Message from the CEO, Nina Schindler
I am pleased to present the latest report showcasing the performance of European cooperative banks in 2023. The data presented by Prof. Groeneveld, Tilburg University, certificates their resilience and success, even amid a decade marked by new challenges and growing risks.
In a globally volatile scenario, our members have continued to play a key role as anchors of financial stability, providing relentless support to local economies. In 2023, our members’ loan portfolios grew by 2.6%, outpacing the EU average of 1.7%. The biggest beneficiaries of this increased capital remained SMEs, the backbone of the EU economy. Deposits also rose above the sector’s average, confirming households’ trust in our institutions, while cooperative banks strengthened their capital position, yet again a sign of the long-term vision that characterises their strategy.
Looking ahead, two major challenges await the banking industry. On one side, banks must navigate manifold uncertainties, like political shifts, the impact of technological advances, and climate risks. This goes in tandem with the call to the EU financial sector to improve its effectiveness to sustain the increased productivity and competitiveness that our economies require.
This year’s snapshot confirms that cooperative banks have both the resources and skills to navigate a rapidly changing environment while remaining faithful to their mission of creating value for their members and communities. The EACB will continue supporting its members in facing future challenges, monitoring legislative developments, and advocating for a level playing-field that benefits cooperative banks and the broader EU economy.
3 Questions to Dr. Hans Groeneveld, Professor of Cooperative Financial Services at Tilburg University
Dr. Hans Groeneveld is a Professor of Cooperative Financial Services at Tilburg University and has a PhD in monetary economy from University of Maastricht. Currently he is also Director of International Cooperative Affairs at Rabobank. He is a Board Member of the International Raiffeisen Union, Member of the EACB Academic Advisory Group, Chairperson of the Cooperative Identity Forum of the EACB, and Member of the International Co-operative Business Education Consortium. He has published extensively on monetary policy, banking, cooperative banks, and strategic and organisational issues in academic and policy journals.
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In 2023, cooperative banks welcomed 1.4 million new members, pushing membership past 90 million for the first time.
- What factors do you think are driving this robust growth in membership, and how does the unique governance structure of cooperative banks play a role in attracting new members?
There are many possible explanations for the continuous increase in memberships. By the way, the number of members also has been growing in relative terms every year. The member-population ratio exhibits an upward long-term trend.
A first important question is whether cooperative banks apply membership requirements. A large majority of cooperative banks has abolished the requirement to become a member when applying for a loan/credit and/or opening a savings account a long time ago. Nowadays, membership is voluntary in most cases, whereas this was a conditio sine qua non for customers to access the financial services provided by all cooperative banks in the remote past. At the same time, cooperative banks generally do not apply a criterion for the minimum number or volumes of products a customer must have purchased to be eligible for membership. These observations suggest that the motives for membership must mainly lie in other spheres.
I think it is fair to assume that satisfaction with the quality, innovativeness, distribution channels and pricing of financial products and services is a necessary condition for customers to become and stay a member. Another necessary condition bears on the image and reputation of cooperative banks in the banking sector and the broader society. If customers are content with both categories of ‘hygiene’ factors, they may be induced to apply for membership and to remain a member in the future. However, they will only do so if this entails individual and/or collective benefits, i.e., the member value should be positive.
Given increasing membership numbers, cooperative banks obviously score well on these hygiene factors and offer a variety of individual and/or collective member benefits. One of the indirect member benefits concerns the rights and responsibilities of members in the formal governance. This governance feature is an advantage and key asset of cooperative banks since customers of listed banks do not have a statutory role in the latter’s governance.
While cooperative banks have seen stronger loan and deposit growth compared to their competitors, they are also facing challenges like branch closures and consolidation.
- What do you foresee as the biggest challenges and opportunities for cooperative banks in the coming years, particularly in light of ongoing digitalisation and economic shifts?
Let me first emphasise a crucial finding. The loan portfolio of cooperative banks has grown every year. Of course, credit growth moves with economic fluctuations, but there has never been a contraction in the loan data I have collected. The European cooperative banking sector has always provided the real economy, i.e., SMEs and households, with fresh loans. This cannot be said of all other banks. The disparity in lending developments is a structural phenomenon and signifies differences in bank business models and orientation, which are in turn connected to dissimilarities in governance and ownership structures of cooperative banks and banks with other ownership structures.
Turning to branch networks, it appears that cooperative banks have been downsizing their branch network at a much slower pace than all other banks for years. Data on branch closures illuminate important general banking trends, but also persistent differences between cooperative banks and other types of banks. Ongoing digitalisation renders branch networks less important for the provision of standard financial services. However, cooperative banks also consider the on-site business to remain important to cater to members’ and customers’ needs and to ensure embeddedness in society as is evidenced by their high branch market shares. One must also bear in mind that there are also many people who cannot or do not want to do digital banking. Keeping relatively more bank branches open can certainly be seen as a benefit of cooperative banks.
