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September 8, 2022 – It is crunch time for Canadian credit unions as they face the challenges of digitization, new regulations, payment modernization and increased competition.

To meet these challenges, this important part of Canada’s banking sector, serving both individuals and businesses, needs to build upon its governance standards and practices, according to a new report from the C.D. Howe Institute.

In “Aiming Higher: How to Build Greater Resiliency for Large Credit Unions in Canada,” authors Marc-André Pigeon and Murray Fulton offer a snapshot of the evolution and performance of the sector from 2012 to 2019, reviewing the practices and board composition at some of the country’s biggest credit unions – which account for more than half of credit union assets – and proposing recommendations for improvements.

While policymakers and corporate leaders have tended to focus on improving the governance of chartered banks since the financial crisis, less is known about the practices of Canadian credit unions, which held almost $280 billion in assets at the end of 2021 outside of Quebec, and have significant market shares in BC, Saskatchewan and Manitoba, according to Pigeon and Fulton.

Comparing data in the annual reports of the 100 largest Canadian credit unions since 2012 against data from Canada’s six largest banks, the largest credit unions are performing reasonably well alongside their counterparts – with assets on average having grown quickly and consistently from 2012 to 2019. However, there are some areas where they trail banks by significant margins, according to the authors.

For instance, return on assets, while stable, is well behind the banks over the same period, with credit unions averaging 0.49 percent compared to banks at 0.85 percent. Similarly, the efficiency ratio – how much it costs (outside of interest) to get a dollar of revenue – is on average 40 percent higher for credit unions (78.38 percent) than that of the banks studied (56.30 percent).

“Good governance suggests boards should demand accountability for what is driving these lower metrics and assure themselves that the credit union/bank discrepancy actually represents the pursuit of a wider range of goals and investments in community benefits and not substandard performance,” says Pigeon. “In particular, boards should make sure that management can clearly identify and measure these community benefits and is not hiding poor performance behind the claim that credit unions are different.”

Interviewing eight individuals in senior governance roles at some of the largest credit unions in the country, Pigeon and Fulton found they are keenly aware of their challenges.

Although the sector performed well in the post-financial crisis it has some important opportunities for improvement.

All told, the authors recommend:

  1. Clarity of purpose for credit unions as boards determine what is behind the gap between their performance and banks in terms of key measures such as return on assets and the efficiency ratio;
  2. Ensuring that board and member dynamics are conducive to good communications by continuing to pursue skilled and experienced board members, while increasing transparency and information flow to members; and
  3. Similar to the Office of the Superintendent of Financial Institutions having data on large banks available on its website, provincial regulators should do the same thing to improve information sharing and accountability.

Read the Full Report

For more information contact: Marc-André Pigeon, Director and Strategic Research Fellow at the Canadian Centre for the Study of Co-operatives, University of Saskatchewan; Murray Fulton, Professor Emeritus, Johnson Shoyama Graduate School of Public Policy, University of Saskatchewan, and Fellow in Co-operatives and Public Policy, Centre for the Study of Co-operatives; or Lauren Malyk, Communications Officer, C.D. Howe Institute, 416-865-1904 Ext. 0247, lmalyk@cdhowe.org

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.