DBRS Confirms Central 1 Credit Union Ratings at R-1 (middle), A (high)

DBRS has today confirmed the ratings of Central 1 Credit Union (Central 1), including Central 1’s Issuer Rating at A (high) and Short-Term Notes at R-1 (middle). All trends are Stable. The primary considerations in determining the ratings are the low-risk mix of business and strong asset quality of the British Columbia credit union system (B.C. System) and Ontario credit union system (Ontario System).

In early 2014, British Columbia’s Financial Institutions Commission (FICOM), the provincial regulator, named Central 1 a Domestic Systemically Important Financial Institution (D-SIFI) within the Canadian credit union system. The designation comes with the recognition of the importance of Central 1 within the national credit union system and will result in an enhanced regulatory and supervisory framework for Central 1 to adhere to.

Earnings at Central 1 are quite acceptable for a co-operative institution and asset quality remained very strong in 2013. Asset quality of the Ontario and B.C. systems continue to be supportive of the current ratings, with loan loss provisions well contained within operating profit and with favourable levels of impaired loans. Returns on equity remain reasonable in the 10% to 12% range, continuing to be constrained by the high cost structure of the credit unions system and continued spread compression in the persistent low interest rate environment.

Under DBRS’s global rating methodology for banks and bank-like financial institutions, Central 1’s Issuer Rating is composed of an intrinsic rating of “A” and a support assessment of SA2. The SA2 assessment, which reflects the unusual situation of the anticipation of government support for the B.C. System and the Ontario Members through Central 1 from the governments of British Columbia and Ontario, respectively, results in a one-notch rating benefit to the Intrinsic Assessment. Central 1’s short-term rating is unaffected by its support assessment.

Notes:
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Rating Canadian Credit Union Centrals and Desjardins Group (December 2013), Global Methodology for Rating Banks and Banking Organisations (June 2014) and Criteria: Support Assessment for Banks and Banking Organisations (January 2014), all of which can be found on DBRS’s website at www.dbrs.com.

The sources of information used for this rating include company documents. DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.