Executive Summary
The financial results of Ukrainian-Canadian Credit Unions over the last five years has shown consistent profitability, but at a lower level of profitability in 2016 and 2017 and a significant improvement in 2018.
Asset quality as measured by allowance as a % of loans and loan loss provision has increased significantly in 2018 to 0.43% of total loans. Generally, Ukrainian-Canadian credit unions have endeavoured to provide loans using a lower loan to value ratio than the maximum of 80% and have issued more insured mortgages, which have helped to keep the loan loss ratio low. Buduchnist, Carpathia and North Winnipeg credit unions have disclosed their insured mortgage lending amounts. Their combined exposure to insured mortgages represents 29.3% of their residential mortgage portfolio in 2018.
Capital to assets ratio has been declining for the last 5 years from a high of 7.30% and is now at 7.01%. The return on assets and the return of equity decreased slightly in 2018 compared to 2017. The membership increased in 2018 primarily due to a significant increase in the membership at Ukrainian Credit Union. The membership totalled 65,426 and is far from the record level of 72,280, which was achieved in 2007. Declines in membership numbers experienced by some of the credit unions was due to the closing of dormant accounts of members who had passed away in previous years.
The members of the Ukrainian-Canadian credit unions have continued to financially benefit by receiving significant dividends and patronage payments, which totalled $760,000 in 2018 compared to $813,000 in 2017. Although, the amount each has decreased, over the last five years a total of $5.9 million has been provided by way of dividends and patronage dividends to the members of the Ukrainian-Canadian credit unions in Canada.
The Ukrainian-Canadian credit unions have continued to support the Ukrainian community in Canada by providing donations, sponsorship and promotions funds to non-profit and charitable organizations for their deserving projects. The support for the Ukrainian community has been decreasing in the last three years. In 2018, the five Ukrainian-Canadian credit unions have provided $1.835 million in donations, sponsorship and promotion support for many charitable and non-profit organizations in the Ukrainian community in Canada. This represents a decrease of 30.2% from the previous year. Over the last five years a total of $13.7 million has been provided by way of donations, sponsorship and promotion funds to the Ukrainian community in Canada.
Carpathia Credit Union and North Winnipeg Credit Union Amalgamate. Carpathia Credit Union members voted on April 19, 2019 and joined North Winnipeg members in approving the proposal to amalgamate the two credit unions. The amalgamation took effect on July 1, 2019 and created a credit union with $620 million in assets, six branches, 11,450 members and 87 employees.
Performance. Return on equity was 4.9% compared to 5.1% in 2017. Ukrainian-Canadian credit unions assets grew by 4.6% in 2018 compare to record growth of 5.5% in 2017. In 2018, the largest credit unions in Canada saw their assets grow by 8.5% compared to 5.9% in 2017. Ukrainian-Canadian Credit Union’s total deposits grew by 3.3% compared to a growth of 4.7% in the previous year. Even in a low interest rate environment, demand deposits grew by 5.5% while Registered Plans (RRSP and RRIF deposits) increased by 5.2%, while term deposits increased slightly by 0.3%.
The Ukrainian-Canadian Credit Union’s net income before dividend and patronage payments increased by 17.5% to $8.8 million from $7.54 million,primarilydue to an increase in the net interest margin and other income. The operating expense ratio decreased slightly to 1.67% compared to 1.68% in the previous year. Ukrainian-Canadian Credit Union’s operating ratio is much lower than the operating expense ratio of the largest credit unions in Canada, which had a ratio of 2.01%. This means that the Ukrainian-Canadian Credit Unions are low cost providers of financial services. The Ukrainian-Canadian Credit Unions paid 8.6% of their net income to their members by way of a dividend or a patronage refund totalling $760,000 compared to $813,000 in the previous year. These patronage dividends helped increase the capital of the credit unions by 2.8% to $183.0 million representing 7.01% of the assets. The ratio of capital to assets has been decreasing over the last four years.
The return on assets (ROA) increased to 0.34% compared to 0.31% in 2017, which was below the largest credit unions in Canada average ROA of 0.53%.
Ukrainian-Canadian Credit Unions continue to largely rely on the traditional intermediary function or the net interest margin for their revenue source. Expansion into other sources of income is slowly progressing and represented 12.3% of total net operating revenue compared to 16.0% in the previous year. Other income represented 23.0% of the total revenue for the largest Canadian credit unions. The higher ratio of other income total revenue experienced by largest credit unions in Canada was due to the significant fee income generated from their lending activities, mutual funds and investment management activities.
