January 5, 2009 / 6:56 PM / in 9 years

Policy makers meet with banks on credit woes

OTTAWA (Reuters) - The finance minister and central bank chief met with the country’s top bank executives on Monday to prod them to loosen up lending, officials said.

<p>Canada's Finance Minister Jim Flaherty talks with the media after an all day meeting with the provincial and territorial finance minister in Saskatoon, Saskatchewan December 17, 2008. REUTERS/David Stobbe</p>

A spokesman for Finance Minister Jim Flaherty confirmed the meeting took place early on Monday. Bank of Canada Governor Mark Carney also attended, according to his spokesman.

Neither would comment on the meeting.

Flaherty will speak to reporters on Tuesday at 9:30 a.m., prior to pre-budget consultations in Montreal, and is expected to comment then on the talks with the banks.

The head of the Canadian Bankers Association, who also attended the meeting, said Flaherty expressed concern about the availability of credit for businesses and individuals.

“We assured the minister that the banks are committed to doing what they can to help Canada weather any recession and that they will continue to lend to credit-worthy individuals and businesses,” Nancy Hughes Anthony, president and chief executive of the CBA, said in a statement.

Hughes Anthony said banks represent only half the credit market for small and mid-sized businesses and that non-bank funding sources to these businesses are the ones that have been curbing their lending.

“Banks are trying to fill the gap, but we’re not able to take up all the slack from other providers,” she said.

She defended the Canadian banks’ prudent lending practices and said it was best to stick to those practices, protecting depositors’ money.

Canadian banks, ranked the world’s soundest by the World Economic Forum, are under market pressure to raise their capital levels even though they are already higher than required by regulators and above the global average.

Several banks issued shares last year to raise their capital levels.

In December, Carney warned against this trend, urging banks not to hoard capital and to unlock more credit for worthy business investments.

Still, two banks announced new preferred share offerings on Monday.

Toronto-Dominion Bank, Canada’s second-biggest bank, said it planned to raise about C$225 million ($189 million), bringing its Tier 1 capital ratio -- used to compute the capital adequacy of banks -- more in line with its peers as investors demand greater capital cushions in these times of uncertainty.

National Bank of Canada, the sixth-largest bank, plans to raise C$125 million.

The National Post newspaper reported on Monday that Flaherty would discuss with the banks a range of proposals under consideration to ease credit conditions.

The proposals, which could potentially be worked into the January 27 budget, include the government acting as guarantor for different types of loans, in addition to its traditional role as guarantor of mortgages.

Ottawa could also provide tax incentives for investors to buy preferred shares in banks, as an alternative way to raise financing with reduced risk, the newspaper said, citing people briefed on the agenda.

Reporting by Louise Egan; editing by Rob Wilson

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