During the last weeks, various bank failures created stress in the markets that reminded many of us of the financial crisis of 2008. Those recent incidents certainly have different causes : the very rapid increase of interest rates decided by Central banks to fight against inflation, a lack of diversification, an excessively rapid growth,…
This challenging environment may encourage us to reflect on alternative banking models, like cooperative banks and how they may withstand financial uncertainty.
Cooperative banks are owned and controlled by their members, who are typically customers or employees. This structure enables those banks to prioritize the needs of their members over the short term interests of external shareholders.
Cooperative banks tend to have a more conservative approach to lending and risk-taking, as well as lower return on equity requirements.
Those alternative banking models can certainly provide significant value for several reasons:
- Local Focus: they tend to have a local focus, which means they have a better understanding of the needs of their customers and the communities where they operate. This can help them provide more targeted and effective services to their members, particularly in times of crisis.
- Customer-Oriented: Cooperative banks are often more customer-oriented and prioritize the needs of their members over profit-making. This can result in a more personalized and responsive approach to banking, a more intimate and trustfully relationship with their customers.
- Stability: Cooperative banks tend to be more stable than traditional banks, as they rely on a more local shareholders and client base and have a stronger focus on long-term sustainability rather than short-term profit. This provide a sense of security for customers during times of financial instability.
- Social Responsibility: Cooperative banks often have a strong commitment to social responsibility and community development. They may be more likely to provide support to vulnerable members of society or to invest in community development initiatives that can help support the local economy.
A good example of a local cooperative bank is the CPH Bank, established 90 years ago in Tournai, originally named after its regional birthplace (Crédit Professionnel du Hainaut), but redefined as Cooperative Proche et Humaine (Close and Human Cooperative). It employs 220 people. With a balance sheet total of EUR 3.5 billion, it aims for steady but moderate growth in its activities. It shows a strong solvency ratio (standard method: 22.3% 2021). Its main target group is private individuals, but it also offers its services to SMEs and larger regional companies. CPH has a organizational structure with only 3 levels in order to be responsive to customers. With a focus on proximity, CPH is expanding its branch network and does not operate a call centre. While focusing on reinvesting its profits to support internal growth and local communities, it offers a reasonable 4% dividend yield to its shareholders, which corresponds to a Pay Out of 34% (2021).
A second example is VDK, a sustainable and ethical bank who cares about the environment. Founded in 1926 in Ghent by christian workers associations, it focuses on sustainable business and retail financing, but also finances social projects. In 2021, it employed 272 people. In 2021, the total outstanding amount of savings collected was 4.2 billion euros. Like CPH, it has a strong solvency ratio (20,7% after profit appropriation 2021). VDK recently reached an agreement with the shareholders of the cooperative bank NewB to take over its activities and customers in Brussels and Wallonia. NewB is a cooperative bank created by and for citizens with the intention to create another banking model in the wake of the 2008 banking crisis.
Overall, cooperative banks can provide a valuable alternative to traditional banks in times of crisis. Their focus on local communities, customer-oriented approach, stability, and social responsibility can help to provide a more sustainable and inclusive banking system that is better equipped to weather financial storms.
Article by Laurent Carlier and Elisa Renard
