A new study shows that sustainable values-based banks, which base their decisions first and foremost on the needs of people and the environment, are outperforming traditional mainstream banks in many areas, including financial indicators such as return on assets, growth in loans and deposits, and capital strength, making a compelling case for values-based banking.
Commissioned by the Global Alliance for Banking on Values (GABV), a network of 15 of the world’s leading sustainable banks, and supported by the Rockefeller Foundation, the report compared the performance of 17 values-based banks with 29 of the world’s largest and most influential banks between 2007 and 2010 in an effort to show the benefit that sustainable banks can have on underserved people.
These 29 banks are defined as “globally systemically important financial institutions” (GSIFI) by the Financial Stability Board (FSB). Often referred to as ‘too big to fail’, they include Bank of America, JP Morgan, Barclays, Citicorp and Deutsche Bank.
The report concluded that values-based banks were twice as likely to invest their assets in loans, lending more than 70% of their assets during this period on average. The values-based banks also appear to be stronger financially with higher levels of and better quality capital. The BIS 1 ratio, an important measure of a bank’s solvency, averaged over 14% during the period studied, compared with under 10% for the mainstream banks. The sustainable banks also had an average equity/asset ratio of over 9%, while the GSIFI banks averaged just over 5% during the period covered.
The sustainable banks analysed in the report also delivered higher financial returns than some of the world’s largest financial institutions. Return on assets (ROA), the measure increasingly considered most relevant for judging a bank’s financial performance, averaged above 0.50% while the big banks earned an average of just 0.33%. Values-based banks also had returns on equity averaging 7.1%, compared to 6.6% for the GSIFI banks.