (BDC) in close partnership with private lenders, is filling gaps in market access and levering additional lending.
As of mid-May, the financial Crown corporations had all of their new business lines in place and were fully open for business.
EDC and BDC have reported total activity under BCAP of over $600 million, assisting almost 800 businesses. BCAP activity is expected to ramp up quickly over the coming weeks.
A dedicated BCAP website (www.fin.gc.ca/bcap) has been launched to provide information about the program.
Support for Canadian Lenders
The global credit crunch has made it difficult for Canadian banks and other lenders to raise the funds they need to extend credit to their clients.
Under the Insured Mortgage Purchase Program (IMPP), the Government stands ready to buy up to $125 billion of insured mortgage pools from Canadian lenders. This initiative comes at no additional risk to taxpayers. The mortgages are already insured by Canada Mortgage and Housing Corporation and are being purchased on commercial terms, generating a positive return.
To date, $58 billion of term liquidity has been provided to financial institutions under the program. As liquidity conditions have improved over the past months, lenders have not participated as aggressively in the IMPP.
However, the IMPP continues to be an important source of liquidity should alternative sources of funding become less available.
Under the Canadian Lenders Assurance Facility, which is now fully operational, the Government will provide insurance on the wholesale term borrowing of federally regulated deposit-taking institutions. This puts our financial institutions on a competitive footing internationally, as other governments have taken similar steps to insure wholesale borrowing.
The Canadian Life Insurers Assurance Facility, which is now also available, extends the same type of facility to life insurance companies.
Recent Developments in Credit Conditions in Canada
Household Credit Is Growing
Total household credit growth remains strong but is lower than it was in mid-2007 at the start of the financial crisis. As of April 2009, the quarter-over-quarter annualized growth of total household credit stood at 6.7 per cent.
Business Credit Is More Challenging
Business credit has been essentially flat in 2009. In April 2009, the quarter-over-quarter annualized growth rate of business credit was 0.6 per cent.
Since the start of this year, however, there has been a significant improvement in credit supplied to businesses by financial markets, some of which has substituted for credit provided by banks. In particular, net issuance of bonds by non-financial corporations rebounded to almost $6.5 billion in the first four months of 2009 after a decline of about $2 billion in the fourth quarter of 2008. By contrast, bank lending to businesses declined in each of the first four months of 2009, and by 13.3 per cent on a cumulative annualized basis, after growing sharply in the last quarter of 2008.
The terms and conditions available to borrowers continue to tighten. In the Bank of Canada's most recent Business Outlook Survey, about one-third of firms reported tighter credit conditions over the past three months relative to the previous three months.
Interest Rates Are Falling
Average interest rates have fallen steadily for both households and businesses. Over the past year, the prime rate has fallen 250 basis points and posted 5-year mortgage rates have dropped 140 basis points. The average effective household interest rate was 4.23 per cent in May compared to 5.46 per cent in December 2008. Similarly, the average effective business interest rate was 4.16 in May compared to 5.75 in December 2008.