Banking Matters

Doug Bruce, Director of Research

HSBC, credit unions and ATB Financial continue to receive highest marks from their small business clients but their performance is beginning to falter. The big five banks have not shown much improvement in service satisfaction, which remains consistently low. Credit is due to both Desjardins and National Bank for improved satisfaction levels. Overall, however, the banking sector is not making significant strides towards better serving the small business sector. These are some of the many findings contained in this report based on survey results from 9,347 owners of small and medium-sized businesses.

A strong and competitive small and mediumsized enterprise (SME) sector is critical to a strong and competitive economy. Its directcontribution amounts to approximately 45 per cent of the overall Canadian economy. But the SME sector’s role goes far beyond its direct contribution to GDP. SMEs employ the majority of Canadians and are a key foundation in all communities throughout Canada. SMEs are also where many of Canada’s innovative ideas are born, laying the groundwork for a more productive Canadian economy.

Essential to the future growth potential of the SME sector is a strong and competitive banking sector. Banks, credit unions and caisse populaires directly contribute 3.3 per cent of GDP. Indirectly, their contribution is considerably greater. For example, the provision of financing and banking services for SMEs at competitive rates is essential to the
future success of the Canadian economy.

While these two sectors are dependent on each other for continued future success, the Canadian banking sector has been setting the stage for major changes. In the past decade, for example, the major banks have reduced the number of branches throughout the country. More significant, however, are the prospects of bank mergers. In 1998, there were two major bank merger attempts—the Royal Bank with the Bank of Montreal and the CIBC with TD Bank. The federal government rejected these proposals citing competition as a primary reason. The federal government has widely consulted on how to deal with bank mergers but has not given the green light for the banks to make proposals. The recent five-year review of the Bank Act did not open the door for bank mergers. But while the federal political landscape for the past few years has not been ripe for serious discussion of bank mergers, it is an issue that will likely keep returning.

CFIB strongly believes the role of public policy on banking should be to focus on increasing competition—not simply dealing with consolidation. The interests of the SME sector are best served through more choice and competitively priced financial services. CFIB bank survey results do not demonstrate an improvement in how the banking sector is serving the needs of the SME sector.

This report provides a unique information base for business owners, bankers and public policymakers on banks’ individual performances in the small business market. The ultimate goal is to assist in the development of public policy that supports a competitive banking industry.