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Merkur 2016 Scorecard

The scorecard is divided between basic requirements, quantitative factors supplemented with brief explanations, and qualitative elements. These sections provide details of a bank’s mission and transparency; builds on this with carefully selected data that highlights the extent to which a bank is engaging in sustainability as its core activity; and explains how a sustainability agenda translates into the everyday work of a bank and its co-workers.

Basic requirements

Basic Requirements

Show the Basic Requirements

Quantitative factors

Quantitative Factors

Show the Quantitative Factors

Qualitative elements

Qualitative Elements

Show the Qualitative Elements

Regulated financial institution

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The bank provides evidence that it is a regulated financial institution including:

  • Where it operates
  • Under what regulatory framework it operates
  • Evidence of client deposit and financing relationships

Merkur is regulated by Danish law and EU law. The Danish FSA is the regulating authority who supervises the business. The Danish FSA has a public register of all companies under their supervision.

Merkur publishes a public version of all reports made by the Danish FSA about Merkur. The latest report including a reading guide written by Merkur is available on our webpage (Danish only).

Merkur offers a full set of banking services in all of Denmark, incl. payment services and internet banking. Merkur takes deposits and provides loans. Merkur offers values based investment funds for retail and professional clients.

Mission Statement

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Mission Statement as published on its website or in any official document with specific relevant references to it value-based banking strategies

Merkur Cooperative Bank operates its banking business based on the basic understanding that the world is a cohesive whole. Every human individual is intrinsically valuable and possesses the potential to develop its talents in freedom, and can use the opportunity to take responsibility for our society and our shared livelihood. The principal activity of Merkur is described in the Annual Report [1].

Reporting Transparency

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Annual Reports must be publicly available

Further proof of engagement in transparent reporting practices is encouraged

Merkur strives to achieve maximum transparency to increase public awareness of the impact of Values Based Banking in general and of the actual impact of Merkur banking activities.

All loans and guarantees are recorded by the purpose of loan. This is done to make sure that activities financed by Merkur correspond with the mission of the bank. The asset segmentation is presented in the Annual Report available on our webpage in Danish and English (www.merkur.dk).

The following reports are also integrated in the Annual Report:

  • Social Accounts
  • Green Accounts
  • A list of Partnerships

Only the financial part of the Annual Report is audited.

Details about all companies, NGOs and institutions financed by Merkur can be found on the webpage ”My Money Does Good” (Danish only) http://minepengegoergavn.dk

These factors are related to the Principles of Values-based Banking and provide insight into three key elements of a bank’s activity linked to its:

  • financial viability,
  • focus on the real economy and
  • focus on a triple bottom of line of people, planet and prosperity

Bank Resiliency through Earnings – 3 year Average Return on Assets 0,39%

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Return on Assets tell you how profitable a bank is. It is a good measure of a bank’s operating performance relative to the total amount of money it manages. This is important because values-based banks need to be resilient financially to deliver long term, positive impact.

It’s also reasonable to assume that if a bank’s profits are excessively high they may be taking inappropriate risks and may be enjoying unreasonable profits at the expense of their customers.

To really understand how profitable a bank is, and to avoid comparing ‘apples with oranges’, it’s important to compare a bank’s profitability with other banks in the same market. Therefore this measure is compared with a peer group selected and transparently described by the bank.

Return on Assets 2016: 0,64%

Return on Assets 2015: 0,29%

Return on Assets 2014: 0,25%

Market Comparison – 3 Year Average Return on Assets 0,59%

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Return on Assets tell you how profitable a bank is. It is a good measure of a bank’s operating performance relative to the total amount of money it manages. This is important because values-based banks need to be resilient financially to deliver long term, positive impact.

It’s also reasonable to assume that if a bank’s profits are excessively high they may be taking inappropriate risks and may be enjoying unreasonable profits at the expense of their customers.

To really understand how profitable a bank is, and to avoid comparing ‘apples with oranges’, it’s important to compare a bank’s profitability with other banks in the same market. Therefore this measure is compared with a peer group selected and transparently described by the bank.

