DBRS Confirms Credit Union Central Alberta at R-1 (low) and “A” with Stable Trends

DBRS has today confirmed the Issuer Rating, Senior Long-Term Debt and Commercial Paper ratings of Credit Union Central Alberta Limited (Alberta Central) at “A,” “A” and R-1 (low), respectively; the trends remain Stable. The primary factor in determining the ratings remains the low-risk business and strong financial risk profile of the Alberta Credit Union System (the System). While the assessment of the System provides the starting point for Alberta Central’s rating, there are no material deficiencies at Alberta Central that would affect the rating relative to the assessment of the System. Profitability is limited, but earnings are not a material rating factor for a central. Alberta Central’s asset quality and financial risk profile metrics remain acceptable.

While the System’s asset quality continues to show some signs of relative weakness as a result of the lingering effects of the recession, generally it remains in good shape and is a positive factor in the rating. The System’s capital grew during 2012 and while gross impaired loans-to-equity has improved, net impaired loans as a percent of total loans is up from last year but still generally in the range where it has been for the past few years. The outlook for the System is inevitably linked to the economic environment in Alberta, which in turn is materially affected by volatility related to energy prices. The performance of Servus Credit Union, which in 2012 had a modest increase in operating net income partially attributable to provisions decreasing by half of their 2011 level, has a significant impact on the assessment of the System as it accounts for 60% of System assets.

Impaired loan levels for Alberta Central itself are naturally more volatile than the System. At the end of 2012 net impaired loans relative to net loans was up significantly from 2011 but continues to be acceptable. Although net interest margin is under pressure in the low interest rate environment, profits were up overall in 2012 thanks to gains on Master Asset Vehicle notes. Additionally, Alberta Central has been growing capital and liquidity levels are excellent.

Under DBRS’s methodology “Rating Canadian Provincial Credit Union Centrals, Credit Unions and Desjardins Group and Related Entities” Alberta Central’s Senior Long-Term Debt rating, at “A,” is composed of its intrinsic assessment of A (low) and its Support Assessment of SA2 (reflecting the expectation of systemic and timely external support by the Government of Alberta). The SA2 results in a one-notch rating benefit to the intrinsic assessment.

Notes:
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Rating Canadian Provincial Credit Union Centrals, Credit Unions and Desjardins Group (April 2011), Global Methodology for Rating Banks and Banking Organisations (June 2012)) and DBRS Criteria: Intrinsic and Support Assessments (February 2009), which can be found on the DBRS website under Methodologies.

The sources of information used for this rating include company documents. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.