Credit unions have long been known for their resilience, emerging in times of economic challenge and standing strong through shifting financial landscapes. Built on shared values and community commitment, they have weathered recessions, inflation, and global uncertainty with a steady, long-term approach.
Today, as tariffs create new economic pressures, credit unions must once again adapt, ensuring they continue to support their members and communities. While the U.S. and international tariffs introduce significant economic headwinds, Canadian credit unions can navigate these challenges through diligent risk management, strategic adjustments, and active member engagement. In this article, we examine the impact of recent tariffs and trade conflicts on Canadian credit unions and provide guidance to mitigate risks through strategic planning.
Tariffs and Canadian credit unions: Key considerations
The escalation of tariffs has introduced uncertainty into the economic landscape, affecting businesses, consumers, and financial institutions alike. Credit unions must take a strategic and proactive approach to mitigate risk and ensure stability during such times.
Finding a path forward
The potential easing of interprovincial barriers presents an opportunity to strengthen the sector and expand its reach. While the opportunity to break down interprovincial barriers is clear, it requires more than individual effort. Credit unions must leverage their collective strength by supporting a unified advocacy front, ensuring that influential industry representatives effectively communicate their needs to regulatory bodies.
Here are a few avenues to explore in the times ahead:
However, current regulatory restrictions make interprovincial mergers challenging. Provincial credit unions are generally not permitted to operate outside their home jurisdiction or merge with credit unions in other provinces. The only pathways to national expansion are either chartering as a federal credit union under the Canadian Bank Act or amalgamating with an existing federal credit union, both of which are complex, time-consuming processes.
To foster a more integrated and efficient credit union network, regulatory amendments should be considered to allow provincial credit unions to sell all of their assets to a federal or another provincial credit union in exchange for the issuance of membership shares to the selling credit union members.
What are the potential impacts?
The rising tariffs could weaken industries reliant on U.S. exports leading to revenue declines and higher loan defaults within these sectors. As unemployment is projected to rise—potentially by 1.3%, or approximately 278,000 job losses—household incomes will be strained, increasing the risk of defaults on personal loans, mortgages, and credit card debt.
A surge in loan defaults may erode asset quality, requiring credit unions to increase provisions for loan losses. Prolonged economic downturns could also strain capital buffers, affecting solvency and regulatory compliance. Credit unions conducting annual ICAAP exercises should reassess their capital adequacy under stressed conditions to ensure financial stability.
Economic uncertainty may lead to increased member withdrawals, potentially creating liquidity challenges. Credit unions should stress test their liquidity coverage ratio (LCR), net stable funding ratio (NSFR), and net cumulative cash flow (NCCF) to evaluate resilience against withdrawal spikes and reduced inflows. Additionally, higher funding costs could arise as external financing becomes more expensive and traditional contingency funding options may not be available system wide. Exploring securitization, asset sales, and alternative lending sources can help mitigate these pressures.
Adapting finance and treasury functions
With the risks, challenges, and opportunities arising so far, credit unions need to adapt to thrive and succeed.
How BDO can help
As the economic landscape shifts, ensuring financial stability and seizing growth opportunities will be critical for credit unions. We provide strategic guidance to navigate economic uncertainty while positioning credit unions for long-term growth.
Our team offers deep industry expertise in risk management, regulatory compliance, and financial planning. From providing data analytics and data monetization services to tariff advisory strategies for members, conducting stress tests, optimizing capital planning, as well as supporting mergers and expansion strategies, we work alongside credit unions to develop tailored solutions that strengthen resilience and drive sustainable success.
Additionally, given that market conditions and macroeconomic factors continue to shift, credit unions may encounter challenges with loan recoveries due to member financial stress. In these situations, our experienced Business Restructuring & Turnaround Services team can aid in navigating urgent situations and maximizing loan recoveries.
Contact us today to assist you in successfully navigating the impact of tariffs.
Ziad Akkaoui, National Practice Leader, Risk Advisory
Kelsie Montgomery, Partner, Assurance
Jeremy Picco, Partner, Risk Advisory Services
Peter Reimer, Director, Risk Consulting
Roshan David, Partner, Applied Analytics