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A dialogue between banks which focus on “values” over “profits”

Questioning the future financing in Japan from different perspectives

Article originally published by the Biglife21 in Japan and provided by the Department of Alliance and Collaboration in DKC.

The existence of financial institutions has been reevaluated in the recent years while the perception of values has been transforming in the society as a whole: From quantity to quality, from goods to people and from uniformity to diversity. In the midst of this panel-discussions, an event was organized recently in Tokyo. The speakers were from the Global Alliance for Banking on Values (GABV), a network of financial institutions whose members share the views: focusing on values, the society and the environment’s sustainable development over profits. Mr. Peter Blom, the GABV Chair and Triodos Bank CEO in the Netherlands, and the Executive Director of the GABV, Dr. Marcos Eguiguren shared their visions. Over 50 participants from the financial sector gathered at the Digital Innovation Centre in Minato-Ward on June 18th. Other panellists joined the discussion: Mr. Nobuyuki Nitta, Chief Director of the DAI-ICHI KANGYO Credit Cooperative (DKC), who is one of the leading figures in Japan to promote “banking for the people and the community”; Ms. Naoko Shimizu, Director of Yuzuriha, a general incorporated association, which promotes the “warm money” concept in Kumamoto (regeneration of the relationship between human beings and the nature through promotion of people to people); and Mr. Tadahiro Sakamoto, the CEO of Regional Cocreation Network. The panellists shared their unique activities with the audience and responded to questions from the floor. This section reports on numerous ideas on the future of the financial industry.

The GABV is a global alliance of financial institutions

It is quite probable that hardly anybody knows about the GABV. To supplement the lack of knowledge, Dr Eguigren explained the purpose and the intention of the GABV at the beginning of the event.

”In short, the GABV is a network of banks concerned about improving the society. Right after the beginning of the financial crisis in 2008, started with the bankruptcy of Lehman Brothers, the Alliance was established. It was founded in 2009, with the intention of getting banks back in their correct form by joining hands with like-minded people. In order to create a sustainable world we, as a global alliance of financial intuitions, share the view that the existing banking services needed to change.

When the alliance was initiated with 9 members, most of them were from North American and European countries. However, now we have 55 members, serving approximately 50 million clients. The two driving principles of the GABV are: (1) To become a role model for financial institutions, contributing to the creation of a sustainable society and (2) To transform the system and culture of each member institutions, including potential members, to be suitable for such endeavours. In order to become members of the alliance, banks have to prove that they have the potential to pursue sustainable activities, for which they will have to clear GABV’s robust criteria on their sustainability, transparency and diversity, among other standards, to be accepted as an organization committed to Value-Based Banking (VBB).”

Banks that commit to value-based banking as perceived by GABV

The principles that the GABV believe as the basis of VBB are:

  • To take an approach focused on creating a sustainable society
  • To carry out financial operations for the real economy in the local community where they operate. In other words, rather than financing other financial institutions, the member banks finance the real economy, which will enrich the lives of the people in the local community and will improve the environment.
  • Through establishing a long-term relationship with its clients, the member banks disclose directly to their economic activities and risks. Members ensure their clients that their money goes to socially significant activities. Sharing information in a transparent way with their investors fosters partnership and better financing.
  • Through its long-term perspective, members maintain their resilience against any external confusions. It is only when financial well-being, solvency and management efficiency level are assured, that banks can assure their viability and that they have been doing the right things. While profitability is not their primary goal and they do not chase after it, they do set their target at above the average of the banking industry and also focus on activities that would be approved in the market.
  • Client-centred. However, it does not mean that they would do whatever their clients want them to do Rather, they would listen to the desires of the clients, their wish to improve the society and the community earnestly, and then the banks carry out a business plan.
  • The above five elements are based on the culture of financial institutions. That is to say, how they finance and lend their money, how they do business, how they set the remunerations for their employees, how all those five principles are embedded in the corporate culture and how the management has been carrying out accordingly in a coherent manner.

What is to strive is constructing a new business model

Many might wonder if it would be possible to pursue managing banks according to these principles. However, the financial strength of GABV member banks is comparable to other non-member banks which focus on profit first. Mr. Blom cites of Triodos Bank for which he himself is the CEO to point out its strength.

Triodos Bank has been promoting values over profit since its foundation in 1980 and, of course, it is a GABV member. Currently, Triodos Bank has 1,300 employees, runs its’ operations in 6 countries, holds 15 billion Euros assets under management, including the financing of nearly 40,000 projects. The bank‘s Tier 1 Capital Ratio is 20%, and its rate of Clients Deposits to Total Assets is about 70%. These figures demonstrate highly liquidity and short-term solvency. Furthermore, they show that the Triodos Bank maintains a high profit level, which is comparable to the top 25% of the big global financial institutions. This means also that banks which weigh on value (over profit) are capable of growing sustainably.

Even though the banks’ figures might be superb, if there would be only a few banks holding such a stance, people would see these banks as “stranger” or “exceptional” cases, and they would never be able to regard as a new bank model which could replace the mainstream banks that operate presently. Yet, if there are other like-minded banks which operate their business on values over profit and achieve sustainable higher-performance. Through collecting various cases from many financial institutions, the collective strength can give bigger impact to the world. That is the raison d’etre of the GABV and that is where it strives to achieve.