Return on Assets 2016: 1,00%

Return on Assets 2015: 0,34%

Return on Assets 2014: 0,44%

Explanation:

The Benchmark: All Danish Banks are by the Danish FSA divided into 4 groups based on size. Merkur belongs to group 3 - Banks with a working capital between DKK 250m and 12 billion. The benchmark used is based on 2014-2016 data from all 39 group 3 banks.

Bank Resiliency through Capital – Equity to Total Assets 10,07%

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The Equity to Total Assets ratio tells you how strong a bank is. The Equity of a bank represents the money invested by its owners to cover any losses it may incur. This ratio uses the total balance sheet of the bank, which means it provides a transparent and conservative measure of a bank’s resiliency. This is important for values-based banks which are focused on lasting benefits to society, and so want to develop strong capital positions that make them stronger over the long-term.

Other measures, such as risk weighted assets capital ratios, can be used for the same purpose but they are both more complex and less transparent, so the Scorecard has chosen to use Equity to Total Assets. As a guide the Scorecard currently recommends this level to be at 8% or higher.

Bank Resiliency through Asset Quality – Low-quality Assets to Total Assets 2,65%

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Low quality assets (such as loans to enterprises that struggle to repay them), at levels significantly above the market average, are generally a bad thing for banks because they represent the risk of financial losses in the future.

Values-based banks should have strong customer relationships, and have a deep understanding of their activities and the sectors they work in. Together this will limit the chances of loans and investments going wrong and should make working through challenges with clients easier when problems do occur. Meaningful relationships with customers and precisely this expertise, is at the core of a values-based approach to banking.

The quality of a bank’s assets should be compared with banks in the same market to understand how it is doing relative to market conditions. Therefore this measure is compared with a described peer group.

Explanation: The figure includes guarantees.

Market Comparison – Low-quality Assets to Total Assets 5,5%

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Low quality assets (such as loans to enterprises that struggle to repay them), at levels significantly above the market average, are generally a bad thing for banks because they represent the risk of financial losses in the future.

Values-based banks should have strong customer relationships, and have a deep understanding of their activities and the sectors they work in. Together this will limit the chances of loans and investments going wrong and should make working through challenges with clients easier when problems do occur. Meaningful relationships with customers and precisely this expertise, is at the core of a values-based approach to banking.

The quality of a bank’s assets should be compared with banks in the same market to understand how it is doing relative to market conditions. Therefore this measure is compared with a described peer group.

Explanation: The benchmark is generated by the Danish FSA based on 2016 data from all group 3 banks. The figure includes guarantees.

Bank Resiliency through Client Based Liquidity – Client Deposits to Total Assets 85,06%

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Banks finance their assets (such as loans, investments and their wider activities) with money that is:

  • deposited with them by customers,
  • and/or borrowed from others (mostly other banks) and then lent on to clients,
  • or sourced from investors.

A large amount of borrowing from the markets to finance a bank’s activity is, by definition, riskier because markets are more volatile. Banks are both stronger and more values-based when more of the money they use to finance their activity comes from customers.

High levels of funding from customer’s deposits also suggests a strong connection with clients and the real economy – both important elements of a values-based bank. Ideally 75% of a bank’s assets are funded through clients.

Assets Committed to the Real Economy to Total Assets 63,74%

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Values-based banks are strongly and directly connected to financing the real economy because that’s where they can have a positive impact on people’s lives and safeguard the environment.

Real economy assets in a values-based bank should, therefore, be relatively high. By the same token financial economy assets should be relatively low because their impact on people’s lives is, at best, indirect. The Scorecard seeks to have the level for this ratio above 50% and ideally close to 65%.

Explanation: At the moment Merkur holds more liquid assets than ideal target. This is because the client deposits have grown very fast and more than the loans during the past years.

Revenues from the Real Economy to Total Income 89,59%

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If a bank is earning more of its revenues from the real economy, it is both making more of a difference to people’s lives and is a more resilient institution.

Revenues from the financial economy tend to be more volatile, are more removed from most people’s lives, are highly unlikely to be sustainable and mean a bank is less resilient over the long term. Ideally 75% of a bank’s revenues will be from the Real Economy.

