The argument for sustainable banking

Research has shown that banking models based on social and environmental principles are just as profitable as conventional banks, and far more connected with the real economy.

This week the Global Alliance for Banking on Values (GABV) is holding its annual meeting in Melbourne, hosted by bankmecu. The group of 25 banks around the world with assets exceeding $60 billion have committed to finding global solutions to international problems such as climate change and financial inclusion. At the same time they’re promoting a positive, viable alternative to the current financial system.

This article, the second of three associated with the GABV meeting, looks at one of GABV’s several projects, a study of the performance of its member banks versus the world’s 25 global systemically-important banks (G-SIBs). The research covers 10 years so captures the two sets of banks both before the global financial crisis and afterwards.

It found that sustainable banks delivered comparable returns on assets over the cycle – 0.56 per cent versus the G-SIB’s 0.57 per cent – with lower levels of volatility. Since the crisis the sustainable banks’ returns are superior, at 0.53 per cent, to the 0.37 per cent achieved by the G-SIBs.

Their balance sheets are stronger, with 73 per cent of funding coming from customer deposits and a ratio of equity to total assets of 7.2 per cent. The comparable figures for the G-SIBs are 43 per cent of funding from deposits and equity to total assets of 5.5 per cent.

Connected with the real economy


Arguably, an even more important metric is banks’ connection with the real economy. As measured by the proportion of assets on a bank’s balance sheet that is devoted to lending, sustainable banks are nearly twice as much connected with the real economy than G-SIBs.

Over the period 2003 to 2012, almost 76 per cent of sustainable banks’ assets were used for lending whereas only 40 per cent of G-SIBs’ assets were channelled to loans. In the five years since the crisis, the gap has widened with sustainable banking lending more than 77 per cent of their assets while the G-SIB’s ratio has fallen to 39 per cent.

“The return from our banks is as good as the G-SIBs so there’s no trade-off,” said Peter Blom, chairman of GABV and chief executive officer of the world’s leading sustainable bank, the Netherlands-based Triodos Bank.

“They’re better capitalised with higher equity ratios and much more involved in the real economy, so that should be interesting for politicians.”

Social values are the starting point for GABV’s 25 members. “We are there to serve the real economy.”

In Blom’s opinion, banks aren’t like other businesses and shouldn’t set about making as much money as they possibly can.

“Who gives us the licence to operate?” he asks. “Banks support society and have support from the government so they have a responsibility.”

Categories
Banking
Tags:
Global Alliance for Banking on Values, GABV, bankmecu, sustainable, climate change, Triodos Bank, government
Author:
Marion Williams, mwilliams@financialpublications.com.au
Article Posted:
March 06, 2014

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