Proposed organization may be more capable of providing services that credit unions the size of Vancity require

Dominion Bond Rating Service has released a report on Vancouver City Savings Credit Union confirming its short-term instruments rating with a Stable trend.

The rating remains supported by Vancity’s relatively low-risk base business, which focuses primarily on providing consumer financial services and reasonable market penetration in its core market of the Greater Vancouver Area and southern Vancouver Island, DBRS says.

“Vancity continues to benefit from its relationship with Credit Union Central of British Columbia (CUCBC), particularly with respect to CUCBC’s large liquidity pool,” it says.

“CUCBC recently announced that it is in talks with Credit Union Central of Ontario that would see the merger of most of the operating functions in a combined national organization, leaving CUCBC as strictly a provincial trade organization,” it notes. “Should the deal be completed as proposed, the larger “super-central” may be more capable of providing the type and scale of services that credit unions the size of Vancity require.”

“In recent years, Vancity has been adding new borrowing facilities to provide a more diverse base of funding and liquidity sources in addition to the provincial central, which DBRS views as a logical and important strategy given that Vancity accounts for well over 25% of system assets,” DBRS notes.

In 2005, Vancity completed the acquisition of two small credit unions, totaling about $194 million in assets. These are the first two acquisitions of other credit unions that Vancity has completed in many years, it notes. “This year, Vancity has announced discussions with two other credit unions, utilizing a unique partnership model that will allow smaller credit unions to maintain their local identity while enjoying the benefits of being a division of a larger, more sophisticated financial institution. While small, these deals allow Vancity to extend the branch network and potentially reduce expense ratios, a key longer-term challenge,” DBRS explains.

Margin compression also remains an important challenge for Vancity as a high percentage of its earnings is generated from net interest income, it adds.