Assets Committed to the Triple Bottom Line to Total Assets 37,98%

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This figure provides the best indication of a bank’s commitment to a values-based banking model. Triple Bottom line assets don’t just mean assets in the real economy. They specifically refer to money invested by a bank in individuals and enterprises that deliver positive social, environmental and economic benefits to society.

Not all intermediated money will be committed, however, because some liquidity needs to be available for the bank to support its clients in case of disruptions in the market. Therefore the Scorecard targets this factor to be between 25% and 55%.

Explanation: All loans are counted as TBL except personal loans where the purpose of the loan has not been assessed. Loans for Residential Home Financing are included according to TBLA guideline. The figure is influenced by the overcapacity of liqudity. TBL Loans over Total Loans = 63,20 %

Leadership

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Qualitative Elements provide substantial and important information on a bank’s value-based banking approach and results. This information is used to provide a comprehensive evaluation of a bank’s efforts, capabilities and performance. The information for each element is organised to provide insight from strategy to results as follows:

Leadership

The bank’s leadership and governance is focused on values-based banking, and the diversity of its leaders reflect this culture.

The bank’s leadership and governance is focused on sustainability, and the diversity of its leaders reflect this culture.

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The bank’s leadership and governance is focused on values-based banking, and the diversity of its leaders reflect this culture.

The governing board must possess experience and knowledge on the core activities of Merkur. All members of the board are expected to be committed to Values Based Banking and the mission statement of Merkur.

Merkur has defined a minimum standard for the competences  required for members of the governing board.

The Excecutive and Senior Management of Merkur are expected to demonstrate a strong commitment to Values Based Banking and the mission statement of Merkur.

Professional skills and commitment to Values Based Banking are the core selection criteria when recruiting for senior positions in Merkur. Merkur aims at diversity in recruitment to the extent that it does not compromise the core selection criteria.

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The bank’s leadership and governance is focused on values-based banking, and the diversity of its leaders reflect this culture.

The members of the governing board are internally evaluated on an annual basis (legal requirement). This includes an evaluation of skills concerning the core activities of Merkur, as well as general skills within banking, accounting, risk management etc.

The guiding principles for leadership were laid down in 2014 in the Organizational Strategy for 2014-2019. These include commitment to Values Based Banking and the mission statement of Merkur.

Since 2011 all Senior Managers have participated in internal leadership training. As part of this they are frequently evaluated on their ability to translate the guiding principles for leadership into practice.

Commitment to Values Based Banking is part of the recruitment process. For all senior positions, job applicants are expected to demonstrate personal involvement with aspects of Values Based Banking.

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The bank’s leadership and governance is focused on values-based banking, and the diversity of its leaders reflect this culture.

The 2016 evaluation of skills within the governing board shows a high level of experience and knowledge of Values Based Banking. A summary is available in the annual report.

The CEO of Merkur, Lars Pehrson is a co-founder of the bank. Lars Pehrson is publicly known both in Denmark and internationally for his strong commitment to Values Based Banking. He is frequently invited to speak about sustainable banking at universities, conferences and in the media. Lars Pehrson is a member of the governing board for The Danish Green Investment Fund [1]

Many Senior Managers of Merkur contribute to external networks, committees and events which are committed to different aspects of sustainability.

In the Social accounts which are published every year as part of the annual report, the gender balance on all staff levels and in the board are reported.

For the time being, there are 2 female Board Members and 3 female out of 13 senior management staff.

Organisational Structure

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Qualitative Elements provide substantial and important information on a bank’s value-based banking approach and results. This information is used to provide a comprehensive evaluation of a bank’s efforts, capabilities and performance. The information for each element is organised to provide insight from strategy to results as follows:

Organisational Structure

The bank is organised to support its mission focus.

The bank is organised to support its mission focus.

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The bank is organised to support its mission focus.

Merkur is a cooperative bank and has a strong commitment to society. Merkur serves the community in Denmark who wants a more sustainable society and who sees a triple bottom line approach as the future.

The organizational structure of the bank must support its Mission Statement and Values Based Banking.

Sustainability is a global issue, and while primarily serving Danish customers, Merkur develops banking tools to connect to initiatives with similar goals in the Third World.

