Tie-up would create single credit union with around $15 billion in assets under management
Three Saskatchewan credit unions are looking at potentially combining their operations to better serve customers and deal with a changing market.
Conexus Credit Union board chair Ken Kosolofski said over the next number of months the three organizations will be working to put together a business case. He added credit unions are dealing with a competitive businesses environment which includes not only the Big Six banks but also new online financial platforms.
“If we can come together and combine here we have a chance against some of the competition,” he said.
Celina Philpot, chief executive of Conexus, said online platforms such as Wealthsimple Inc. and Neo Financial, which don’t have physical banking locations, have emerged to provide customers with an alternative to traditional banking. She added Saskatchewan has also proven to be an attractive jurisdiction for competing financial institutions due to its economy.
“We get a lot of attention from multiple financial institutions because of that practical sustainable growth that we have in our province,” she said.
Philpot said credit unions have also faced headwinds from a changing regulatory environment and the merged entity would be in a better position to deal with those pressures and offset costs.
“It is a cost for the credit union, there’s no revenue opportunity from any regulatory regime that’s in place,” she said.
The announcement by the three Saskatchewan credit unions follows similar trends in neighbouring provinces. This past summer, Alberta’s Connect First and Servus Credit Unions formally combined into a single entity with $34 billion in assets. Three Manitoba credit unions also voted to merge to create a combined entity with over $9 billion in assets over the summer. That merger is set to go through next year.
With their proposed merger, Conexus and its partners are following this larger industry trend, Kosolofski said
“This is just a continuation of a drive to get more scale so we can become more sustainable in the future,” he said.
Consolidation in the Canadian credit union sector has increased in recent years, analysts from Morningstar DBRS, a U.S.-based credit ratings agency, wrote in a note to clients. Josh Veenkamp and Tim O’Brien attributed the trend to financial costs brought on by increased competition.
“Technology investments required to stay competitive with large banks and fintech companies have become increasingly onerous,” they wrote.
The two analysts said the merged entity would be in a good position to operate in a more efficient manner while achieving some cost synergies. The analysts add the merged credit union would also be in a good position to make any needed investments to improve technology to better compete with larger banks and online financial institutions.
The note said the new entity would have a risk profile that is similar to the current profile of Conexus, but will have a loan book with more exposure to agricultural and commercial loans. Overall the analysts said the three entities are on solid financial footing.
“All three credit unions are primarily funded by stable member deposits, have liquidity coverage ratios and capital levels well above the regulatory minimums.”
The business case analysis on the proposed merged is expected to be finished by March of next year. After that work is finished the proposed merger will go to each credit union board for a vote. If the boards vote yes then the decision will be thrown to members who will likely be voting in June of next year.
“If our members vote in favour of it we’ll be ready to start that new credit union as soon as possible,” Kosolofski said.
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