A combination of consolidation and technology investment is helping Canada’s credit unions increase operating profits and leverage, DBRS Ltd. says.
In a new report, the Toronto-based rating agency says that, since 2016, credit unions have been growing their revenues faster than expenses, generating improved bottom line performance and positive operating leverage.
DBRS says that some of this performance improvement is due to ongoing consolidation, which has driven increased economies of scale.
The number of credit unions in Ontario, British Columbia, Alberta and Saskatchewan has dropped from 306 in 2008 to 177 at the end of 2017, the firm notes. Yet, despite the consolidation, the number of credit union branches has not changed, DBRS says, sustaining their ability to service remote communities.
“Though the total number of branches did not change, over time, less-productive branches were closed or consolidated and new branches were opened in higher-activity urban areas. In this way, branch rationalization has also contributed to credit union efficiency,” it says.
At the same time, the increasing adoption of digital technologies is also contributing to improved operating efficiency, DBRS reports.
“Credit unions have been early adopters of technology and continue to invest in technology to enhance operational capacity,” it says, noting that they were first to introduce online banking back in 1995.
And, in 2018, credit unions led the way in enabling voice-activated banking through Amazon’s Alexa.
While technology spending has boosted costs, it also provides credit unions with scale that “helps generate marginal revenues without incurring significantly higher costs once technology investments have been made.”