Merkur believes in the power of giving. Innovation and longterm perspective are best encouraged if innovators can focus on developing ideas instead of worrying about funding.

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The bank is organised to support its mission focus.

Everyone is encouraged to take responsibility as a co-owner of Merkur. All shareholders have the same voting right according to normal Danish cooperative principles: one shareholder, one vote, at the general assembly. The Articles of Association are available on the webpage.

Merkur has an internal coordinating group to safeguard the Mission of Merkur. The Chairman and the CEO are both members of the group.

A Values Coordinator has the special task of integrating company values in all aspects of daily activities in Merkur.

Merkur extends short term credits on fair terms to SMEs and cooperatives engaged in sustainable activities in the Developing World. The credits are funded and secured by special deposit accounts.

The Merkur Foundation (www.merkurfonden.dk) is a non-profit foundation created by Merkur in 1998 to support projects that can create value for society in the long term. Everyone can donate money to the Foundation.

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The bank is organised to support its mission focus.

Merkur experiences strong commitment from both shareholders and other stakeholders around the bank.

The number of shareholders in Merkur is high. By the end of 2016 there were 6.067 shareholders in Merkur, over 21% of all customers.

The TBL approach is deeply embedded in Merkur. It is expressed in the products we offer, in our public communication and in the way credit proposals are evaluated.

Products and Services

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Qualitative Elements provide substantial and important information on a bank’s value-based banking approach and results. This information is used to provide a comprehensive evaluation of a bank’s efforts, capabilities and performance. The information for each element is organised to provide insight from strategy to results as follows:

Products and Services

The bank’s core products and services are fair, transparent and directly contribute to its values-based mission.

The bank’s core products and services are fair, transparent and directly contribute to its sustainability mission.

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The bank’s core products and services are fair, transparent and directly contribute to its values-based mission.

Merkur is committed to financing Real Economy activities and especially provides finance for social, cultural and environmentally friendly activities and businesses.

All products must serve real needs and be as transparent as possible. Technology is an empowering tool and is used to optimise the business.

Merkur aims to empower its customers.

Merkur aims to engage with the community we support.

Merkur wishes to contribute to the body of knowledge on Values Based Banking and Sustainable Solutions

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The bank’s core products and services are fair, transparent and directly contribute to its values-based mission.

To support sustainable solutions, Merkur offers products with a social, cultural or environmental dimension on favourable terms.

The guiding principle in the pricing structure is the connection between price, risk and costs.  Prices are not negotiable.

All everyday banking services are available as self-service.

Merkur’s financial solutions are developed with the customer and the specific project as focal points. New products are developed when specific needs are identified and sometimes in partnership with NGO’s or key players in the specific market.

Merkur aims to be at the forefront of financial technology. Merkur has a close partnership with our IT-supplier BEC.

Merkur engages with the public in many ways: Social media, public seminars, expert seminars, lectures on all levels etc; mainly on topics related to Values Based Banking and Sustainability issues.

Merkur welcomes and encourages students to do empirical research in Merkur.

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The bank’s core products and services are fair, transparent and directly contribute to its values-based mission.

A high number of Triple Bottom Line products as a result of the strong commitment to Sustainability.

In 2015 two new partnerships with energy suppliers about loans to residential homes. The loans are repaid over the utilities bill.

Merkur Account Officers have no individual sales targets.

Newest self-service solutions for money transactions and daily banking business.

3.543 new customers in 2016. New customers choose Merkur mainly because of values based profile.

The seminars hosted by Merkur have high attendance and positive feedback from participants and help form new networks.

Management Systems

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Qualitative Elements provide substantial and important information on a bank’s value-based banking approach and results. This information is used to provide a comprehensive evaluation of a bank’s efforts, capabilities and performance. The information for each element is organised to provide insight from strategy to results as follows:

Management Systems

The bank’s management systems are transparent, include values-based criteria and exist to increase the institution’s positive impact.

The bank’s management systems are transparent, include sustainability criteria and exist to increase the institution’s positive impact.

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The bank’s management systems are transparent, include values-based criteria and exist to increase the institution’s positive impact.

