A recent rule change in Ontario has opened the doors for its credit unions to take part in group loans led by banks.
The transition, which was included in a broader package of anti-red-tape proposals, is expected to result in additional financing options for businesses, reported the Financial Post. The province added that credit unions will be able to better compete in the commercial-lending space as they offer their customers bigger loans.
“In addition, the amendment enables credit unions to more effectively manage their risk by diversifying their lending portfolios,” an Ontario Ministry of Finance spokesperson told the Post via email. “This change provides necessary clarity and reduces red tape for credit unions and banks to improve liquidity for Ontario capital markets and consumers.”
Before the change, Ontario was the only province in Canada to restrict credit unions from taking part in loan syndications led by federally regulated banks or credit unions. And because they were only allowed to participate in the ones led by other provincially regulated credit unions, noted Canadian Credit Union Association President and CEO Martha Durdin, they were at a disadvantage.
“Participating in syndications rather than leading them is [an] attractive tool for them, so that they can pursue larger clients,” Durdin said. “[Not allowing that] would force businesses and customers to only work with the larger banks, which … impacts competition.”
Because of the prohibition, Ontario credit unions were also previously unable to participate in loans led by Concentra Bank, which is owned by credit unions and also provides financial services to them.
“Organizations … including without limitation banks within the meaning of Section 2 of the Bank Act (Canada) e.g. TD Bank, Concentra Bank, are not included as prescribed organizations and are not authorized to act as a syndicating (lead) credit union to a syndicated loan within or outside Ontario,” the Deposit Insurance Corporation of Ontario (DICO), which regulates credit unions in the province, said in an advisory last August.
By December 7, the province had changed the regulations governing nearly 80 credit unions and caisses populaires in Ontario. All in all, they represent around 1.6 million members and over $63 billion in assets, according to the finance spokesperson.
“This would help them to better manage risk and compete, while expanding access to financing for their small-business customers,” the government said in a backgrounder.
Follow WP on Facebook, LinkedIn and Twitter
More market talk: