The 2021 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, The Netherlands, 26 April 2022. Financial data analysed by the Global Alliance for Banking on Values (GABV), a network of 66 of the world’s leading sustainable banks, demonstrate that values-based banks deliver, in general, steady financial returns and stronger levels of growth in loans, deposits, equity, assets, and total revenue, compared to the world’s biggest banks.
The ‘2021 Real Economy-Real Returns: The Business Case for Values-based Banking’ report compared the performance of 55 values-based banks that belong to the GABV with 31 of the world’s largest banks, defined as Global Systemically Important Banks (GSIBs) by the Financial Stability Board. The study covers 10 years between January 2011 and December 2020 and uses publicly available financial information.
“The research findings offer evidence that by focusing on financing the real economy, banks can be both financially resilient and play a positive role to meet increasingly acute environmental and social challenges”, explains Martin Rohner, GABV Executive Director.
Facing Covid-19 through the real economy
As a group, the difference between values-based banks and mainstream banks is clear. The level of lending is on average 30% higher for values-based banks, even after considering the immediate decrease in lending due to the pandemic. These banks, which focus specifically on delivering social and environmental benefits, lend close to 70% of their balance sheets to the real economy on average, compared to 40% for GSIBs.
“Values-based banks have been both willing and well placed to address Covid-19-related challenges. Having historically met the very real banking needs – especially access to credit – of enterprises and individuals within their communities, values-based banks chose to react to the pandemic’s uncertainty and risk very differently from their conventional counterparts”, states Adriana Kocornik-Mina, Senior Research and Metrics Manager at the Global Alliance for Banking on Values and the author of the report.
For example, they provided access to banking services for clients investing in expanding basic digital services and participated extensively in government support programmes. Values-based banks have not only supported clients and communities but protected co-workers while sustaining stable financial returns.
Annual research since 2012
The 2021 report is the eleventh update of this annual research, first published in 2012. It is striking that the findings fundamentally remain the same over the years, notwithstanding severe disruptions from the Covid-19 pandemic:
- Values-based banks present, as a group, higher levels of growth by most economic measures.
- Values-based banks offer resiliency through strong capital positions and delivered stable and solid financial returns.
- Values-based banks have relatively better-quality capital and lower volatility due to lesser exposure to the financial economy.
- Values-based banks rely more on customers in both deposits and loans.
Higher proportional growth in values-based banks
GABV banks analysed in this 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 2020 by growing around three times in loans, deposits, equity and total assets.
Values-based banks rely much more on client deposits to fund their balance sheets than GSIBs (80% compared to 55%). This reliance on deposit-taking is another example of values-based banks focusing 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.
Values-based banks have stronger capital positions. Nevertheless, higher levels of equity held did not reduce their appetite to lend, challenging claims by some larger banking institutions that higher equity requirements lead to less lending.
About the report
The 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. 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 as they seek to address urgent social and environmental challenges.
About the GABV
The Global Alliance for Banking on Values (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 66 financial institutions operating in 44 countries across Asia-Pacific, Africa, Latin America, North America and Europe. They serve more than 60 million customers collectively, hold over USD 200 billion of combined assets under management, and employs 80,000 co-workers. Meet the banks of the networks and the countries where they operate: www.gabv.org
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