Credit and Risk assessment are based on a TBL perspective including

  • Impact on society and environment
  • Cost of externalities
  • Long term perspective

All assets should be linked to Real Economy.

Merkur aims to grow its impact and outreach by

  • increasing loan portfolio, while still only basing loans on deposits and keeping ample liquidity at hand.
  • increasing customer base amongst existing and growing sustainable community in Denmark
  • increasing capital to comply with new European requirements
  • develop the business with specific sectors expected to play a significant role in developing a more sustainable society
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The bank’s management systems are transparent, include values-based criteria and exist to increase the institution’s positive impact.

A clear credit policy which lays out TBL assessment of any credit applicant prior to economic evaluation.

No contribution to speculation, neither with excess liquidity nor through financing.

A clear Market Risk Policy.

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The bank’s management systems are transparent, include values-based criteria and exist to increase the institution’s positive impact.

All business, organisation and institutional loan applicants are assessed from a TBL perspective. Only applicants with a clear sustainability profile are financed.

Only Real Economy activities are financed. Excess liquidity is invested in Real Economy assets.

Human Resources Tools

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Qualitative Elements provide substantial and important information on a bank’s value-based banking approach and results. This information is used to provide a comprehensive evaluation of a bank’s efforts, capabilities and performance. The information for each element is organised to provide insight from strategy to results as follows:

Human Resources Tools

The bank’s values-based mission is the starting point for its incentive, compensation, and performance structure.

The bank’s sustainability mission is the starting point for its incentive, compensation, and performance structure.

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The bank’s values-based mission is the starting point for its incentive, compensation, and performance structure.

Merkur’s Values Based Banking approach is highly dependent on qualified co-workers. The co-workers must have professional skills and specialised knowledge about the business areas of Merkur.

They must have customers in focus and reflect a stakeholder value approach.

The salary system is transparent and contains no incentives or bonuses. The ratio between highest and lowest salary is kept low.

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The bank’s values-based mission is the starting point for its incentive, compensation, and performance structure.

New co-workers receive written policies and participate in a three-day seminar on the principles of Sustainable Banking and the Mission of Merkur. Merkur encourages peer-to-peer learning from more experienced colleagues.

Co-workers are encouraged to participate in weekly, one-hour studies during work hours. The studies are related to the Mission Statement and take form of lectures, visits from customers who present their activities or other inspirational activities.

All salaries are fixed in a collective agreement, which is negotiated every three years between an employer organisation for cooperative businesses and a labour union.

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The bank’s values-based mission is the starting point for its incentive, compensation, and performance structure.

There is a high level of knowledge of the Mission Statement and the Company Values in the organisation.

The absence of individual performance goals contributes to a strong team spirit.

The ratio between highest and lowest salary is 2,74.

Performance Reporting

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Qualitative Elements provide substantial and important information on a bank’s value-based banking approach and results. This information is used to provide a comprehensive evaluation of a bank’s efforts, capabilities and performance. The information for each element is organised to provide insight from strategy to results as follows:

Performance Reporting

The bank reports on the impact of what it does, not just its financial performance in an honest, transparent and accessible way.

 

 

The bank reports on the impact of what it does, not just its financial performance in an honest, transparent and accessible way.

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The bank reports on the impact of what it does, not just its financial performance in an honest, transparent and accessible way.

 

Merkur aims to be as transparent as possible. External reporting on both financial and TBL performance is crucial, and we continuously strive to improve the quality of reporting.

Management and Governing Board must have detailed internal reporting on financial and impact performance.

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The bank reports on the impact of what it does, not just its financial performance in an honest, transparent and accessible way.

 

All businesses, institutions and organisations who receive loans are to be found on the website www.minepengegoergavn.dk

The annual report (http://www.merkur.dk/media/1946/merkur_annualreport2016_web.pdf) includes the following:

  • distribution of loans and guarantees by sector
  • social accounts reflecting social performance of Merkur as an employer

green accounts reflecting CO2 balance and environmental impact of Merkur’s own activity.

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The bank reports on the impact of what it does, not just its financial performance in an honest, transparent and accessible way.

High level of transparency on financial reporting, loan distribution and the TBL report.

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