The year-end results for BC credit unions are now published and 2023 was not a good one. BC’s largest two credit unions posted losses in ‘net income’. After adjustments for ‘fair value’ which result in ‘comprehensive income’, Vancity recorded a meager $5M and First West recorded a -$6M.
Below, I summarize the information on the big ten, these ten comprise @80% of the assets of the BC regulated credit unions. The table lists audited year-end total assets, net interest income, net income, and comprehensive income.
Vancity, First West, and BlueShore substantially dragged the overall figures down. BlueShore lost $28M.
Since Vancity and First West represent over 50% of the BC system, they have a big impact. Based on year-end assets, Vancity’s financial margin dropped from 169bp in 2022 to 127bp in 2023 (‘bp’ is a basis point or 0.01%), First West’s went from 181bp to 122bp. Remarkably, the financial margin at BlueShore dropped from 154bp to 54bp. The sample above saw the financial margin go from 185bp to 137bp. The pressure on margins was primarily caused by the increase in market rates, lead by the Bank of Canada overnight rate. Three credit unions appear to have been more vulnerable to rising rates than others.
The sample group’s net income fell from 33bp to only 3bp. The exceptionally low earnings have two consequences; a failure to pay dividends to members and limited earnings for the institution to retain to provide capital for future growth. (Net income in the range of 50bp supports growth at @2%, as a rule of thumb.) Will members be concerned about no dividends? Will declining capital ratios lead to lost market share?
Additionally, as mergers continue to reduce the number of BC credit unions, under-performing large credit unions pose a quandary. Struggling smaller ones may have no obvious white knight if they stumble. And this leaves the regulator with fewer options if the smaller credit union needs help. The logic of consolidation is based on an assumption that the large will be strong. The truth is that they may not be.
On the flip side, some credit unions performed very well. Coastal Community, Salmon Arm, and Sunshine Coast all managed to maintain their financial margins, and earnings, despite the increases in market rates. The asset growth in this sample was 4%.
The BlueShore results are quite shocking. Good to see strong results in some smaller credit unions, though.
Hi Ross,
Glad to see you are alive and well and following events in BC credit union land.
I was surprised by the poor financial performance by the major players in the BC system. In particular, the very low financial margins for the credit unions you reported on as most (and some more than others) were punished by the inverted yield curve (and the risk that comes from funding longer term loans with shorter term deposits).
And I see Blue Shore Financial is in merger discussions with Coast Capital. “Another one bites the dust”.
Hi Clark – Well, I took a sabbatical! On the consolidation front, I think BlueShore is in talks with Coastal Community, but perhaps they will also be talking to Coast Capital.