Credit union growth up in B.C. and Saskatchewan

Key Concepts

• Credit Unions: Member-owned financial cooperatives that provide banking services, distinct from large publicly traded banks.
• Net Interest Margin (NIM): The difference between interest income generated by banks and the amount of interest paid out to their lenders (depositors).
• Non-Interest Income: Revenue derived from sources other than interest, such as wealth management fees.
• Credit Deterioration: A decline in the quality of a loan portfolio, often leading to higher provisions for credit losses.
• Capital Markets: The part of the financial system that raises capital by dealing in shares, bonds, and other long-term investments; an area where credit unions typically have limited involvement compared to major banks.

---

1. Overview of Financial Performance

Morningstar DBRS analyzed the 2025 results for the three largest credit unions in Saskatchewan and the three largest in British Columbia (BC). The data indicates a divergence in performance trends:

• Saskatchewan: Demonstrated consistent, steady growth and stable earnings.
• British Columbia: Experienced a meaningful recovery in earnings following a weak performance in 2023 and 2024.

2. Drivers of the Turnaround

The recovery across these institutions is attributed to two primary factors:

• Improved Margins: Lower funding costs have allowed for better net interest margins.
• Increased Non-Interest Income: Strong equity markets have bolstered revenue from wealth management services.

3. Performance by Institution

• BC Recovery: The most significant rebounds were observed at True North Bank (formerly First West Credit Union) and Vancity. Coast Capital experienced less volatility, resulting in a less pronounced recovery phase.
• Saskatchewan Stability: Innovation Federal Credit Union maintained consistent earnings. Their strategy involves diversifying their loan portfolio by expanding outside the province. While this has resulted in higher-yielding loans, it has also introduced some credit deterioration, which remains a point of monitoring.

4. Market Positioning and Competitive Landscape

• Regional Dominance: Credit unions hold larger market shares in Western Canada, partly due to the historical expansion patterns of major Canadian banks, which originated in the East.
• The "Mid-Size" Opportunity: As major banks (e.g., RBC, National Bank) have acquired mid-sized players (e.g., HSBC Canada, Canadian Western Bank), a vacuum has been created in the mid-sized banking space. Credit unions are positioning themselves to capture this market segment.
• Structural Differences: Unlike the "Big Banks," credit unions are private, member-owned entities and generally do not participate in capital market activities, focusing instead on traditional retail and commercial banking.

5. Future Outlook and Risks

Morningstar DBRS projects continued revenue growth and margin recovery for the coming year. However, several headwinds persist:

• Macroeconomic Uncertainty: Lingering concerns regarding inflation, potentially exacerbated by geopolitical tensions.
• Sector-Specific Weakness: There is notable vulnerability in the residential development and condo market, which requires close observation.

Synthesis

The credit union sector in Western Canada is currently benefiting from a favorable interest rate environment and robust equity markets. While Saskatchewan institutions rely on geographic diversification for stability, BC institutions are recovering from recent cyclical lows. The sector is strategically well-positioned to fill the void left by the consolidation of mid-sized banks, though they must navigate potential credit risks stemming from the residential real estate sector and broader macroeconomic instability.