Understanding growth and its policy implications for Canadian credit unions

This paper investigates the sources of growth for the 100 largest Canadian credit unions (CUs) over the past decade. We identify the existence of diseconomies of scale in growth for these credit unions. Our result suggests that these credit unions may have fully exploited gains from scale in their provincial markets. There is potential for noninterest income to generate growth. A lower cost-to-income ratio enhances growth, while a higher capital–asset ratio hinders growth. Interestingly, mergers do not affect one-year growth one, two, or three years after the merger. We also find that the acquiring CU does not outperform peer CUs (matched on size and growth) one year after the merger. However, the acquiring CU outperforms the same peers when growth is calculated over two years. Multivariate analysis reveals that mergers affect growth through the quadratic term of the size variable. Our result helps to explain the recent trend in the federalization of large CUs and has implications for smaller CUs that cannot justify federalization.