ATB Financial grappled with high levels of loan defaults after what it calls one of the worst financial years in the province’s history, but it believes the number of business failures will decline as Albertans bounce back from the rout.
The provincially owned bank posted a $150.8-million profit in 2016-17, up almost 40 per cent over the previous year’s net income but well below pre-recession levels.
The bank said the key driver behind the higher earnings was a decline in its loan loss provisions, a conservative estimate of potential losses, which fell to $235 million, down from $387.6 million posted in the previous year.
Despite the drop, actual loan writeoffs more than doubled from $76 million in 2015-16 to $187 million in the latest fiscal year.
“It’s not news to anyone that the structural changes to the economy that Albertans faced in 2016 made it, financially speaking, one of the worst years in the history of the province,” Dave Mowat, the bank’s chief executive, said in a release.
Mowat told reporters that while oil and gas companies were the biggest source of loan defaults in 2015-16, the economic pain appeared to have spread in the latest fiscal year, when companies that supply the energy industry struggled to pay their debts.
Still, the bank’s CEO believes the economy has started to bounce bank, which means fewer companies will default on their loans. Mowat estimated ATB’s loan loss provisions will fall from $235 million to anywhere between $175 million and $150 million in the current fiscal year.
“The second half will be better than the first half,” said Robert McGee, the bank’s chief financial officer.
In an attempt to give the economy a lift from the doldrums of the energy rout, the NDP government increased ATB’s lending capacity in the fall of 2015 to help small and medium-sized businesses.
The Crown corporation received access to as much as $1.5 billion in liquidity and capital to expand its loans to these smaller operators. The bank is allowed to lend out much more than the capital it has access to, which means loans for small and medium sized businesses could rise by billions of dollars.
The bank reported more than 12,000 loans to these smaller outfits in its latest fiscal year, up by 500 over the previous year.
“It was a tough year in Alberta, and the very fact there was any increase at all is significant,” Mowat said.
ATB said in its latest economic forecast that Alberta’s economy will grow by an estimated 2.7 per cent this year after shrinking by a stunning 3.8 per cent in 2016.
The bank also found in a quarterly survey that investor optimism in Alberta’s economy rose in the first three months of the year, compared to the last quarter of 2016, which the bank said may be partly linked to stabilized energy prices.
“As you start to see people building their savings accounts or taking out loans to buy capital assets and things, I think that’s a sign that confidence is returning,” Mowat said Thursday.