DBRS Assigns A (low) Issuer Rating to Concentra Financial Services Association and Confirms Short-Term Instruments at R-1 (low), Stable Trends

DBRS Limited (DBRS) has today assigned an Issuer Rating of A (low) to Concentra Financial Services Association (Concentra or the Company) and confirmed the Short-Term Instruments rating at R-1 (low), with Stable trends. The Issuer Rating reflects an intrinsic assessment of BBB (high) and a support assessment of SA2. DBRS continues to anticipate a high level of implied support from Credit Union Central of Saskatchewan (SaskCentral) due to the strategic importance of the Company to SaskCentral and the Saskatchewan Credit Union System (the System). However, ongoing efforts to diversify away from Concentra’s traditional base in the Prairies suggest direct support at the SA1 level may no longer be appropriate. DBRS has therefore assigned an SA2 support assessment to Concentra, with SaskCentral and the System in general providing the support.

On a stand-alone basis, Concentra’s primary strength is in its relationship with the credit union system throughout Canada, with particularly strong roots in the Prairie Provinces. Profitability is better than many other institutions operating in the credit union space and other strengths include asset quality and liquidity. Concentra’s major challenges include size-related issues and improving its funding base (quality, cost and diversification).

Concentra has been improving its financial risk profile in a number of ways in recent years. Funding avenues are becoming more diverse, with new committed lines and the development of access to the nominee deposits market. Interest rate exposure, which in the past has resulted in volatility in profitability and internal capital generation, has improved. It will be important for Concentra to maintain this more disciplined approach in regards to interest rate risk management.

As with most Canadian lenders, Concentra has 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 (for uninsured mortgages).

On December 18, 2014, Concentra and Central 1 Credit Union announced the signing of a Memorandum of Understanding (MOU) exploring the possibility of combining their respective trust services, securitization, derivatives, commercial lending, credit union lending, foreign exchange and funding operations; discussions are ongoing. DBRS believes a deal, should it occur, would be an encouraging event for the Company, although limited market size and scale are expected to remain challenges for the Company.

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 Global Methodology for Rating Banks and Banking Organisations (June 2014), Rating Canadian Credit Union Centrals and Desjardins Group (December 2014) and DBRS Criteria: Support Assessment for Banks and Banking Organisations (March 2015), which can be found on the DBRS website under Methodologies. The methodologies identify how funding and liquidity are assessed for banking organizations in general. For clarity, the DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (April 2015) does not apply to Concentra.

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