Small businesses 'don’t have the ability to take on more debt': RBC CEO
As the Canadian economy transitions from shutdowns to a “prolonged recovery” phase, government policy should be aimed at bridging businesses to profitability, according to the head of Canada’s largest bank.
“It would have to come in a forgivable form, the way it came in did in the [Canada Emergency Business Account], for [businesses] to be interested,” said Dave McKay, chief executive officer of the Royal Bank of Canada (RBC), in a television interview with BNN Bloomberg’s Amanda Lang Friday.
McKay’s comments come as companies across the country struggle to stay afloat without enough cash on hand, after many were ordered to shut their doors in the wake of the COVID-19 pandemic. They also come days after RBC reported a seven-fold jump in loan loss provisions in the second quarter that cut the bank’s profit in half.
“If you look at the restaurant and services sector … their client base is not going to come back all at once,” McKay said, adding that these businesses will be burning cash, not creating cash, during the recovery.
He noted there isn’t a lot of demand among small businesses for debt-lending products because many fear they will not be able to pay back loans.
“What customers, small business and commercial customers have clearly told us, across the country, is they don’t have the capacity, the cash flow, the ability to absorb more debt,” McKay said.
He also said this phase of recovery presents opportunities for investors like “the Blackstones of the world” to support firms that may have taken on too much debt before the fallout from COVID-19 began but hold promise for the post-pandemic world.
“There’s a lot of liquidity sitting on the sidelines,” he said.