Dominion Bond Rating Service has confirmed its ratings of Credit Union Central of British Columbia.

The ratings continue to be supported by the strength of the Credit Union System in BC, it notes. DBRS says that Central recently announced it has entered into formal discussions with Credit Union Central of Ontario towards the creation of a single entity that combines all of the two centrals’ operations other than trade association services.

“The new national entity, which would include the pre-existing liquidity pools and credit union lending operations, will initially be owned by the two centrals, although other provincial centrals and other financial co-operative associations have been invited to join as well,” it says. “DBRS views this initiative as a logical course of action to create a stronger, more capable and potentially more efficient central organization, which will be better suited to serve the systems’ needs as credit unions become larger and more sophisticated.”

DBRS says it believes this action will not have an impact on Central’s ratings. The potential for completion, timing and final form of any future agreement remain uncertain, it adds. Therefore, DBRS’s report is based on analysis of Central in its current form.

“The System continues to perform well, generating a stable ROE, largely on rising asset balances offset by competition-driven margin compression. The growth in the loan portfolio has put pressure on funding programs,” the rating agency says. “While liquidity at the System levels has declined only modestly, Central has seen its balance sheet substantially altered over the past year, with loans to the System increasing dramatically. This loan growth was funded by a reduction in the liquid asset portfolio. Although down, Central’s liquidity remains acceptable at 7.3% of System assets.”

Trends remain stable, DRBS says.