DBRS Confirms Credit Union Central of Ontario at R-1 (low)

Dominion Bond Rating Service (“DBRS”) has today confirmed the Short-Term Instruments rating of Credit Union Central of Ontario (“Central”) at R-1 (low). Central’s rating is supported by the liquidity, credit quality, earnings, and capital ratios of both Central and the credit unions that are members of Central (the “Members”).

Member assets grew by 14% in the first nine months of 2005, in part due to a credit union merger that brought a large, previously unaffiliated credit union under Central’s umbrella. Exclusive of this event, Member assets grew largely as a result of increased mortgage lending. Like its counterparts elsewhere in the country, the Ontario System, which includes the Members and credit unions and caisse populaires that are not affiliated with Central, have continued consolidating; this activity has resulted in some of the credit unions gaining significant scale, particularly Meridian Credit Union and Alterna Savings, which now hold about Cdn$3.5 billion and Cdn$1.7 billion, respectively, in assets on their own.

The overall expansion of Member activity during the year was partially funded by an increase in lending by Central to its Members. Although this has led to a decrease in liquidity at the Central level, its liquidity pool remains strong. While Central’s profitability is not a key ratings consideration, its earnings rebounded from a weak year in 2004, in part because of this increased lending activity. Central’s yield enhancement activities have been reduced, which DBRS believes will result in less earnings volatility at least in the near term. While Central has modestly expanded its commercial lending activities, the portfolio remains a reasonable proportion of the business. Central’s overall financial risk profile is expected to remain reasonable and liquidity is not expected to decline meaningfully from current levels.

Central is expected to increase its future external funding to assist its Members’ expansion. The limit on the short-term deposit note program was recently increased to Cdn$500 million.