Asset Quality. Asset quality has begun to deteriorate. The loan loss provision as a % of average assets was at 0.26% of loans compared to 0.09% in 2017; this increase was primarily related to Buduchnist and Carpathia Credit Unions significantly increasing their provisions.
The allowance for loan losses increased to 0.43% of total loans compared to 9.13% in the previous year.
Loan portfolio. The Ukrainian-Canadian Credit Unions have a larger concentration in lower risk residential mortgage lending which represents 63.7% of the loan portfolio. The residential loan portfolio grew by 6.6% in 2018 compared to 11.8% in the previous year. Residential mortgage portfolio of the largest credit unions in Canada represented 59.7% of the total loan portfolio and saw their residential mortgages grow by 3.4%.
The commercial mortgage loans represented 31.0% of the total loan portfolio. The commercial mortgage loans grew by 4.4% compared to 4.7% growth in the previous year. Providing secured commercial mortgage loans to small businesses and self-employed individuals will ensure the future of Ukrainian-Canadian credit unions, because these two groups of members have generally been ignored by and not well serviced by the chartered bank system in Canada. Commercial loan portfolio of the largest credit unions in Canada represented 27.3% of the total loan portfolio and saw their commercial loans grow by 5.1%.
Consumer (personal) loans only represented 12.4% of the total loan portfolio and saw an increase of 4.5% in 2018 compared to a increase of 5.4% in the previous year. Consumer loan portfolio of the largest credit unions in Canada represented 7.2% of the total loan portfolio and saw their personal loans grow by 0.5%.
Business loans and leases only represented 0.8% of the total loan portfolio and saw a decrease of 26.7% in 2018 compared to a decrease of 6.1% in the previous year. Business loans and leases loan portfolio of the largest credit unions in Canada represented 5.8% of the total loan portfolio and saw their business loans decline by 9.0%.
Growth of membership. Membership has decreased by 0.5% to 62,146. CP Ukrainienne de Montreal saw their membership numbers increase by 5.0% and Ukrainian Credit Union saw a 2,1% increase.
Asset Growth. Ukrainian-Canadian credit unions assets grew by 4.6% in 2018 compared to 5.5% growth in 2017. The largest credit unions in Canada grew by 5.9% in 2018 compared to 7.2% in previous year. New Community had the largest asset growth of 8.3%, followed by Ukrainian CU with growth of 7.0%.
Deposit growth. CU members have been seeking higher interest rates outside of their credit union and using excess funds on deposit to reduce their outstanding debts. This has resulted in a very difficult and competitive deposit taking environment. Deposits increased by 3.3% in 2018 compared to growth of 4.7% in previous year. The largest credit unions in Canada grew 12.3% in 2018 compared to 7.0% in previous year. New Community CU had the largest deposit growth of 7.2%, followed by North Winnipeg CU with a growth rate of 7.1%.
Net Interest Margin – Net interest margin increased to 2.01% compared to 1.93% in the previous year. CP Ukrainienne de Montreal and Ukrianian CU had the highest net interest margin of 2.24%. The largest credit unions in Canada had a net interest margin of 2.10% in 2018 compared to 2.05% in the previous year.
Operating Costs – Ukrainian-Canadian Credit Unions have an operating cost structure that is quite competitive. The operating expense ratio decreased slightly to 1.67% in 2018 compared to 1.68% in the previous year. [Still quite favourable compared to the largest credit unions in Canada]. The largest credit unions in Canada decreased their operating expense ratio to 2.01% from 2.05% in the previous year.
The operating expense to revenue (productivity ratio) increased to 72.7% in 2017 from 72.9% in the previous year. The productivity ratio of the Ukrainian-Canadian Credit Unions still remains below the largest Canadian credit unions ratio, which had a productivity ratio of 73.9% in 2018 compared to 75.4% in the previous year.
Capitalization – The average capital ratio decreased to 7.05% from 7.09% in the previous year. This compares very favourably to the largest credit unions in Canada which had a capital ratio of 7.03% in 2018 compared to 7.07% in the previous year.
The best capitalized credit union was CP Ukrainienne de Montreal with a capital ratio of 13.49%, the next best capitalized credit union was New Community CU with a capital ratio 8.05% followed by Buduchnist CU with 7.91% capital ratio.
Canadian credit unions have had to comply with the Risk Adjusted Capital rules (Basel accord) over the last few years, which the chartered banks have been using for many years. The average Ukrainian-Canadian Credit Union’s Total risk adjusted capital ratio increased to 13.83% compared to 13.61% in the previous year. The Ukrainian-Canadian credit union’s risk adjusted capital ratio now is less than the largest credit unions in Canada’s ratio of 14.00% compared to 13.72% in the previous year.