Ontario credit unions continue to grow as profit margins soften
According to FSRA’s Q2 2024-25 Sector Outlook Report, Ontario’s credit unions grew assets in the latest quarter but are facing slowing profitability.
Profitability slowed primarily as a result of increased interest expense, and delinquency is increasing as more people were late in paying both residential mortgages and business loans compared to the same period last year.
FSRA expects the deterioration of financial margins will continue but at a slower pace; it will start to improve in late 2024 and 2025, depending on the magnitude and pace of rate cuts from the Bank of Canada (BOC) at short end of yield curve and how mid- to long-end of yield curve shift.
The BOC shifted its policy focus from inflation risk to downside risk and cut the bank rate twice, in June and July.
Residential mortgage loans grew $2.1 billion (up 4%), but recent growth is below historical rates as prices and volumes weakened and mortgage rates elevated compared with earlier levels.
The outlook of further easing of interest rate levels and a drop in inflation rate expectations are expected to alleviate borrowers’ payment burden.
Here are some key findings:
- sector assets totaled $98.1 billion at the end of the quarter, reflecting a year-over-year increase of $5.1 billion (up 5.5%)
- Profitability, as measured by Return on Average Assets (ROAA) in 2Q-2024 was 21 bps, up 7 bps from last quarter and 2 bps up from last year. (Note: Q2 2024 ROAA was adjusted up by 6 bps due to methodology change, which means 2Q-2024 profitability was up 1 bps from last quarter and down 4 bps from last year.)
- 30-day delinquency on residential mortgages (which at $54.5 billion, represent 55.6% of sector assets) was 63 bps, up 25 bps year over year but down 1 bps from last quarter
FSRA publishes Sector Outlook reports for the credit union sector every quarter. They provide an analysis and commentary on the economy and financial results in Ontario’s credit union sector.
Learn more:
FSRA continues to work on behalf of all stakeholders, including consumers, to ensure financial safety, fairness, and choice for everyone.
Learn more at www.fsrao.ca.