Bank Of Montreal (NYSE:BMO) Chief Risk Officer Piyush Agrawal said geopolitical developments—particularly the recent escalation in the Middle East—have moved higher on the bank’s risk agenda and could affect the macroeconomic backdrop if the situation persists.
Speaking at a conference discussion in Montreal, Agrawal said the bank tracks a wide set of “emerging and material risks” through an established governance structure. While noting the human impact of war on communities and employees, he said the bank’s planning focus now includes the potential economic spillovers of prolonged conflict, including energy and raw-material price impacts.
Geopolitics and the macro backdrop
He pointed to possible second-order effects beyond oil, including the influence of higher prices for inputs used in food production and agriculture such as sulfur and ammonia. While Canada’s status as an oil-exporting country could support GDP, he said shortages or higher prices for energy and other commodities could still be inflationary. Agrawal added that BMO would “recalibrate” expectations based on the duration of the crisis, but said the bank has strong capital, liquidity, and a risk framework to manage through uncertainty.
Performing provisions: built up, but unlikely to be released soon
On provisions for credit losses, Agrawal said BMO is “coming from a position of strength,” citing about CAD 4.6 billion of performing provisions, or 69 basis points. He said the bank has built performing provisions for 15 quarters, rising from a low point in the “low 40s” basis-point range to the current level, which he characterized as providing “immense resiliency.”
Agrawal said his base case remains that the economy and portfolio quality are improving, and he does not expect “large builds” as the bank grows because of offsets. At the same time, he said he does not expect releases due to persistent uncertainty. His expectation is that the 69 basis point performing provision remains “neutral-ish” through the year, assuming geopolitical developments do not materially worsen.
He added that if the Middle East conflict were to extend for several weeks, macroeconomic outlooks for the U.S. and Canada could shift, and the bank would likely reflect that first in performing provisions.
Asked what would be required before releases become plausible again, Agrawal pointed to the underlying drivers of performing provisions—namely sustained growth and durability in credit performance. He said credit performance has been improving and that, even with guidance on impaired provisions unchanged, the bank expects momentum to move closer to long-term averages through 2027.
Impaired PCL outlook: retail stress in Canada, improving trends in U.S. commercial
Agrawal reiterated guidance that impaired provisions should remain relatively flat versus fiscal 2025 while improving over the course of the year, citing Q1 impaired PCL of 44 basis points and describing the expected range as “flat to mid-40s.” He cautioned that because BMO has a larger wholesale book, results can be influenced by one or two files.
He broke expectations down by geography and segment:
- U.S. retail: expected to be similar to the first quarter.
- U.S. commercial: continues to improve; Q1 performance included “outsized recoveries” that may not repeat, but he said gross write-offs should be in line or better than Q1 absent that recovery benefit.
- Canada retail: continued consumer stress, particularly in unsecured credit; he said there could be some build in Q2.
- Canada commercial: elevated but “under control,” which he characterized as broadly “flattish.”
CUSMA/USMCA renegotiation assumptions
On the risk of CUSMA/USMCA renegotiation, Agrawal said the bank runs multiple scenarios. His base case is that the agreement will be renegotiated and that about 85% of Canadian exports will continue in a business-as-usual format. He said the bank also considers downside scenarios in its weightings and described his base case as a “static or stable CUSMA” even after renegotiation, while acknowledging significant variables.
Private credit, non-bank financial exposure, and sector risks including AI
Agrawal addressed market concerns about private credit by placing it within BMO’s broader CAD 68 billion disclosure of non-bank financial institution (NBFI) exposure. He said BMO’s private credit exposure is “very small” and “not something that keeps me up at night.”
He said about 50% of the NBFI exposure is tied to subscription call facilities, a business BMO has operated for 30 years with “0 loss,” describing it as fully secured by limited partner (LP) commitments and underwritten at the LP level. He also described another component as lending to finance companies, including business finance companies that lend to the middle market—an area he said is often broadly labeled private credit.
Agrawal said BMO has been strategic in selecting private credit partners and seeks alignment on due diligence, early problem recognition, and workout capabilities. He added that 75%–80% of the underlying loans in the bank’s small private-credit exposure have effectively been re-underwritten by BMO. He also said he did not believe the partners BMO works with face the retail-investor redemption dynamics that have been discussed in the press.
On technology disruption, Agrawal said BMO evaluates “disruption risk” as a core tenet of underwriting. He characterized the bank’s direct exposure to software companies as “a little over 0.5%” and said the bank is engaging clients to assess the pace of potential AI-driven obsolescence. He said he does not believe business models will change overnight, while noting the bank is also looking at opportunities across the broader AI ecosystem, including power usage, new generation and transmission, and data centers.
Agrawal also discussed the Canadian commercial environment, arguing that Canada’s issues have differed from the U.S. experience. He said trade uncertainty has weighed on sentiment and investment, but described signs of improvement, including what he characterized as pipelines beginning to fill, loan growth in Canada, and a Canadian commercial real estate cycle “pick[ing] up again.”
On Canadian unsecured consumer stress, he cited higher unemployment (noting an uptick to 6.7%) and insolvencies, which he said are at an all-time high and a “15 or 20-year high.” He said BMO has taken early action using improved analytics and models to identify near-delinquency risk and better predict insolvency, helping keep loss rates “flattish.” However, he also said he expects card losses to “tick up for the next few quarters” before declining.
About Bank Of Montreal (NYSE:BMO)
Bank of Montreal (NYSE:BMO), commonly known as BMO Financial Group, is one of Canada’s largest and longest-established banks. Founded in Montreal and headquartered in Montreal, Quebec, the bank provides a broad range of financial services to retail, commercial, corporate and institutional clients. BMO is publicly listed in both Canada and the United States and operates under a consolidated financial services model that integrates banking, capital markets, wealth management and asset management activities.
BMO’s core businesses include personal and commercial banking—offering checking and savings accounts, lending, mortgages, and small-business services—alongside wealth management and private banking through its asset and investment management divisions.
