Over the years, values-based banks have shown stable and positive financial performance. Serving the real economy delivers them better financial returns than those shown by the largest banks in the world. Moreover, values-based banks demonstrate that addressing the very real financial needs of enterprises and individuals within their communities, especially loans, is also good for the business.
Annual Research since 2012
Since 2012 the Global Alliance for Banking on Values (GABV) has published annual research “Real Economy-Real Returns: The Business Case for Values-based Banking” comparing the results of values-based banks and banking cooperatives (VBBs) with the largest banks in the world, the Global Systemically Important Banks (GSIBs). On examining traditional metrics – growth, resilience, profit and contribution to the real economy – it is striking that the conclusions fundamentally remain the same, notwithstanding severe disruptions to financial markets and the real economy worldwide from the Covid-19 pandemic.
Values-based banks continue to outperform GSIBs, and this outperformance is rooted in their practice of the Principles of Values-based Banking.
The “Real Economy-Real Returns” research comparing the results of values-based banks with Global Systemically Important Banks focuses on the following key questions:
What support does a bank provide to the real economy?
How resilient is a bank in the face of economic challenges?
What returns does a bank provide to society, clients and investors?
What growth does a bank achieve to expand its impact?
This research relies on available lending and deposits 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 Risk-Weighted 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.
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.
The 2021 report is the eleventh update of this annual research covers an analysis period of 10 years, from January 2011 to December 2020. Despite the financial crisis and the turmoil that followed, it is striking that the findings fundamentally remain the same over the years:
- Values-based banks have around 30% higher exposure to customers in both deposits and loans.
- Values-based banks have relatively better-quality capital and lower volatility due to lesser exposure to the financial economy.
- Values-based banks offer resiliency through strong capital positions and delivered stable and solid financial returns.
- Values-based banks present, as a group, higher levels of growth in most economic measures.
Annual updates of the report continue to show that values-based banks deliver steady financial returns and growth with a strong focus on the real economy, built on solid capital positions. These entities support the intermediation of money to individuals and enterprises that deliver positive economic, social and environmental impact. They operate in numerous markets, serving diverse needs, using different business models. And they are united by a set of common guidelines, the Principles of Values-based Banking.
The strength of values-based banks lies in their commitment to serving their clients and communities. In a changing world, values-based banks continue to excel in this important work. They remain coherent with their purpose and in their comprehensive response to the immediate challenges arising from the global health pandemic and the global challenges of climate change, biodiversity and ecosystem degradation and social inequality.
Meet the author
GABV Metrics and Research Sr Manager
“The strength of values-based banks lies in their commitment to serve their clients and communities. In a changing world, these purpose-driven banks continue to excel in this important work.”
This report was undertaken by the Global Alliance for Banking on Values (GABV) and builds on a March 2012 report developed by the GABV with financial support from The Rockefeller Foundation. This research was originally supported by extensive input and guidance from GABV members, from Laurie Spengler, CEO, Courageous Capital Advisors, LLC on the research and its consequences for banking, and from Tom Cummings relative to the values-based banking approach. Input and challenges from David Korslund, formerly Senior Adviser to the GABV and this research’s original author, remain invaluable. The primary author of this updated report is Adriana Kocornik-Mina, Metrics and Research Senior Manager (firstname.lastname@example.org). Extensive data support was provided by GABV interns Jamie Hollywood and Adam Kurowski. All conclusions and any errors remain the responsibility of the author.