DAI-ICHI KANGYO Credit Cooperative became the first Japanese member of the GABV

 

The activities and achievements of the GABV have been hardly known among people and financial concerns in Japan. There were no Japanese financial institutions among the members of the GABV. However, finally in July 2018, a Japanese financial institution came forward as a participant of the GABV. Mr. Blom and Dr Eguiguren came to Japan for this event as an opportunity for them to engage in a dialogue with DKC, which has been recently and formally accepted as a member of the GABV. This magazine has been reporting about the activities of DKC in the past. Mr. Nitta has been leading what he calls “A financial institution for the people and the community” since his appointment in 2013. He has implemented numerous community-specific projects, such as offering customized loans to more than 350 different communities; supporting the entrepreneurship of the youth and women; organizing and hosting events and activities for the future business, such as Tokyo Accelerator program; regional regeneration projects that connect credit unions in different local areas, universities and venture business. DKC has done these while the union continued to achieve high financial performance.

About a year ago, Mr. Nitta found out about the existence of the GABV, which lead the union to prepare itself to apply for the membership. He described how he came to that decision.

“It fits our mission as a union, which are very close to the principle of the GABV of course. What I realized and was shocked about is that the wonderful activities of the GABV were not known by the Japanese authorities or people in the financial industry. I could say that DKC’s join-in is an indication of my fear against the backdrop of the current status or circumstances of the world. On one hand, the membership of the alliance currently stands at about 50 banks, and it is still on the rise. But on the other hand, any Japanese bank, financial institution or people would participate in the alliance, if we did not let ourselves in it. As a person responsible for operating a Japanese cooperative financial institution, I personally, as one of the Directors in the Japanese financial industry, was so sad and could not bear this situation. That is why we DKC decided to join the GABV as a way for us to learn more about it and also due to my ardent desire for other persons-responsible, authorities and institutions in the financial industry of Japan to know the GABV. And so that we can join hands to work toward values-based management where the management of cooperative financial institutions would focus on values.”

What is needed to pursue Value-Based Banking

It is not hard to imagine there would be obstacles along the way in implementing this new values-based model approach, while the majority would aim for profit-focused management. This was reflected on the kind of questions that the audience at the symposium had. They asked the panellists what difficulties did the financial institutions face in implementing VBB and how did they overcome them.

To this question, Mr. Nitta responded from the perspective of financial institution managers.  “First of all, what is imperative is how we can change the awareness of our co-workers, and the corporate culture. It has been five years since I have been appointed to this current position, but it is still continuing, on its way… as I would not wish to relinquish it just yet. I might call it as my endurance test, as a person responsible for an organization, what I as the operating officer need is not to be swept away, but I have a strong determination. Thus, once the management has made up its mind and makes a commitment, co-workers and organization could change. Based on my experiences, the smaller an organization is, the quicker it can change. So, I am sure that we can change rapidly. “

Ms. Shimizu talked from her experience and from the perspective of a grassroots citizen’s activist. “The concept of “warm money” is hard to comprehend, so we can demonstrate to the society by showing “this is how we do”, giving concrete examples from time to time. Many Japanese tend to think of money as something dirty, or vulgar. The money we deposit in banks could be used for the destruction of the environment or matters that make the world worse for children. Many of us do not even know that our money could be used to do negative things.  When people begin to see this negative relationship, they would be very surprised initially. But once they recognize this, it is easier for them to act for change. So, we give lots of options and encourage activities.” All panellists gave their valuable experiences and comments and share those with the audience.

To overcome difficulties, the approach of asking “Why” is crucial

Mr. Sakamoto was involved in completing the Scorecard, which was a part of the process of the application of DKC to the GABV. The Scorecard is an evaluation form to assess the financial institution’s performance. Mr. Sakamoto said, “The scorecard is structured to question the applicant with “why, how, what” so that they would have to reflect on the reasons behind their previous actions. I thought it was a very meaningful exercise to reflect in such a way.”

Dr. Eguiguren further added on to this response by saying, “I think, the most important question is “why”. For those CEOs who wish to participate in the GABV’s activities as top managers, the “why” is exactly CEO’s desires to do things better. They believe in the worth of their desires, but in order to share it with their coworkers, these “whys” would have to be translated into “how” and “what” levels (for organizations to take actions). This exercise is a challenge to the process to change, which CEOs could find difficult.” His response was an example of what Dr. Eguiguren would see as an expected role from leaders.

Strong desires to support leaders

Finally, a question was asked to all panellists and the guest speakers from the GABV: What is your “why”? That is to say, why do they wish to get involved in VBB? Some pointed the huge divide between existing banks and the real economy, and some declared that something is wrong when nowadays currency is the only way of measuring society. Mr. Nitta left with a very striking response among other speakers. “I spent 35 years in dealing the aftermaths, the negative legacies of low-quality assets and derivatives. I am sorry to say this, some of my colleagues killed themselves, and so did my clients. Those were formative experiences on the field that impacted on me greatly. Money should be used by people but should not harm people. People are certainly more valuable than money. Japan has experienced the economic bubbles and the financial crisis in the past… we know how the money-mongers neglected people, and how banks took part in these negative incidents. Finance that values people, financial institutions their employees can be proud of… these visions presented as a critical anti-thesis to the old-way of Japanese financing.  I wish the young, who work or will work in the financial industry with a full aspiration, can go through the new way, the opposite way I went through in the past.”

Download the original article in Japanese or read it online.

 

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