Two of canada’s largest provincial credit union centrals are embracing the concept that bigger is not only better, but it’s also more efficient.

Credit Union Central of B.C. and Credit Union Central of Ontario have launched a plan to create a new national business organization to serve the country’s more than 10 million credit union members.

The two credit unions centrals announced last month that formal discussions have begun to create a co-operative venture that would create a combined liquidity pool offering greater lending and investment options. The new entity would also include comprehensive payment and settlement services, together with an online Internet banking platform.

“Our member credit unions have asked us to take a national perspective to position ourselves better to thrive in a competitive financial services landscape,” says Sheena Lucas, chairwoman of Credit Union Central of Ontario. “This model would deliver size and scale in financial operations while continuing to meet credit unions’ regional needs.”

Daniel Burns, chairman of Credit Union Central of B.C., adds: “This isn’t just about putting together some parts of the B.C. and Ontario organizations. We want to create a national business services entity for the country’s credit unions.”

The new entity would permit other provincial centrals and co-operative financial organizations to join it during the current formation period or at any time in the future.

The provincial credit union centrals would continue to provide trade association services as they do now, such as provincial government relations and marketing and communications, along with education and advisory services to the country’s approximately 1,150 individual credit unions.

However, the current credit union structure also has serious systemic problems. “Each province has its own central that more or less provides the same products and services to credit unions. So, there’s an element of duplication which this initiative would look to eliminate,” says Rowland Kelly, interim president and CEO of B.C. Central.

“What we want to do nationally is consolidate the wholesale financial operations of the centrals because right now there’s a certain amount of fragmentation,” he adds.

Creating a national business organization for credit unions is also expected to improve the credit union movement’s ability to meet soaring loan demands in the strong national economy. The combined assets of the B.C. and Ontario centrals would total more than $6.5 billion and represent more than 200 credit unions serving 2.7 million members.

“Obviously by combining our assets, we would double the balance sheet. So, theoretically, you would double the amount of lending capacity you would be able to give to your credit unions,” Kelly says.

“There is also the potential for us to gain higher credit ratings because of this,” he adds. “One of the issues the rating agencies have cited in the past for credit unions is regional concentration in lending. So, with consolidation, you are effectively getting regional diversification. That could facilitate a higher credit rating, which would reduce borrowing costs in the marketplace.

“We’d have a bigger liquidity pool, which we’ll be able to move region-to-region more effectively to meet demand,” Kelly says. “Right now liquidity is tight for credit unions. But I’d say it’s adequate for the current situation.”

One of the rating agencies, Dominion Bond Rating Service Ltd. , said in a report this past June that individual credit unions — especially in Western Canada — are faced with the problem of supporting rapid loan growth solely on new deposits. The report suggests that some credit unions facing these pressures might be forced to borrow funds at more costly rates.

The roots for this new organization reach back several years. A similar initiative by the B.C. and Ontario centrals was launched in 2000 but was suspended three years later.

Burns says both centrals now agree the time is ripe for another attempt. “Under the current system, it’s very difficult to make decisions efficiently and effectively,” he says. “You can never really have functional change unless you first have structural change.”

The B.C. and Ontario centrals agreed that it would be easier to launch a national business organization initially with only the two centrals, rather than try to get most or all the eight provincial centrals to agree during the formative stages, according to Burns.

“Everybody is also at a different point in their strategic planning. Other centrals can join the national organization when they’re ready,” he says.

@page_break@As for a time frame, the two centrals are only in the “scoping phase” of the project and are looking at various ways the structure could be built. “Because this has never been done before, it’s going to take a little bit of imagination,” he adds.

While the two centrals would like to see a basic organization in place sometime next year, the timing will depend to a large degree on how the idea sits with federal and provincial regulators.

“Right now, I don’t see any insurmountable legislative obstacles that would stop us from doing this,” Burns says. “But once the scoping phase is completed we will sit down with the regulators in each province and in Ottawa and we’ll find the solutions that are good for the regulators and that are good for the credit union industry.”

He emphasizes that no matter what form the new structure takes, the two centrals want to make sure the national entity is equally adept at serving large credit unions as well as the many small ones across Canada.

The current structure is now holding the credit union movement back, he says.

“Up to now, provincial regulation has been fabulous for credit unions, but now we’re beginning to outgrow that legislative environment in some respects,” he says. “The time has come for credit unions to take the next evolutionary leap. We have to start thinking nationally and we need more flexibility.”

Ultimately, the proposed new business organization is all about the individual 10.7 million credit union members across the country, according to Burns.

“I care about credit unions and I care about the centrals. But at the end of the day, we’re here to serve the credit union movement’s members and to help more Canadians bank co-operatively and to get ahead financially,” he says. “Are we ready to go here? You bet.” IE