Executive Summary
The financial results of Ukrainian-Canadian Credit Unions over the last five years have been mixed: asset quality as measured by allowance as a % of loans and loan loss provision has remained stable at 0.12% of total loans primarily due to a continued lower interest rate environment. 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 36.3% of their residential mortgage portfolio in 2016 compared to 27.3% in 2015.
Capital to assets ratio in 2016 has declined to 7.21% compared to 7.26% in the previous year. The return on assets and the return of equity declined in 2016 compared to 2015. The membership has decreased again in 2016. The membership totalled 63,773 and is far from the record level of 72,280, which was achieved in 2007.
The members of the Ukrainian-Canadian credit unions have continued to financially benefit by receiving significant dividends and patronage payments, which totalled $1080 million in 2016 compared to $1.396 million in 2015. Over the last five years a total of $7.3 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. In 2016, the five largest credit unions have provided $3.084 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 15.7% from the previous year. Over the last five years a total of $14.8 million has been provided by way of donations, sponsorship and promotion funds to the Ukrainian community in Canada.
Performance. Return on equity was 5.0% compared to 6.9% in 2015. Ukrainian-Canadian credit unions assets grew by 5.4% in 2016 compare to record growth of 6.3% in 2015. In 2016, the largest credit unions in Canada saw their assets grow by 8.7% compared to 9.7% in 2015. Ukrainian-Canadian Credit Union’s total deposits grew by 4.0% compared to a growth of 5.4% in the previous year. Even in a low interest rate environment, demand deposits grew by 7.7% while Registered Plans (RRSP and RRIF deposits) increased by 7.7%, while term deposits declined by 0.6%.
The Ukrainian-Canadian Credit Union’s net income before dividend and patronage payments declined by 23.7% to $8.4 million from $11.0 million,primarilydue to an decrease in the net interest margin and other income. The operating expense ratio decreased to 1.71% compared to 1.77% 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 2.12%. This means that the Ukrainian-Canadian Credit Unions are low cost providers of financial services. The Ukrainian-Canadian Credit Unions paid 12.9% of their net income to their members by way of a dividend or a patronage refund totalling $1.080 million compared to $1.396 million in the previous year. These patronage dividends helped increase the capital of the credit unions by 4.7% to $170.3 million representing 7.21% of the assets. The ratio of capital to assets has decreased compared to the previous year.
The return on assets (ROA) decreased to 0.36% compared to 0.51% in 2015, which was below the largest credit unions in Canada average ROA of 0.44%.
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 15.1% of total net operating revenue compared to 15.6% in the previous year. Other income represented 24.6% 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. Overall the asset quality is still quite strong. The loan loss provision as a % of average assets was at 0.03% of loans compared to 0.01% in 2015, which compares very favourably to the large Canadian credit unions, which had a loan loss provision of 0.07%.
The allowance for loan losses remained the same 0.12% of total loans, which again compares very favourably [less than half] to the largest Canadian credit unions, which had an allowance for loan losses of 0.28%.
Loan portfolio. The Ukrainian-Canadian Credit Unions have a larger concentration in lower risk residential mortgage lending which represents 61.6% of the loan portfolio. The residential loan portfolio grew by 3.8% in 2016 compared to 5.4% 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 7.5%.
The commercial mortgage loans represented 32.6% of the total loan portfolio. The commercial mortgage loans grew by 10.0% compared to 2.8% 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 26.1% of the total loan portfolio and saw their commercial loans grow by 8.4%.
Consumer (personal) loans only represented 4.4% of the total loan portfolio and saw an increase of 7.1% in 2016 compared to a decline of 1.9% in the previous year. Consumer loan portfolio of the largest credit unions in Canada represented 7.8% of the total loan portfolio and saw their personal loans grow by 3.5%.
Business loans and leases only represented 1.4% of the total loan portfolio and saw a decrease of 33.8% in 2016 compared to an increase of 36.7% in the previous year. Business loans and leases loan portfolio of the largest credit unions in Canada represented 6.5% of the total loan portfolio and saw their personal loans grow by 30.5%.
New Community credit union experienced the largest total loan growth of 11.7% of the Canadian-Ukrainian credit unions in Canada.
Growth of membership. Membership has decreased by 1.2% to 63,773. CP Ukrainenne de Montreal saw their membership numbers increase by 1%.
Asset Growth. Ukrainian-Canadian credit unions assets grew by 5.4% in 2016 compared to 6.3% growth in 2015. The largest credit unions in Canada grew by 8.7% in 2016 compared to 9.7% in previous year.
CP Ukrainenne de Montreal had the largest asset growth of 7.7%, followed by North Winnipeg with growth of 5.9%.
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 4.0% in 2016 compared to growth of 5.4% in previous year. The largest credit unions in Canada grew 9.5% in 2016 compared to 8.7% in previous year.
Carpathia CU had the largest deposit growth of 7.5%, followed by North Winnipeg CU with a growth rate of 6.1%.
Net Interest Margin – Net interest margin decreased to 1.89% compared to 1.99% in the previous year. CP Ukrainienne de Montreal had the highest net interest margin 2.40%, followed by New Community CU with 2.03% and then with Ukrainian CU 1.96%.
The largest credit unions in Canada had a net interest margin of 2.04% in 2016 compared to 2.13% in the previous year.
Operating Costs – Ukrainian-Canadian Credit Unions have an operating cost structure that is quite competitive. The operating expense ratio increased to 1.71% in 2016 compared to 1.77% 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 2.12% from 2.17% in the previous year.
The operating expense to revenue (productivity ratio) increased to 76.7% in 2016 from 74.9% 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 77.3% in 2016 compared to 77.9% in the previous year.
Capitalization – The average capital ratio decreased to 7.21% from 7.26% in the previous year. This compares very favourably to the largest credit unions in Canada which had a capital ratio of 7.00% in 2016 compared to 7.04% in the previous year.
The best capitalized credit union was CP Ukrainienne de Montreal with a capital ratio of 13.12%, the next best capitalized credit union was Buduchnist CU with a capital ratio 8.00% followed by New Community CU with 7.37% and Ukrainian CU with 6.28% 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 was 14.11% compared to 13.63% in the previous year. Again, the Ukrainian-Canadian credit union’s risk adjusted capital ratio compares very favourably to the largest credit unions in Canada’s ratio of 13.63% compared to 13.24% in the previous year.