DBRS Confirms Vancity’s Short-Term Rating at R-1(low)

DBRS has today confirmed Vancouver City Savings Credit Union’s (Vancity or the Credit Union) Short-Term Instruments rating at R-1 (low) with a Stable trend. The rating remains supported by Vancity’s relatively low-risk core business, good penetration in its geographic market and its mutually symbiotic relationship with Central 1 Credit Union (Central 1).

Returns were down this past year on increased system implementation expenses but still reasonable for a cooperative that balances the goal of member/community well-being with financial sustainability. Most of Vancity’s risk metrics have improved in the past year, continuing to be at levels indicative of its primary business focus: providing consumer financial services with an emphasis on core deposit-funded residential mortgage lending. The Credit Union has reasonable penetration in its core market in the Greater Vancouver area and southern Vancouver Island, although compared to most moderate-size financial institutions, Vancity is extremely concentrated in this region.

Vancity’s cost structure has generally been improving in recent years but efficiency was significantly challenged in 2012 and remains high compared to larger banks. While the credit union has posted reasonable net earnings from operations over the past few years, reduced returns and efficiency in 2012 were due to increased expenses mainly related to a new core banking system and loan origination system. There is little diversity in revenue sources outside of net interest income, a notable challenge given the systemic compression of interest margins. The relationship with Central 1 benefits Vancity, particularly with respect to Central 1’s large liquidity pool, although Vancity’s size could present a challenge if liquidity were suddenly needed across the entire system.

Under the DBRS support assessment ratings system, Vancity is assessed SA2, reflecting the expectation of timely systemic external support from Central 1. DBRS currently rates Central 1’s Medium & Long-Term Senior Notes & Deposits A (high), its Subordinated Debt “A” and its Short-Term Notes R-1 (middle); all trends are Stable. Support assessments for credit unions are unique in that the supporting organization is partially owned by the supported one, rather than the reverse. As in prior years, DBRS has not assigned an intrinsic assessment to Vancity as a result of the difficulty in viewing a credit union as a stand-alone entity without taking into account its support from the provincial central.

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 Centrals, Credit Unions and Desjardins Group (April 2011), Global Methodology for Rating Banks and Banking Organizations (June 2012) and DBRS Criteria: Intrinsic and Support Assessments (February 2009), which can be found on DBRS’s website at www.dbrs.com 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 to be of satisfactory quality.

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