Impaired loans jump by over $100 million quarter over quarter. Credit conditions within BMO’s transportation division a major financial backer of the North American trucking sector, continued to deteriorate in the fourth quarter, while the overall size of the portfolio moved noticeably lower.
BMO (NYSE: BMO), formerly known as the Bank of Montreal, has long been considered one of the largest lenders to trucking companies across Canada and the United States. But in line with the ongoing freight downturn, the bank is reporting increased writeoffs, higher loan loss allowances, and rising impairments, signaling continued financial stress among carriers.
Because of the bank’s significant market presence and the level of detail it provides in quarterly earnings reports released Thursday, BMO’s credit metrics offer a strong gauge of how well (or how poorly) trucking companies are managing their debt obligations. Industry analysts estimate that roughly 90% of BMO’s transportation portfolio is tied directly to trucking operators.
For much of the past year, the bank’s gross loans and acceptances held relatively steady despite weakening freight fundamentals. Now, the decline is becoming unmistakable.
Loan Portfolio Shrinks to Its Lowest Point in Four Years
At the close of the fourth quarter ending Oct. 31, gross loans and acceptances in BMO’s transportation division dropped to just under CAD$13 billion (US$9.31 billion). That compares with $13.7 billion in the third quarter and $14 billion in the second quarter.
The high point for this portfolio was reached in Q4 of 2023, when the total business book hit $15.6 billion. With the latest decline, the sector has now fallen back to levels not seen in four years, mirroring the prolonged financial pressure across the trucking industry.
This contraction follows an August report from Bloomberg suggesting that BMO may consider selling its transportation lending unit. Should such a sale occur, any potential buyer would be taking on a portfolio that has seen some negative credit indicators multiply several times over during the past two years.
One of the clearest examples is the increase in allowances for credit losses. In Q3 of 2022 shortly after the freight boom peaked allowances stood at $8 million. In the latest quarter, they surged to a record $71 million, marking an astounding 887% increase. That figure is also up from $66 million reported in the prior quarter.
Sharp Escalation in Gross Impaired Loans
The most dramatic deterioration came from gross impaired loans and acceptances. These soared to $585 million in the fourth quarter, compared with $424 million in Q3. This level not only represents a more than $160 million quarter to quarter spike, but also exceeds the previous record of $503 million set in the second quarter by more than $80 million.
For context, the post-pandemic low occurred in Q3 2022, when impaired loans fell to $72 million, followed by $73 million in Q4 of that year.
According to the Federal Reserve, an impaired loan is defined as one where “based on current information and events, it is probable that a creditor will be unable to collect all amounts due (principal and interest) according to the contractual terms of the loan agreement.” The surge in impaired loans suggests many carriers are struggling to keep up with repayment obligations amid prolonged low freight rates, rising operating costs, and tightening credit conditions.
Writeoffs also increased, reaching $43 million in the fourth quarter compared with $32 million in Q3. Even so, they remain below last year’s fourth-quarter level of $63 million, as well as the $46 million recorded earlier in 2024.
Provisions Improve Slightly but Remain Elevated
There was a modest positive signal in the form of provisions for credit losses, which, although elevated, show some year over year improvement. Both provisions and allowances represent accounting actions used to recognize troubled or high risk loans. However, provisions impact the income statement directly, while allowances affect the balance sheet.
Provisions for credit losses in the transportation segment totaled $57 million in the fourth quarter. While this is higher than the amounts reported during the preceding three quarters, it remains below the $85 million recorded in Q4 of last year and the $77 million booked in the third quarter of 2024.
The latest numbers from BMO reinforce a broader reality: the trucking industry continues to face significant financial strain, and lenders are taking notice. With the bank’s transportation portfolio shrinking, credit risks climbing, and impairments reaching unprecedented levels, the sector’s challenges are far from over. Until freight demand stabilizes and profitability improves, credit conditions across the trucking market will likely remain tight and increasingly selective.