Lastly, consolidation among cooperative banks is understandable, but does pose a challenge. It must be avoided that with every merger between two local banks, the number of member representatives in governance bodies also decreases, because member involvement is crucial for cooperative banks.
This paper provides a detailed analysis of the financial performance and market position of European cooperative banks in 2023.
- How do you think the insights from this assessment can be useful for policymakers and regulators when it comes to decision-making in the financial sector?
I have already referred several times to some specific characteristics of the European cooperative banking sector as well as differences in the development of key banking metrics between cooperative banks and other banks. What I have not yet mentioned is that the market position in their home countries has also been improving for years. This can be inferred from rising domestic market shares in loan and deposit markets. 2023 was no exception. All these indicators as well as the steady increase in the number of members indicate a good appreciation and satisfaction of cooperative banks by consumers.
Regulators and policymakers should be fully aware of the fact that cooperative banks offer consumers a choice, contribute to healthy competition in banking, and are ‘different animals in the banking zoo’. It cannot be stressed often enough that cooperative banks are demonstrably different from banks with other ownership structures. The very fact that banks differ from each other with respect to business model, orientation, risk profile and the like is something regulators and policymakers should be fully aware of. If all banks were similar in many respects and looked stable and healthy at the micro level, there is a danger that at the macro, or systemic level, there could be instability if an economic or financial shock occurred in the banking system that would affect all banks to the same extent and at the same time. Stability at the bank level does not guarantee stability throughout the financial system. Ergo, nurture diversity and accommodate banks with different governance and ownership structures. Do not apply a uniform approach would be the main take-away from my analysis.
Reflections by Dr Rainer Borns, Board Member at Volsbank Wien AG
Dr Rainer Borns is Board Member (CFO) at Volksbank Wien, looks back on more than 20 years in different management positions within the Volksbank Group, lectures about cooperative groups at the University of Economics in Vienna and has authored numerous publications on Banking and Cooperative law.
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The work of Prof. Groeneveld shines new light on cooperative banks’ trusted business approach and confirms its effectiveness. Also in 2023, they could strengthen their market position.
Austrian Volksbanken are proudly represented in the study, which confirms once more the strong connection between our institutions and the private households and SMEs as our members.
Volksbank Wien is both one of the regional banks and the central body of the Volksbank Group Austria. Our business model is based on providing services to private households and SME customers. At the end of the first quarter of 2024, we counted approximately a million customers.
Even in times of higher uncertainty and repeated events of market volatility, our strong customer base represents a strategic advantage and a solid base for further growth. In Volksbank we pursue this by combining renewed investments in digital channels and by maintaining a solid physical presence across Austria, with our 232 branches of which 54 belonging to Volksbank Wien.
Indeed, while ongoing digitalisation has driven other institutions to close or sell their branch networks, for Volksbanken Austria on-site business remains a key asset to cater our members’ and customers’ needs and to demonstrate commitment to the local economy and society supported by digital products and services. This is particularly relevant for our strong customer base of micro-enterprises and SMEs, where the personal contact and the direct exchange are a precondition for meeting customers’ needs and understanding their goals.
As a result of this approach, the next challenge is to actively work on the transformation of our sales force to bring both these worlds, the digital and the personal one, together. The use of digital channels will offer our employees more time for customer conversation and our customers faster completion of simple applications and services.
Our group also sustains the broader trend that sees cooperative banks as a privileged harbour for retail deposits. The stable funding base allows us to extend credit and support the economy through the cycle, reaffirming the countercyclical nature of cooperative institutions in all regions of Austria.
EU banks withstood large and sudden external shocks since 2020 and the study shows that cooperative banks even exceeded the resilience of the European banking sector overall, remaining profitable and strengthening their capital base. In this respect I am particularly satisfied with a capital issuance we successfully completed in September, when we placed again a € 500 million Tier 2 bond that allowed to streamline our capital structure.
Nevertheless, these positive results have not made us complacent. We are aware of the challenging economic landscape we are facing. For instance, the current situation on the real estate market in Austria is characterised by weak demand, higher interest rates and increased construction costs driven by the spike in inflation during 2020-2023. The private customers portfolio however remains stable and with few defaults.
The study also touches upon the continuing consolidation in the cooperative sector, where a drop in the number of institutions of about 3% was recorded. This is a long-term trend, driven by many factors such as regulation, human resources, and cost efficiency. I would like to emphasise, however, that consolidation was in the Association of Volksbanken in Austria a positive business decision and should remain primarily a business decision of the institutions concerned. A banking market consisting of a handful of nation- or EU-wide players is not desirable.
Efficiency and economies of scale need to be pursued in tune with the preservation of the cooperative identity and mission. It is key that regulatory and supervisory developments consider our business model and our democratic governance system, and do not force structural changes that would otherwise not be pursued.