(Bloomberg) -- Canada’s biggest credit union outside of Quebec, Vancity, has historically marketed itself as being “Main Street, not Wall Street” — member-owned, values-led and locally focused.
Close to the top of new Chief Executive Officer Wellington Holbrook’s agenda is expanding the commercial bank the Vancouver-based credit union quietly owns half a continent away in Toronto, two blocks from Canada’s financial nerve center of Bay Street.
“We’re always going to be a community-based financial institution that’s focused on our members — but we do own a Schedule I bank,” said Holbrook, referring to Vancity Community Investment Bank, in his first sit-down interview since taking over in January. “We are thinking about what the bank could be for the future, and doing way more with it.”
Holbrook has more incentive to shake things up coming in on the back of Vancity’s worst financial results for years. Vancity posted a C$3.3 million ($2.4 million) loss for 2023, ending a long run of healthy returns. Soaring global interest rates prompted members to shift their money into higher-rate term deposits, which spiked Vancity’s funding costs as the credit union continued to hold lots of loans issued when rates were at record lows.
So Holbrook is on the hunt for opportunities, including a “top-to-bottom” review of the strategy for Vancity’s bank — part of an overhaul he dubs Vancity 2.0 — that could see the unit play a bigger role.
Today, Vancity’s bank mainly provides “niche” business-to-business lending. It’s offered 32 clean energy loans and financing for about 3,400 units of affordable housing to date, according to its website. Its assets were C$366 million as of a September regulatory filing — a fraction of the credit union’s C$35.5 billion total assets under administration.
Although the credit union, with 569,000 members, is licensed only in the province of British Columbia, Vancity’s banking license is federal and applies nationwide. That could open the door to a national digital bank product, challenging Canada’s highly concentrated market dominated by the Big Six banks, which control as much as 90% of the country’s personal deposits.
“We do think some kind of digital challenger strategy for the rest of the country is probably the answer,” Holbrook said. “We don’t really have a strong offering today in the bank for retail, or consumers, or wealth, or other lines of business.”
Vancity could also become more active in offering insured mortgages through federal housing corporation Canada Mortgage and Housing Corp., which allow borrowers to buy homes with smaller down payments, a spokesperson said.
That’s on top of expanding its work in housing supply. Holbrook aims to make Vancity the primary financier for “several thousand more affordable housing units than we would have seen in past years.”
“We are really looking at how we can use the capital we have to drive more construction in affordable housing, and support more affordable housing projects as they go — actually our commercial banking team is putting a really big focus on that for 2025 as a part of our strategy.”
Room for Improvement
Since starting in January, Holbrook’s prescription has been tough love. Five months in, he cut about 7% of staff — about 200 people. The “pain was equally shared” across divisions and necessary “to change our cost structure to make room for the investments we need to make” like in digital banking, he said.
That’s because, according to Holbrook, Vancity’s digital experience feels like it’s from 2015 — or earlier. He said credit unions have been losing market share to other financial institutions, but he said he’s going to turn that around in Vancity’s case.
The Oxford MBA graduate pushed a digital transformation at ATB Financial, according to his official biography. And a snappy digital experience will be an important part of going up against Canada’s powerful banks, especially without a branch network outside of British Columbia — in the vein of digital challenger Equitable Bank, owned by EQB Inc.
He sees other areas for improvement too. Vancity has won members from big banks who like its values-based investing products, but needs to work harder to keep them happy, while successful products like Vancity’s “enviroVisa” credit card could benefit from more marketing.
“Have we been as well a run financial institution as we need to be? Probably not.”
The credit union is steadily rebuilding margins this year in a trend that Holbrook said will continue for the next 18 months “regardless of what happens in the interest rate environment.”
And despite the potential changes coming to its Toronto-based bank, an important part of his strategy is catering to the small businesses in Vancity’s backyard. They “tend to bring their full operating needs to the credit union,” which is better for margins, and Vancity’s community mission, than large enterprises that “might just give you a commercial mortgage on a piece of property.”
“Being more deliberate around where that next dollar of growth is coming from is helping really drive margin growth.”
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