Effect of income diversification on Canadian credit union performance.

Abstract

The main objective of this thesis is to measure the impact of income diversification on Canadian credit union performance. Although credit union functions as an integral part of the Canadian economy, very few studies have focused solely on the Canadian credit union. Core money lending activities are still the primary source of earning, but the scope of non-interest income is increasing. In this thesis, we use return on asset (ROA) and risk-adjusted return on asset as a measure of profitability and risk-adjusted profitability in our model. In the robustness test, we use return on equity (ROE) and risk-adjusted rate of return on equity as our profitability metrics. In this thesis, the coefficient of non-interest income reflects the impact of non-interest-bearing activities on credit unions’ performance. We see that the effect of revenue diversification for ROA and risk-adjusted ROA are positive. It suggests that non-interest-bearing activities have a strong positive relationship with our dependent variable. We see a similar kind of relationship with ROE and risk-adjusted ROE. We find that income diversification has a more substantial impact on larger credit unions than smaller ones.