Ontario’s credit unions can now take part in group loans that are spearheaded by banks, a result of changes made as part of Premier Doug Ford’s push to ensure the province is “open for business.”
The Ontario government said in December that the province would amend its existing rules to let credit unions participate in bank-led syndicated loans, in which a group of lenders team up to provide money to a borrower.
Ontario says the move — which was tucked into a broader package of proposals to cut red tape — will mean more financing options for businesses.
It will also help credit unions to better compete in commercial lending, the province says, by allowing them to offer bigger loans to their customers.
“In addition, the amendment enables credit unions to more effectively manage their risk by diversifying their lending portfolios,” a spokesperson for Ontario’s Ministry of Finance said in an email. “This change provides necessary clarity and reduces red tape for credit unions and banks to improve liquidity for Ontario capital markets and consumers.”
Previously, Ontario credit unions had been allowed to participate in loan syndications led by their fellow provincially regulated credit unions, but not by federally regulated banks or credit unions.
Ontario was the only province in Canada with this restriction, making it unique, according to Martha Durdin, president and CEO of the Canadian Credit Union Association.
“It put Ontario credit unions at a disadvantage,” Durdin said. “Because of the relative size (of credit unions), participating in syndications rather than leading them is (an) attractive tool for them, so that they can pursue larger clients.”
Durdin gave the example of an agricultural client of a credit union seeking to buy a new piece of land worth millions of dollars, a loan that the credit union might not be able to fund without joining a syndicate.
“So it hurts credit unions, hurts business, if they couldn’t do it,” she added. “And it would force businesses and customers to only work with the larger banks, which … impacts competition.”
The prohibition also blocked Ontario credit unions from participating in loans led by Concentra Bank, a lender that is owned by credit unions and that provides financial services to them.
… it hurts credit unions, hurts business, if they couldn’t (fund a large loan). And it would force customers to only work with the larger banks, which … impacts competition.
Martha Durdin, Canadian Credit Union Association
An Ontario regulator of credit unions, the Deposit Insurance Corporation of Ontario (DICO), issued an advisory last August that laid out the restrictions around syndicated loans.
DICO also said that a review of the five largest syndicated loans by each credit union “has identified instances where the syndicating (lead) credit union is not a prescribed organization,” adding that it would consider on a “case by case basis” grandfathering those loans for a reasonable period of time.
“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 advisory said.
Ontario has already amended its regulations, however, permitting provincial credit unions to join in on bank-led loan syndications as of Dec. 7, 2018. The change applies to the nearly 80 credit unions and caisses populaires in Ontario, which have around 1.6 million members and more than $63 billion in assets, the finance spokesperson said.
“This would help them to better manage risk and compete, while expanding access to financing for their small-business customers,” a government backgrounder said.