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In the last 10 years, values-based banks lent 30% more of their total assets to the real economy than the world’s biggest banks

The 2020 Real Economy – Real Returns study compares financial data from values-based banks and the global systemically important banks

Values-based banks lend 70% of their assets on average, with a focus on the real economy 

Values-based banks rely 30% more on client deposits to fund their balance sheets in comparison with mainstream banks 

Amsterdam, 12 July. Financial data analysed by the Global Alliance for Banking on Values (GABV), a network of 67 of the world’s leading sustainable banks, demonstrate that values-based banks deliver, in generalsteady financial returns and stronger levels of growth in loans, deposits, equity, assets, and total revenue, compared to the world’s biggest banks. 

The 2020 Real Economy-Real Returns report compared the performance of 50 values-based banks that belong to the GABV and meet the six Principles of Values-Based Banking, with 30 of the world’s largest and most influential banksdefined as Globally Systemically Important Banks (GSIBs) by the Financial Stability BoardThe study covers 10 years between January 2010 and December 2019 and uses publicly available financial information.  

70% of the assets to lend the real economy 

A critical measure of the growth of the values-based banking sector over the past ten years is in the amount they lend, financing their clients. For values-based banks, the level of lending is approximately double that of global systemically important banks as a groupThese banks, who focus specifically on delivering social and environmental benefits, lend 70% of their assets to the real economy on average compared to 40% of the balance sheets of GSIBs in the analysed periodEven after the financial crisis of 2008, the GSIBs continued to have a substantial portion of their balance sheets focused on the financial economy, considered by many external observers to be a cause of the financial crisis.  

Martin Rohner, executive director of the Global Alliance for Banking on Values, said: “The results of the 2020 Real Economy-Real Returns report confirms what we have known for a long time; values-based banks spend more of the money entrusted to them to the real economy than their much larger peers, transforming millions of lives for the better, helping to build more inclusive, resilient communities and playing a leading role in the fith to adress the climate emergency“. 

By real economy, the report refers to economic activities that generate goods and services as opposed to a financial economy that is concerned exclusively with activities in the financial markets. This means that intermediation aims to directly support the production of goods and services instead of focusing primarily on buying and selling in the financial markets.  

Higher proportional growth in sustainable banks 

Values-based banks rely much more on client deposits to fund their balance sheets than GSIBs (81.2% compared to 52.1%)This reliance on deposit-taking is another example of values-based banks focus on the real needs of individuals and enterprises and the real economy. It reduces the liquidity risk of their funding strategies while returning to the roots of banking that intermediates between clients with ‘excess’ money and entrepreneurs who need it to make productive investments. 

The sustainable banks analysed in the report had much higher growth in loans, deposits, assets, equity, and total revenue compared to GSIBs over the periods studied. As a group, values-based banks outperformed mainstream banks in 2019 by growing three times in loans and deposits, twice in equity, almost five times in total revenue, and five times in total assets. 

One element driving higher growth for values-based banks is their relatively small scale. Another element might be clients deciding to leave large banks in favour of more sustainable alternatives.   

About the report 

This research relies on available lending and deposit information as a proxy for the distinction between the real and the financial economy activities of banking institutions; Equity to Total Assets, Tier 1 Capital Ratio and RiskWeighted Assets to Total Assets for capital comparisons; Returns on Assets and Returns on Equity for financial viability and profitability comparisons; and Loans, Deposits, Assets, Equity and Total Income for growth comparisons.  

Better data will contribute to a better understanding of how values-based banking institutions’ focus on the real economy and social and environmental sustainability impacts, their financial performance and their capacity to bring about a just transition to a low carbon economy. 

This report demonstrates that a values-based approach to banking – one in which the focus is on social and environmental benefits for people – can bring comparable financial returns to the traditional banking model. The findings are essential for the banking industry and clients, policymakers, and regulators. 

Read the whole report in English and download here

 

Read the whole report in Spanish and download here

 

About the Global Alliance for Banking on Values (GABV)

The GABV is a network of independent banks and banking cooperatives with a shared mission to use finance to deliver sustainable economic, social, and environmental development. Founded in 2009, the GABV comprises 67 financial institutions operating in 40 countries across Asia, Africa, Australia, Latin America, North America, and Europe. It serves more than 70 million customers collectively, has over USD 200 billion of combined assets under management, and employs more than 80,000 co-workers.

 

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