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Canada's major banks have a combined exposure of around CAD 880 million (USD 634.33 million) to non-prime lender goeasy, as per TD Cowen analysts. The company recently withdrew its financial forecast, reduced its dividend and reported losses linked to weaknesses in its loan book, particularly in auto and vehicle financing. Despite this, analysts believe the exposure does not pose a significant risk to banks, as their lending is directed at the company and not its borrowers. Goeasy has also secured temporary relief on loan covenants and continues to access funding through structured facilities.
Canada's six largest banks have a combined exposure of nearly CAD 880 million (USD 634.33 million) to non-prime consumer lender goeasy, according to a recent note by TD Cowen analysts. The exposure comes at a time when the lender is facing financial pressure due to stress in its loan portfolio. Advertisement
Goeasy, which mainly lends to customers with weaker credit profiles, had surprised the market in the past month after withdrawing its financial forecast, reducing its dividend payout and recording a charge-off linked to underperformance in its loan book. The weakness is largely tied to its financing segments in auto, car and bike loans, which have seen rising stress amid changing credit conditions.
In the past week, the company informed that it had secured waivers from lenders on certain financial covenants for the fourth quarter. This move provides temporary relief and allows the company to maintain compliance with its borrowing terms despite recent financial strain.
Among the lenders, Bank of Montreal, Royal Bank of Canada and National Bank of Canada have been identified as key participants. The total exposure of about CAD 879 million includes multiple funding structures. Around CAD 177 million is in the form of a revolving credit facility shared among all six major banks. Another CAD 89 million is a secured loan, with an additional CAD 99 million available as borrowing capacity.
Additionally, about CAD 215 million is backed by goeasy's customer loans, which are used as collateral. The company also has access to approximately CAD 613 million through its Trust I warehouse facility, which has a total capacity of CAD 1.12 billion. This facility is used to fund loans before they are bundled and moved into final securitisation structures.
The analyst noted that banks do not have direct exposure to individual borrowers of goeasy. Instead, their exposure is limited to the company itself, where shareholders would be the first to absorb any potential losses.
TD Cowen's analysis indicated that the current level of exposure is not expected to create a significant risk for the banking sector. The firm's analyst stated that, when viewed in a broader context, the exposure to goeasy is not seen as a meaningful headwind for banks.
Following the announcement of a larger-than-expected loss, goeasy's shares declined by about 2.3 per cent in the most recent trading session, reflecting continued investor concern over its financial performance and asset quality.
Source Reuters
5th Jun, 2025
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