More and more companies are unable to repay the loans granted to them by the Ministry of Economic Affairs (MEIE). In total, the government could lose almost $600 million from risky financial interventions.
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In the 2022-2023 report of the Economic Development Fund (FDE), Quebec estimates the value of loans at more than $586 million “whose repayment is not adequately assured and for which…” [le gouvernement] the recording of interest income has been discontinued.
At the end of March, there were 144 loans, with an average value of nearly $4.1 million, on which borrowers were no longer paying interest at all.
“There is a big chance that we will not get anything back from this $586 million,” emphasizes Aurélie Desfleurs, professor of accounting at the University of Sherbrooke.
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A year earlier, 96 loans were in serious trouble with a total value of $478 million (average $5 million per loan).
Aurélie Desfleur's photo from the University of Sherbrooke website
“It’s slowly getting more difficult”
“There are more companies that will have difficulty paying back their loans. “It is still a sign that things are getting harder economically,” says Maurice Gosselin, a professor of accounting at Laval University.
“The quality of borrowers appears to be deteriorating,” notes Félix Zognining, professor of accounting at the University of Sherbrooke.
The high-risk sums of $586 million represented nearly 16% of the roughly $3.8 billion the MEIE had lent to companies as of March 31. This is a higher proportion than the 14% in 2021-2022, but still lower than previous years.
Interestingly, the entire $3.8 billion loan portfolio is subject to a provision for losses “based on the assessment of their risk level,” explains Investissement Québec (IQ), which manages the FDE for the government, in a response to an access request Information.
Last fall, Quebec lost at least $110 million due to the bankruptcy of the Stornoway diamond mine. Archive photo
At the end of March, provisions recorded in FDE's accounts amounted to nearly $888 million, or 23.5% of the total value of the commercial loan portfolio.
This compares to a 22.3% share for loans made by Canada Economic Development for Quebec Regions, a federal agency that plays a similar role to the MEIE.
Quasi-subsidies
“The government is taking a lot of risks,” notes Ms. Desfleurs. Certain loans may be considered grants.”
IQ ensures that all necessary measures are taken to maximize the chances that the loans granted by the government will be repaid.
“When Quebec companies are well positioned, the countercyclical role of Investissement Québec is particularly important to support them. That's why we support companies. That's why we are more risk tolerant. That’s why we are more patient when it comes to financing,” says Isabelle Fontaine, spokeswoman for the state-owned company.
Almost $3.8 billion in ten years
Last fall, Le Journal revealed that MEIE's generous corporate aid had cost taxpayers almost $3.8 billion in ten years. This does not include all the amounts that the government invests in companies, but only those that have been lost due to bankruptcies or other financial difficulties.
Despite the large sums at stake, the government provides very little information about the loans in trouble. It is impossible to know which companies these are unless one of them is in a bankruptcy situation.
“We only disclose what is required. It’s very rare that people reveal more than the minimum,” says Aurélie Desfleurs.
For his part, Maurice Gosselin is convinced that it is time in Quebec to have “a debate” on the relevance of granting such large amounts of aid to companies.
“The question we can ask ourselves in 2024, given the very low unemployment rate, is: Should we continue to maintain all this support for companies that are creating jobs but are fragile? he asks.
Maurice Gosselin photo from Laval University website
MEIE business help in numbers
- Total loan amount: $3.77 billion
- Present value of loans (less loss provisions): $2.89 billion
- Equity investments (at cost): $2.19 billion
- Share of interest-free loans: 40%
- Percentage of loans with an interest rate of 3% or less: 21%
- Net cost of business aid to taxpayers in 2022-2023: $475 million
Note: Data for the Economic Development Fund as of March 31, 2023.
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