BMO to boost small business loan book by $10 billion

TORONTO (Reuters) - Bank of Montreal (BMO.TO), which last year targeted small-business lending as a growth area, is hoping a move to increase its loan capacity for the segment will spark an increase in borrowing.

The bank said on Thursday it will raise its credit available to small and medium-sized businesses by C$10 billion ($10 billion) over the next three years, representing a 26 percent increase over its current C$38 billion book of loans to the segment.

The move is not a response to increased demand, but the bank is hoping it will be viewed as a signal of confidence for a segment that has been slow to resume borrowing despite record-low interest rates.

"We think committing to C$10 bln in additional credit over the next three years is going to send a strong message to our customers that this is a great time to be investing in their business," said Frank Techar, BMO's head of Canadian personal and commercial banking.

The U.S. Federal Reserve said on Wednesday it expects to keep its key rate near zero until 2014 in order to support the economic recovery, and the Bank of Canada has also indicated low domestic rates will be around for a while.

BMO, Canada's No. 4 bank, initially targeted the small business market last March, saying at the time it would add 150 banking specialists to focus on the segment.

Commercial borrowing has been slowly rebounding after declining in 2009 and 2010, but has yet to really pick up due to economic uncertainty.

The move to increase lending comes less than two weeks after BMO surprised the market by offering a record-low 2.99 percent fixed-rate mortgage.