Canada's Export-Finance Agency Wants Its Domestic Lending Mandate Extended

Export Development Canada, the country’s export-financing arm, wants Prime Minister Stephen Harper’s government to make permanent the agency’s temporary powers to support domestic lending, its chief executive said.

Harper’s government gave the agency, known as EDC, extra powers for two years as part of its 2009 budget. The expanded mandate, which is set to expire next March, could allow EDC to add as much as C$4 billion ($3.84 billion) in “annual volume,” CEO Eric Siegel said in an interview at Bloomberg’s Ottawa office.

Siegel, 56, said extending EDC’s powers is needed amid a slowing economic recovery and tougher capital requirements for banks. Canadian lenders would look “very closely” at a permanent extension of the agency’s mandate to ensure it doesn’t become a competitor, the trade group that represents the Royal Bank of Canada and other banks said.

“We still have some big requirements in this country for mobilizing financing capital,” Siegel said. “We’re going into a pretty slow period the later part of this year and 2011, and we still have issues for the banks” as regulators prepare to raise capital requirements.

The government is aware of the request from EDC and no decision has been made, Finance department spokesman Jack Aubry said in an e-mail.

John McCallum, spokesman for the opposition Liberal Party on economic issues, said there is a “strong case” to extend the temporary mandate.

‘Big Issue’

“I’m not sure you want to make it permanent, but at least while the economy is weak and access to capital is a big issue, it would make sense to extend that,” McCallum said in a telephone interview.

The Ottawa-based EDC shouldn’t compete with private lenders, said Maura Drew-Lytle, a spokesman for the Canadian Bankers Association, a Toronto-based lobbying organization that represents all the country’s major banks.

“We would want to ensure that EDC continues to lend on a complementary and partnership basis rather than as competitors to the banks and that their focus remained export-oriented,” Drew-Lytle said in an e-mailed statement. “We haven’t seen what EDC is proposing and would have to look at it very closely.”

Siegel said the agency’s objective would be “maximizing bank participation”, not trying to take business away from lenders. “We’re not there to compete with the banks, we’re actually there to help the banks,” he said.

Debt Refinancing

Siegel cited EDC’s decision last year to help refinance debt of New Flyer Industries Inc., a Winnipeg, Manitoba-based bus maker, and its support of Clearwater Seafoods Income Fund, a Halifax, Nova Scotia-based seafood producer.

EDC’s request for a broader mandate comes amid growing concern the global recovery is stalling. Canada’s trade deficit unexpectedly widened to C$1.1 billion in June from a revised C$695 million gap in May, Statistics Canada said Aug. 11 in Ottawa. The U.S. Federal Reserve said Aug. 10 the recovery is weakening.

Concern about a slowdown has prompted opposition parties and provincial leaders to question whether the government may need to consider a new stimulus package. Liberal leader Michael Ignatieff said July 30 in a Bloomberg interview that it’s too early to “shut the door” on additional stimulus as new spending measures may be needed to fuel the recovery.

Extraordinary Measures

The government this year wound up most of its extraordinary financing measures aimed at reviving the economy, including programs to purchase mortgages and car loans, and guarantee debt issued by banks and insurers.

EDC’s business financing volume, a measure that includes insurance coverage, will probably decline this year to about C$82 billion to C$83 billion, from C$85 billion last year and C$87 billion in 2008, Siegel said.

Siegel also said he expects his agency will play a “very major role” in financing purchases of Bombardier Inc.’s CSeries jet.

The CSeries is due to enter service in 2013, competing in a narrow-body jet market that Boeing estimates will reach $1.68 trillion in the next 20 years. “It’s very much on our planning to be there,” Siegel said.

Siegel, who expects EDC could be looking at loan signings of as much as C$2 billion annually for the CSeries, said any support should be done at market rates. “Support should not be done on a subsidized basis,” Siegel said. “It should be done reflecting the risks and with an adequate return on those risks going forward.”

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net.

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