CREDIT UNIONS (CUS) ACROSS Canada have long sought revisions in the regulatory bonds confining them to their home provinces so that they could compete, toe to toe, with the big banks anywhere in the country.
Now, the federal government is moving to make those changes. Draft regulations were introduced in early July by Finance Minister Jim Flaherty, and, once finalized, they’ll allow provincially regulated CUs the option to switch to federal regulation under the Office of the Superintendent of Financial Institutions.
Aside from obvious benefits for CU members due to having more choices in both products and services, interprovincial CUs also can offer added benefits for clients and their financial advisors. CUs already are particularly strong in customer service. The 2012 Best Banking Awards in Canada recently awarded the CU sector first place for overall customer service excellence – the sector’s eighth win in as many years – along with awards in four other categories, including financial planning and advice.
Going national is likely to boost that advantage. Says Karen Hoffmann, corporate secretary of co-operative governance services with Vancouver City Savings Credit Union (Vancity), the largest financial co-operative in English-speaking Canada, with assets under administration (AUA) of about $16 billion and 418,937 members in southwestern British Columbia: “For financial planners, there could be more investment alternatives for their clients, as well as greater career opportunities for themselves in different parts of the country.”
The CU sector had worked closely with the federal Department of Finance in building the new regulations, which are expected to be particularly appealing to larger credit unions, many of which are located in B. C. That’s because those CUs are reaching their existing growth limits.
“These changes will support the evolution of the Canadian credit union system,” says Gary Rogers, vice president of financial policy for Credit Union Central of Canada, the national trade association for Canada’s 350 or so CUs outside Quebec and their 5.2 million individual members. “They enable credit unions to choose a new option to address growth opportunities and enhance service to their members.”
The changes also are expected to strengthen CU market penetration in Ontario. “We strongly support the federal government’s intentions here,” says Hoffmann. “I think Ottawa also wants consumers to have multiple choices, and this will certainly provide us with a much larger, competitive playing field.”
For those CUs opting to expand nationally, Hoffman says, there are two basic routes to follow: expand interprovincially on their own or merge with out-of-province CUs.
Although Vancity is studying the new framework’s details and the expansion options, the CU also is in a unique position: it already owns a federally chartered financial services institution, Citizens Bank of Canada. Citizens Bank was formed in 1997 to take some Vancity services beyond B. C.’s borders. Today, the online bank offers its clients foreign exchange, credit card and other support services.
“In some ways,” Hoffmann explains, “Vancity already has taken steps to move beyond our provincial borders. But that doesn’t mean we’ll simply expand Citizens Bank under this new federal opportunity. We’re studying all our options, including mergers.”
Nor is Vancity a stranger to mergers. Says Hoffmann: “Since our founding in 1946, Vancity has been the product of 54 mergers. So, you can see we definitely have a tradition of working with other credit unions. If a credit union in another province approaches us about forming a partnership, we’d be open to that type of discussion.”
However, because Vancity is a co-operative run by its members, like all CUs, undertaking any such merger would be subject to full membership consultation and, subsequently, a membership vote.
In Ontario, where CUs have just 12% of the market share compared with about 25% in Western Canada, the new federal framework may enhance additional market penetration.
“There is still a wealth of opportunity in Ontario for credit union expansion,” says Sean Jackson, president and CEO of Meridian Credit Union, Ontario’s largest CU, and Canada’s fourth-largest, with $7.8 billion in AUA and 263,000 members.
However, as Don Coulter, chief financial officer for Surrey, B. C.-based Coast Capital Savings, says, not all CUs will take the federal option. “There’ll be early adopters and later adopters,” he says. “We’ll consult with our members, even though this is something we’ve been interested in doing for a long time. We also have a long history of expansion and growth through mergers, but we’ve still maintained our basic co-operative credit union principles.”
Coast Capital is English Canada’s second-largest CU, with $13.5 billion in AUA and 475,000 members.
Coulter also says that growth will be much slower for CUs attempting to expand on their own. He adds that the new framework may also help CUs attract more young members, which may help reverse the sector’s aging demographics.
© 2012 Investment Executive. All rights reserved.