The Financing Company borrowers are also grouped along industry, providing a measure of the Financing Company’s activity throughout the various sectors of the Canadian economy. For our immediate purposes, we have chosen a NAICS-based 11 industry classification system of the Financing Company credit portfolio. Borrowers are classified as accordingly belonging in one of the following industries: Business Services (BUS); Construction (CON); Manufacturing (MAN); Non-Business Services (NBUS); Resources (RES); Retail (RET); Supplier of Premises (SOP); Tourism (TOU); Transportation and Storage (TRS); Wholesale (WHS); Other (OTH). A full description of the industries and their composition is given in the Appendix to Chapter 2. Table 2.3 provides a breakdown of the distribution of borrowers across Size Buckets and Industries, while Figure 2.2 provides a visual representation. The main findings revealed by the table can be listed as follows:
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1. a) The Industry with the largest number of borrowers is the Manufacturing industry, containing 24% of all borrowers in the portfolio. b) The Manufacturing industry is also found to account for the highest proportion of $OS in the Financing Company portfolio, totalling 31% of the overall $OS.
2. a) We observe that the predominance of the Manufacturing industry carries through to all Size Buckets, where it accounts for a majority of borrowers in each. b) For all Size Buckets, the Manufacturing industry is also found to account for the highest proportion of $OS, albeit to varying degrees. For instance, while the MAN industry accounts for the highest proportion of $OS in the ≤$100,000 Size Bucket, it is only 3% greater (in terms of overall $OS for that industry) than the industry with the second highest proportion of $OS (RET). For the ≥$5,000,000 Size Bucket, however, the difference between the largest and second largest industries, MAN and RET, respectively, is 24%. As such, Table 2.3 allows us to document a positive relationship between concentration of clients in the MAN industry and Size Bucket. An explanation can perhaps be found in the MAN industry as one in which fixed and start-up costs are the most elevated, compared to Retail, Wholesale and the Services industries, for instance.
3. a) Within Industries, we observe that the Size Bucket with the highest proportion of borrowers in almost all industries is the $250,000 - $1,000,000 Size Bucket. Exceptions can be found in the Business Services, Non-Business Services, Wholesale, and Other industries, for which the ≤$100,000 Size Bucket accounts
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for the highest proportion of borrowers. b) In addition, we observe that for almost all industries the Size Bucket with the highest proportion of $OS is the $1,000,000 - $3,000,000 Size Bucket, with the exceptions being the NBUS industry (for which the $250,000 - $1,000,000 Size Bucket is the largest), and the SOP and TRS industries (for which the ≥$5,000,000 Size Bucket is the largest).
4. a) Unsurprisingly, we observe that the Size Bucket-Industry segment with the highest number of borrowers is the $250,000-$1,000,000 Size Bucket in the Manufacturing industry, containing 7.5% of all borrowers in the portfolio. b) In addition, this result holds true for the $OS wherein the 250,000-$1,000,000 Size Bucket in the Manufacturing industry accounts for 10% of all $OS.
5. a) Table 2.3 shows that the industry with the highest proportion of borrowers in Size Buckets of $250,000 or less is the BUS industry, with 65% of borrowers in those Size Buckets, while the industry with the lowest proportion is the SOP, with 18% of borrowers in those Size Buckets. Excluding both SOP and BUS industries, we observe that this proportion varies between approximately 40% and 60%, with a mean and median of 50% across all industries. As such, the SOP industry presents a significant outlier in its proportion of borrowers in Size Buckets of $250,000 or less. Conversely, out of all the industries, the SOP industry has the highest proportion of borrowers in the 250,000-$1,000,000 Size Bucket. This result may suggest a significant size threshold for that industry. b) Similarly, in terms of $OS, we observe that the BUS and SOP industries account
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for the industries with the highest and lowest proportion of $OS in Size Buckets of $250,000 or less, respectively. In addition, we find both the TRS and MAN industries exhibit significantly lower concentrations of $OS in Size Buckets of $250,000 or less (5%) as compared to the mean and median (9%) across all industries.
