At BMO, a disciplined, consistent and prudent approach to credit risk is a core value. We don’t follow the pack to embrace the latest favourite sector or product, nor do we change our lending criteria according to whether the economy is growing or slowing. All significant commercial and corporate lending proposals are thoroughly investigated and analysed and credit decisions are made by experienced, well-trained and fully qualified personnel supported by time-tested policies and procedures. As a result of our industry-leading credit loss history and our transparency in credit reporting, we are a recognized leader in credit risk management.

A Better Deal for our Clients

What does BMO’s disciplined, consistent and prudent approach to credit risk management mean to our clients?

It means that they can rely on us in good times and, more importantly, in bad times. Our focus on consistency means we maintain the same underwriting standards throughout the credit cycle, whereas many lenders tighten their standards in response to deteriorating loan portfolios. It’s a fact that lenders who have opened the vaults too wide in bullish times often retrench when the economy contracts. It’s a pattern that can be unsettling at the least, and at the worst, disastrous for clients.

BMO’s approach is rather to deal with tough times by doing what we reasonably can to maintain valued relationships with our clients. Across Canada, members of our risk management groups have the mandate, training and resources necessary to work closely with customers to provide meaningful solutions tailored to their situations and needs.

A case in point involves our partnership with Canadian cattle ranchers following the crisis that developed when an Alberta cow tested positive for Bovine Spongiform Encephalopathy (BSE) in 2003. It was an event that prompted countries including the United States and Japan to close their borders to Canadian cattle. Reasoning that this difficult situation was beyond our customers’ ability to contend with on their own, we introduced BMO Bank of Montreal’s BSE Disaster Assistance Program, which allowed customers dealing with hundreds of thousands of dollars in lost income to defer principal payments on their loans until conditions improved.

As expected, conditions did improve. Last summer, the United States reopened its border to young Canadian cattle and our clients were back in business. And that, after all, is the point.

Better Results for Shareholders

What does our credit risk management approach mean for our shareholders? It’s simple. We gain market share without increased risks as the credit cycle deteriorates while many of our peers tighten their credit standards.

It also means better returns. Excellence in managing credit risk assets enables us to provide more predictable and consistent returns over time than our peers. Over the past 15 years BMO’s average credit loss was 36% below the average of its Canadian peer group. In 14 of those 15 years BMO’s credit losses were better than the average of its peer group. The one exception was 2001 when BMO recognized early losses associated with the telecom industry.

This early recognition of credit losses is a hallmark of our leading credit disclosures: we are vigilant in recognizing deterioration in credit assets and continually seek to provide the most meaningful information for shareholders and investors to enable them to accurately assess our credit quality. In 2004 we were the first Canadian bank to distinguish new specific provisions from reversals and recoveries in our specific provision for credit losses. This information assists investors in understanding emerging losses. Similarly, our disclosure of new impaired loans provides a leading indicator of potential future loss.