DBRS Confirms Credit Union Central of Saskatchewan at R-1 (low), Stable Trend

DBRS Limited (DBRS) has today assigned Credit Union Central of Saskatchewan’s (SaskCentral or Central) a Short-Term Instruments rating of R-1 (low) with a Stable trend. Simultaneously, DBRS has confirmed SaskCentral’s Commercial Paper rating at R-1 (low) with a Stable trend and then discontinued this rating for clarity and consistency with rating descriptions used for similar institutions. This Short-Term Instruments rating applies to the same instruments issued using the Commercial Paper description. Under DBRS’s support assessment criteria SaskCentral has been assigned an SA2 rating, reflecting DBRS’s expectation of systemic and timely external support by the Government of Saskatchewan). The rating remains supported by the healthy credit union system in Saskatchewan (the System), with its defendable market niche in rural areas of the province and high penetration rate among the population. Limited system size, a high cost structure and asset concentration remain key challenges for the System.

SaskCentral’s direct operations are almost totally focused on providing liquidity, clearing and settlement services for the System (including maintaining the liquidity portfolio supported by mandatory System deposits). Much of the services that other provincial centrals provide to their respective systems are provided for the System by 84%-owned Concentra Financial Services Association (Concentra).

Central faces challenges in its exposure to Concentra, which represents a significant concentration of earnings, asset quality and financial risk. Central does not have unrestricted access to Concentra’s cash and financial assets as it does not have a controlling ownership position, owning 47.13% of Concentra’s membership shares. While Central does not guarantee any obligations of Concentra, DBRS ascribes a high level of implied support, as Concentra performs functions that are important to Central in fulfilling its mandate to serve the credit unions of Saskatchewan. This implied support of Concentra by SaskCentral is integral in DBRS’s assessment of both entities.

As with most Canadian lenders, SaskCentral has notable indirect 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 (for uninsured mortgages).

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 Assessment for Banks and Banking Organisations (March 2015), which can be found on DBRS’s website under Methodologies. The methodologies identify how funding and liquidity are assessed for banking organizations and credit union centrals. For clarity, note that the DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (April 2015) does not apply to SaskCentral.

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