CALGARY C Prices for used industrial equipment in Western Canada are falling as banks locate a method of getting money out of an increasing number of delinquent loans in oil-producing provinces.
“Recent auction results have included generally softer pricing in secondary markets, particularly for specialized equipment,” Canadian Western Bank president and CEO Chris Fowler said during his company’s quarterly earnings call last week.
The Edmonton-headquartered bank uses auctions in an effort to secure its loans, especially for industrial equipment, and Fowler asserted, during previous quarters, prices remained high at industrial auctions regardless of the dramatic fall in oil prices and an overall slowdown in industrial activity in Alberta and Saskatchewan.
But the market for buying and selling used equipment has changed – and prices are falling.
“The cross-purpose yellow iron you can use in forestry, gas and oil, municipal infrastructure, were down definitely, but not significantly. It had been the greater specialized equipment (where prices fell further),” Fowler said.
When a borrower does not meet its loan payment obligations, a bank can move to sell that equipment on “secondary markets” at auction houses, making the need for a company’s equipment instrumental to a application for the loan.
“If there is a lower valuation, once we think about what secondary financial markets are like, it does modify the approach we take to take a look at (loans), no question,” Fowler said.
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At the end of February, Ritchie Bros. Auctioneers held a major industrial auction at its yard immediately south of Alberta’s capital, where its auctioneers sold 7,300 items for $120 million.
By comparison, the auction company sold 7,700 items in the same auction yard at the end of April 2015 for $215 million – setting multiple records for the company in Canada and surprising many consumers for the high costs that the equipment fetched.
Industrial companies in Alberta and Saskatchewan have been liquidating an increasing number of items at auctions because the rout in oil prices continues.
CWB Group, which utilizes Oct. 31 since it’s financial year-end, reported the value of its impaired loans rose 49.6 percent, from $30.2 million in the first quarter of 2015 to $45.2 million within the first quarter of the year.
Alberta represents 41 percent from the bank’s total impaired loans.
“The Canadian economy is constantly on the adapt to the impacts of low oil prices and we are working proactively with this clients, specifically in Alberta and Saskatchewan, to deal with related operating challenges,” Fowler said inside a statement.
Fowler stressed around the company’s earnings call that a “relatively small” proportion, roughly five per cent, from the bank’s overall loans were directly exposed to the energy sector.
The company did note, however, that “loan growth in Alberta and Saskatchewan is expected to slow compared to prior years due to the economic impact of low oil prices.”
As an effect, the company is lending more money in Bc and Ontario in an attempt to expand its business across the country.
To that end, the bank also closed its purchase of Maxium Financial Services Inc. for $120 million on March 1. Most of Maxium’s clients are in Ontario, that ought to help expand CWB’s loan book in the province.
BMO Capital Markets released an email a week ago that said CWB’s profitability and earnings growth during the period of this season and next are expected to fall because of higher expenses, partly from credit losses and impaired loans.
The bank pulled in earnings of $144 million in the first quarter, up seven percent in the same period last year, though its earnings per share held steady at 65 cents for that period.
Financial Post
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