HSBC Bank Canada last month sent letters to an undisclosed number of small-business clients advising them to find a new institution within 60 days.
The bank’s shift in global strategy and the resultant cull of longtime small-business customers not only has damaged the bank’s reputation but it also has the potential to affect the B.C. economy, said Beedie School of Business associate professor of finance Jijun Niu, who specializes in international banking.
“I’m not sure the extent of the damage to the bank’s reputation. But, when a major bank closes many of its small-business accounts, I think there will be an impact on those small businesses and the local community.”
Niu expects HSBC’s erstwhile clients to be able to find a new institution within the 60-day deadline but said many of those business owners are likely to find it more difficult to get loans from their new bankers because they haven’t established long-term working relationships with them.
That lack of lending hinders the small-business expansion, job creation and spinoff consumer spending that drive the B.C. economy, he said.
The sudden culling of accounts surprised Niu, who has never heard of a large bank doing anything similar.
It also shocked longtime customers and small-business advocates because the accounts are widely seen to be profitable – just not profitable enough in the eyes of executives at HSBC Bank Canada’s London-based parent, HSBC Holdings PLC.
HSBC Bank Canada’s head of business banking, Nigel Davis, told Business in Vancouver in an email that the decision was not local.
The bank’s global strategy, he said, is increasingly to focus on business clients that export or “aspire to become international businesses, benefitting from our global footprint and connectivity.”
He added that the bank has shelved its longtime tag line of being the “world’s local bank” and now prefers to be known as the “world’s leading international bank.”
The experience has soured many of the former HSBC small-business customers on all big banks.
“Credit unions are better [than banks],” said Perry Rink Contractors owner Perry Rink, who was with HSBC for decades and has switched his accounts to Envision Financial, which is a division of First West Credit Union.
“They have boards of directors who are local people, and I think they are more in touch with the community.”
Envision’s assistant vice-president of small-business banking, Norman Attridge, estimated that the average small-business account likely generates a profit of several thousand dollars annually from fees and interest.
He stressed that there is also an intangible value that comes from the accounts.
“Small-business owners are the heart of the community. They have extensive networks and have employees who work in the community.”
Vancity manager of operations and community business Anthony Okuchi also believes that credit unions emphasize the economic strength of communities more than large banks.
His credit union, for example, has a grant program that distributed $1.4 million in 2013 to businesses to fund various projects for community, social or environmental benefits.
A micro-finance program has helped entrepreneurs with loans as small as $5,000 toward buying a food truck.
“We also connect members with each other,” Okuchi said. “For example, we connected Rocky Mountain Flatbread Co. in Kitsilano with A Bread Affair, which is a certified organic baker.
“A Bread Affair could provide organic flour to Rocky Mountain Flatbread, so both of those members were able to help each other.”
