Credit unions and the policies that govern them need to adapt to help
REGINA, SK, May 27, 2014 /CNW/ - Credit unions—long a vital player in
Saskatchewan's financial system— are facing new and unique business
challenges. New research from The Conference Board of Canada shows that
credit unions have to continue to evolve to remain successful and
relevant in Saskatchewan. The research also suggests that policy makers
should accommodate the unique structures of credit unions in taxation
and financial regulatory policy.
The Conference Board of Canada report from the Saskatchewan Institute, entitled Positioning Saskatchewan's Credit Unions for Growth, will outline the challenges facing credit unions and potential
solutions at the Saskatchewan Forum on Wednesday, May 28, at 10 a.m. at the Delta Regina.
"If credit unions and policymakers work together, credit unions can
continue to be successful going forward," said Michael Grant, Director
of Research, Industry and Business Strategy.
Credit unions play a greater role in Saskatchewan than they do elsewhere
The credit unions' business model makes it harder for them to compete
within a booming economy.
Federal and provincial policy changes could improve the ability of
credit unions to compete in a growing market such as Saskatchewan.
Credit unions are small-scale financial institutions that are owned by
members, and serve customers primarily through physical branches. Their
role in Saskatchewan's financial market is unique. For example,
Saskatchewan's credit unions have a 30 per cent market share in
commercial loans, compared to eight per cent nationally. Member
ownership also allows credit unions to get to know their customers
well, which reduces risk.
Credit unions' cost of doing business is of concern, however. Credit
unions operate more physical branches in Saskatchewan's rural
communities than do the major banks. While highly valued by members,
branches are also a more costly means of delivering retail financial
In addition, Saskatchewan is a booming economy with billions of dollars
in investments on the books. In such growing economies, individual
credit unions are often faced with a situation where the growth in loan
demand exceeds the growth of member deposits—upon which credit unions
rely heavily for capital. As a result, individual credit unions are
less able to contribute to and participate in Saskatchewan's growth.
Credit unions are responding to these challenges either by becoming
larger on their own account or through strategic partnerships to lower
costs and invest in the latest technology.
Recent policy changes at the federal level have raised concerns about
the effects on Saskatchewan's credit unions. For example, new capital
adequacy regulations that affect credit unions have been designed for
large banks, which, because of their size, can more easily comply
without undermining their competitiveness. Policies such as anti-money
laundering regulations also increase costs for credit unions, which are
less able to shoulder the added expense.
In addition to the costs of increased regulatory requirements, the
federal government has announced changes in tax policy that are
intended to treat credit unions the same as large deposit-taking
financial institutions. The 2013 federal changes would eliminate credit
unions from having access to the federal lower small business tax rate.
While the policy change is intended to treat credit unions and banks
equally, it is effectively leading to different tax treatment because
the business models are so diverse.
The tax changes are estimated to cost Saskatchewan's credit unions
between $3 million and $4 million per year. The increased tax bill
could have been even higher, but the Province of Saskatchewan chose not
to follow the federal lead in regard to credit unions.
The report recommends that policymakers work with credit unions to
"right size" capital adequacy regulation, recognize the costs of
regulatory policy on credit unions, and reassess the role of federal
Crown Corporations that compete directly with credit unions for
This is the second Saskatchewan Institute report that considers aspects
of Saskatchewan's financial capacity and needs, in the new era of
Saskatchewan as a "have" province.
SOURCE: Conference Board of Canada
For further information:
Brent Dowdall, Media Relations, Tel.: 613- 526-3090 ext. 448