DBRS Publishes Canadian Credit Union Methodology

DBRS has today released “Rating Canadian Provincial Credit Union Centrals, Credit Unions and Desjardins Group and Related Entities”. This publication provides greater transparency to the rating process by outlining the methodology DBRS uses in assessing the credit worthiness of these cooperative financial institutions.

“The rating approach to Canadian credit unions and credit union centrals reflects the unique structure of the credit union centrals and the individual credit unions, which is very different from the structure of stock-based companies,” says DBRS vice-president Robert Long.

DBRS assigns ratings to individual credit unions and to provincial credit union centrals. The Québec credit union system (Desjardins Group) is structured differently and operates independently of the credit union movement. As a result, there are differences in the rating methodology from that used in other provinces.

Conceptually, the approach DBRS uses for rating credit unions is similar to the methodology used for rating banks, which is outlined under Policy E-3-1. The approach is generally balanced between competitive strengths and challenges, earnings, financial risk profile and asset quality, although earnings and growth rates are treated somewhat differently due to the differing goals of financial services co-operatives.

Ratings assigned to credit union centrals reflect the following considerations: (1) The strength of the provincial central, particularly in the area of liquidity, (2) an assessment of the underlying System which is critical to the rating of the credit union central; DBRS provides considerable analysis on the combined credit union system and it receives a high weighting in the overall credit assessment. The methodology for assessing the strength of the system is built around the individual credit union methodology, and (3) the support of the credit union movement nationally, which includes Credit Union Central of Canada and the National Liquidity Fund Agreement.

The individual credit unions are provincially regulated, while the provincial centrals are regulated by both Office of the Superintendent of Financial Institutions (OSFI) at the federal level and also by the provinces.

If you are interested in receiving a copy of this methodology, contact us at: info@dbrs.com.