Sean Vokey/The Canadian Press
Business Development Bank of Canada hiked provisions for expected loan losses sharply in its fourth quarter, reflecting the potential hit from U.S. tariffs on the small and medium businesses financed by the federal Crown corporation.
BDC ended its 2025 fiscal year on March 31 with a $624.3-million provision for expected credit losses on loans, according to its annual report, published on its website. That’s up from $465.6-million three months earlier.
Its level of impaired loans jumped by 86 per cent year-over-year, reaching $514.4-million. Provisions for credit losses have jumped in each of the past three years. BDC subsequently booked a $160-million provision for credit losses in the first quarter of its 2025-26 fiscal year.
BDC provides loans and advisory services to small and medium-sized Canadian businesses and makes venture and growth capital equity investments in startup and scaleup companies and third-party funds that back them. BDC also manages capital incentive programs on behalf of the government, including the Venture Capital Catalyst Initiative, a fund for financing Indigenous entrepreneurs and some COVID-relief programs for small business. It had $42.8-billion in outstanding loans on its books on June 30 and $6.4-billion in investments
The recent jump in loan provisions mirrored actions by Canada’s banks, which girded for possible losses on loans through the first half of their fiscal years ending late April, building up reserves as tariff uncertainty clouded the economic outlook.
As some bank CEOs have grown more confident that the peak of uncertainty has passed, lenders made more modest additions to provisions for credit losses in the quarter that ended July 31. All six of Canada’s biggest banks earmarked less money in provisions than analysts anticipated, though some bank executives are still wary.
BDC president and chief executive officer Isabelle Hudon said in an interview that BDC similarly “took a big hit” as the threat of tariffs dominated the news early this calendar year, but agreed that “we have seen a shift, not a major one” over the past month and a half. “At least it stopped growing and growing. We’re back to what we anticipated a year ago.”
Ms. Hudon noted that since she joined BDC four years ago, the corporation has increased the number of entrepreneurs it financed by 47 per cent, reaching 107,345 last year.
But BDC’s financial results have disappointed. Its annual net income in each of the last three years, including $402.3-million in fiscal 2025, were the three lowest results of the past 14 years, excluding the pandemic year of 2020 when the Crown corporation posted a rare net loss. BDC also declared a $50-million dividend payable to the government in its 2026 fiscal year, down from $337-million in each of the prior two years.
Return on common equity last year was 4.7 per cent, BDC’s best performance in three years but below its 5.9-per-cent target mainly owing to the higher levels of credit loss provisions in its financing business. That compares to returns on equity that typically surpassed 10 per cent every year going back to at least 2011, except for the pandemic year of 2020, and 2017, when it was 8.2 per cent.
Poor results in BDC’s venture capital portfolio since a crash in technology valuations nearly four years ago have weighed heavily on its results since then. The fair value of its venture capital investments as a share of the book cost fell to 133 per cent at the end of 2025, from 209.3 per cent three years earlier, and venture capital delivered a $57.9-million loss in 2025, better than the $212-million loss a year earlier.
BDC did deliver a better efficiency ratio – operating and administrative expenses as a percentage of net revenue – of 33 per cent, below the corporation’s 37.2-per-cent target, as salaries, benefits, professional and outsourcing fees were less than projected.
Ms. Hudon said that while BDC was excluded from the government’s callout for departments to deliver 15-per-cent cost cuts, “we will be inspired by those measures” and aim to deliver 20-per-cent efficiency gains over an unspecified future period.
She said productivity gains would not come from job cuts but by relying on technology, including artificial intelligence, to make business processes more efficient.