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 2018 and 2019 primarily due to significantly higher level of allowance for loan losses. The net income before loan losses remained stable in excess of $15.0 million.
Asset quality as measured by allowance as a percent of loans and loan loss provision has increased again to 0.56% of total loans in 2019 compared to 0.43% in the previous year. 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. BCU Financial (Buduchnist) and Carpathia Credit Union (Carpathia) have disclosed their insured mortgage lending amounts. Their combined exposure to insured mortgages represents 33.0% of their residential mortgage portfolio in 2019 compared to 28.3% in the previous year.
Capital to assets ratio has been declining for the last 5 years from a high of 7.26% and is now at 6.93%. The return on assets and the return of equity decreased in 2019 compared to 2018. The membership has continued to decrease over the last 5 years and now 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 $785,000 in 2019 compared to $778,000 in 2018. Although, the amount each has decreased, over the last five years a total of $4.8 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 average about $2.2 million in the last 3 years compared over $3.3 million in the previous three years.
In 2019, the five Ukrainian-Canadian credit unions have provided $2.0 million in donations, sponsorship and promotion support for many charitable and non-profit organizations in the Ukrainian community in Canada. This represents an increase of 7.5% from the previous year.
Contributions by credit unions to the community and to its members. Over the last eleven years, a total of $29.0 million has been provided by way of donations, sponsorship and promotion funds to the Ukrainian community in Canada. This represents 7.2% of the operating expenses of those credit unions. By comparison, the domestic chartered banks in Canada provided by way of advertising, public relations and business development expenses approximately 3.7% of their operating expenses.
The Ukrainian-Canadian credit unions returned $16.4 million to its members over the last eleven years by way of dividends and patronage payments; this represents 15.9% of their net income.
Carpathia Credit Union and North Winnipeg Credit Union merged. 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 3.9% compared to 4.9% in 2018. Ukrainian-Canadian credit unions assets grew by 4.3% in 2018 compare to record growth of 4.6% in 2018. In 2019, the largest credit unions in Canada saw their assets grow by 6.4% compared to 8.5% in 2018. Ukrainian-Canadian credit unions’ total deposits grew by 5.0% compared to a growth of 3.3% in the previous year. In this low interest rate environment, Registered Plans (RRSP and RRIF deposits) increased the most by 8.2% compared to 5.2% in the previous year, while term deposits increased by 4.6% and demand deposits increased by 3.5%.
The Ukrainian-Canadian credit unions’ net comprehensive income before dividend and patronage payments decreased by 18.7% to $7.2 million from $8.8 million,primarilydue to a change in the comprehensive income adjustment. (See Schedule 6a). The net income before this adjustment was $9.2 million compared to 7.6 million and increase of 20.2%.
The operating expense ratio increased to 1.81% compared to 1.67% in the previous year. Ukrainian-Canadian credit unions’ operating ratio is much lower than the operating expense ratio of the largest credit unions in Canada, which had a ratio of 1.93%. This means that the Ukrainian-Canadian credit unions are low cost providers of financial services. The Ukrainian-Canadian credit unions paid 13.5% of their net income to their members by way of a dividend or a patronage refund totalling $785,000 compared to $778,000 in the previous year. These patronage dividends helped to increase the capital of the credit unions by 7.6% to $189.8 million representing 6.93% of the assets. The ratio of capital to assets has been decreasing over the last six years.
The return on assets (ROA) increased to 0.27% compared to 0.34% in 2018, which was below the largest credit unions in Canada average ROA of 0.49%.
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. Other income represented 23.6% 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 in 2018, but improved in 2019. The loan loss provision as a % of average assets was at 0.16% of loans compared to 0.26% in 2018. However, the allowance for loan losses increased to 0.54% of total loans compared to 0.43% in the previous year.
Loan portfolio. The Ukrainian-Canadian credit unions have a larger concentration in lower risk residential mortgage lending which represents 67.4% of the loan portfolio. The residential loan portfolio grew by 17.4% in 2019 compared to 6.6% in the previous year. Residential mortgage portfolio of the largest credit unions in Canada represented 59.6% of the total loan portfolio and saw their residential mortgages grow by 4.6%.
The commercial mortgage loans represented 28.4% of the total loan portfolio. The commercial mortgage loans declined by 0.3% compared to 4.4% 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 28.5% of the total loan portfolio and saw their commercial loans grow by 10.0%.
Consumer (personal) loans only represented 3.6% of the total loan portfolio and saw an increase of 3.6% in 2019 compared to an increase of 12.4% in the previous year. Consumer loan portfolio of the largest credit unions in Canada represented 6.6% of the total loan portfolio and saw their personal loans decline by 3.0%.
Business loans and leases only represented 0.7% of the total loan portfolio and saw a decrease of 38.5% in 2019 compared to a decrease of 26.7% in the previous year. Business loans and leases loan portfolio of the largest credit unions in Canada represented 2.2% of the total loan portfolio and saw their business loans decline by 2.1%.
Growth of membership. Membership has increased by 4.0% to 62,146. Carpathia Credit Union saw their membership numbers increase by 17.1% due to the merger with North Winnipeg Credit Union.
Asset Growth. Ukrainian-Canadian credit unions assets grew by 4.9% in 2019. The largest credit unions in Canada grew by 6.4% in 2019 compared to 8.5% in previous year. Carpathia Credit Union hadthe largest asset growth of 23.7% due to the merger with North Winnipeg Credit Union, followed by Caisse Populaire Ukrainienne de Montreal with growth of 12.6%.
Deposit growth. Credit union 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. However, deposits increased by 10.4% in 2019 compared to growth of 3.3% in previous year. The largest credit unions in Canada grew 5.5% in 2019 compared to 5.1% in previous year. Ukrainian Credit Union Limited had the largest deposit growth of 9.5%, followed by New Community Credit Union with a growth rate of 8.9%. Due the merger with North Winnipeg Credit Union, Carpathia Credit Union saw growth of 23.3%.
Net Interest Margin – Net interest margin increased to 2.10% compared to 2.01% in the previous year. New Community Credit Union had the highest net interest margin of 2.55%. The largest credit unions in Canada had a net interest margin of 2.12% in 2019 compared to 2.09% 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, which is quite favourable compared to the largest credit unions in Canada. The largest credit unions in Canada increased their operating expense ratio to 2.08% from 2.01% in the previous year.
The operating expense to revenue (productivity ratio) increased to 75.7% in 2019 from 72.7% 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 74.8% in 2019 compared to 73.9% in the previous year.
Capitalization – The average capital ratio decreased to 6.93% from 7.34% in the previous year. This compares very favourably to the largest credit unions in Canada which had a capital ratio of 7.10% in 2019 compared to 7.03% in the previous year.
The best capitalized credit union was Caisse Populaire Ukrainienne de Montreal with a capital ratio of 12.92%, the next best capitalized credit union was New Community Credit Union with a capital ratio 8.28% followed by Buduchnist Credit Union Limited (BCU Financial) with 7.90% 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 unions’ total risk adjusted capital ratio increased to 14.00% compared to 13.83% in the previous year. The Ukrainian-Canadian credit unions’ risk adjusted capital ratio now is less than the largest credit unions in Canada’s ratio of 14.07% compared to 14.00% in the previous year.