Economic volatility and uncertainty impact Ontario’s Credit Union sector

Credit Union Total Assets Grow while Profitability Decreased and Delinquencies Increased over the Past Year

In its first 2023 quarterly outlook report for the credit unions and caisses populaires sector, the Financial Services Regulatory Authority of Ontario (FSRA) found that while there was year over year growth, sector profitability decreased, and loan delinquency increased. There is the possibility that future quarters will see further softening due to persistent inflation and continuing high interest rates.

Here are some of the key findings:

  • Profitability in 1Q-2023 was 18 bps, 55 bps below last year and 25 bps below last quarter.
  • Credit quality in the latest quarter continued to deteriorate in an environment where inflation remained high but showed signs of moderation, housing markets and mortgage affordability were challenged, and elevated interest rates squeezed margins.
  • Over 30-day delinquency on residential mortgages was 32 bps, up 8 bps year over year and 2 bps from last quarter. Delinquency on commercial loans was 67 bps, up 1 bp year over year and 13 bps from last quarter. Total loan delinquency was 44 bps, up 6 bps year over year and quarter over quarter.
  • At the end of 1Q-2023, sector assets totaled $92.0 billion, reflecting a year over year increase of $7.1 billion (up 8.3%). Residential mortgage loans grew $6.6 billion (up 14.6%); commercial loans grew $0.3 billion (up 1.3%) and cash/investments fell $0.2 billion (down 1.8%).
  • Liquidity remained strong at 11.3% at 1Q-2023 but was 360 bps below the year earlier period.
  • Year over year growth in retained earnings (2.8%) lagged growth in total assets (8.3%). Investment shares represent a significant source of funding ($2.8 billion or 41.9% of capital in 1Q-2023, increasing from 38.8% in 1Q-2022).

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