Segregating our industries along Risk Ratings, as in Table 2.4 and Figure 2.3, we observe the following:
6. a) For all industries barring the CON and WHS industries, the 8 RR accounts for the highest proportion of borrowers, with proportions ranging from 24% for the SOP industry and 14% for the MAN industry. For the CON and WHS industries, we observe the highest concentration of borrowers in the 9 and 3 RRs, respectively. Taking the two highest RRs of 8 and 9 together, we observe a concentration of 31% of the overall portfolio, with the highest concentrations across industries being in the SOP, TOU, NBUS and OTH industries (approximately 35%), and the lowest being MAN and WHS industries (23% and 25%, respectively). b) Conversely, a broad pattern is hard to detect when examining the distribution of $OS across RRs for each industry, with industries showing a large variety of predominant concentrations among RRs, and these concentrations being limited to a range of approximately 15% to 20%. One surprising observation is that of the 2 RR being the RR with the highest concentration of $OS for the CON industry – which is the only industry to have the 9 RR contain the highest concentration of borrowers. The industry with the
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highest risk top concentration of $OS is the RES industry, for which 17% of $OS have a RR of 8. The CON industry is joined by the MAN industry, for which 14% of $OS have a RR of 2. The CON industry is the industry exhibiting the highest concentration level in any one RR within an industry, at 21.4%, while the MAN industry exhibits the lowest at 14.1%. For the portfolio as a whole, the 3 RR contains the largest concentration of $OS, accounting for 16.0% of the overall portfolio $OS.
7. a) Unsurprisingly, we observe that the MAN industry accounts for the highest proportion of borrowers for all RRs. We observe that the proportion of borrowers in the MAN industry decreases with increasing RR so that for the 1 RR 30% of borrowers are in the MAN industry, while for the 9 RR, that figure is 17%. For the portfolio as a whole, the concentration of borrowers in the MAN industry is 24%. b) In addition, the MAN industry accounts for the highest concentration of $OS for all RRs. We observe that the proportion of $OS in the MAN industry decreases with increasing RR, so that 40% of $OS in the 1 RR are attributed to the MAN industry while the same can be said of only 22% in the 9 RR. For the whole portfolio, 31% of $OS can be attributed to the MAN industry.
8. a) The RR-Industry segment with the highest proportion of borrowers is the 8 RR in the MAN industry, containing 831 borrowers and accounting for 3.3% of all borrowers in the portfolio. b) The RR-Industry segment with the highest
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concentration of $OS is the 2 RR in the MAN industry, containing $464m in $OS and accounting for 4.4% of the overall portfolio $OS.
Summarizing, we observe that the MAN industry is the largest in terms of both, number of borrowers and $OS to those borrowers, accounting for nearly a quarter of the portfolio in the former and nearly a third in terms of the latter. This relationship is replicated in each Size Bucket for the portfolio. A bell shaped distribution of borrowers (with skewness towards higher value Size Buckets) is exhibited for most industries, including MAN, TOU, SOP and TRS. However, for industries such as BUS, RET and WHS, we observe a decreasing proportion of borrowers with Size Bucket. This phenomenon, along with that observed in (3.a.), could be explained by the low start-up and operational costs in such industries as RET and BUS. This argument is reinforced with the large predominance of borrowers in Size Buckets of $250,000 or less in the low-cost BUS industry and disproportionately low proportion of borrowers in Size Buckets of $250,000 or less for the high-cost SOP industry. For almost all industries, the 8 Risk Rating accounts for the highest concentration of borrowers. The lack of a bell shaped curve in defining borrower distributions is evident in Figure 2.3a, where at best, we observe an almost bimodal distribution, with the first mode centered on the 8 RR and the second mode around the 4 RR.
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