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

DBRS Limited (DBRS) has today confirmed the Issuer Rating and the 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.

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 outlook for balance sheet growth at Alberta Central is naturally tied to growth in loans and deposits generated across the System, with mandatory credit union requirements to hold a minimum portion of deposits with the central. Outside of economic performance, growth in the System will be dependent on the ability of credit unions to compete for market share against lending and banking peers. Credit unions tend to be strongest in rural areas of provinces and smaller population centres where Canadian banks do not compete as aggressively, with the exception of Alberta Treasury Branches; however, some of the larger credit unions have begun to compete more aggressively within urban regions largely dominated by the banks.

As with most Canadian lenders, the Alberta credit unions have notable exposure to the Canadian residential mortgage market. Any slowdown in this market may slow earnings generation, while a downturn in the residential mortgage market could hurt asset quality indicators and ultimately have an impact on provisioning levels.

Under DBRS’s methodology Rating Canadian Credit Union Centrals and Desjardins Group, Alberta Central’s Senior Long-Term Debt rating at “A” is composed of its intrinsic assessment of A (low) and a 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 Credit Union Centrals and Desjardins Group (December 2014), Global Methodology for Rating Banks and Banking Organisations (June 2014) and DBRS Criteria: Support Assessments for Banks and Banking Organisations (March 2015), which can be found on DBRS’s website at www.dbrs.com.

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