(Finance) – Le banks ethical are more committed than traditional banks tocredit provision. The latter, however, prefer purely financial activities. Furthermore, ethical banks show parameters of capital solidity on average higher. This is what emerges from the preview of 7th Report on ethical finance in Europe promoted by Ethical Finance Foundationpresented today at FestiValori, the first festival dedicated to ethical finance in Italy.
The analysis compares 60 significant European banks, subject to direct supervision by the ECB, with 26 European ethical banks associated with GABV (Global Alliance for Banking on Values) e FEBEA (European Federation of Ethical and Alternative Banks), including Banca Etica per l’Italia. For both groups, only the banks for which they were available were chosen budget data for 10 consecutive years, until 31 December 2022. Capital, quality of assets and management, profits and liquidity: these are the 5 parameters taken into consideration by the CAMEL model used for the evaluation of credit institutions.
The report shows that ethical banks are characterized by being more focused on providing credit to the real economy, which in fact represents almost 70% of their assets, while the traditional ones, many of which are too big to fail, stop at 51%. .6% of assets, preferring financial assets with less risk, such as government bonds, or more speculative ones. This propensity decidedly greater than the provision of credit by ethical banks also partly explains the difference relating to the data on operating costs in relation to revenues (cost-to-income ratio, CIR): ethical banks have on average a CIR of 65, 74% compared to 52.60% of mainstream banks.
It is understandable that the cost/income ratio is lower for banks that do not grant credit, or grant very few, since the credit activity is highly intensive in the use of personnel and administrative procedures and, unlike the financial investment activity, cannot be entirely digitalised and is, therefore, much more expensive. To this it must be added that ethical banks carry out more in-depth investigations before granting credits: in fact, the verification of social and environmental aspects is added to the normal financial investigation.
This exposure of traditional lenders to activity financial it is also evident if you analyze the ROE (net profit/net equity). If it is true, in fact, that in 2022 this indicator was lower for ethical banks (5.93%) compared to the “significant” ones (9.18%), from 2013 to 2022 it was not always like this: in five years out of ten, the ROE of ethical banks was higher, even very significantly (+5.85 percentage points in 2013) compared to that of significant banks. This is because the large banks suffered the 2007-2008 crisis and recovered slowly, while the ethical banks, which were not so exposed to the financial markets, did not have serious repercussions and their ROE has always been constantly positive and on average around 5%. In the last two years analyzed it seems that significant banks have now definitively emerged from the crisis, generating a higher ROE than ethical banks.
Another difference between the two types of banks lies in the fact that ethical banks have a higher average adequacy of capitalwith a Tier 1 ratio of 23.32% compared to 17.23% for large banks, demonstrating a solid ability to absorb any losses in phases of generalized crisis.
“The 7th Report on ethical finance in Europe – he comments Teresa Masciopintopresident of Fondazione Finanza Etica – compares ethical banks and large European systemic banks, showing first of all that the former are as solid and profitable as the latter, and that the adoption of a different model of “doing banking and finance”, ethically oriented, can have a concrete impact on the real economy and society. Through a series of indicators gradually refined to build a solid historical series enriched over 7 years of work, the study highlights the transformative and virtuous contamination capacity of ethical banks, which do not invest in harmful sectors such as fossil energy and the war industry, and instead direct capital towards the civil economy, the green economy and activities with positive social and environmental impacts, in line with the values of ethical finance”.
“Ethical finance – remember Anna Fasanopresident of Banca Etica – is a field choice, it is a peace finance oriented towards the well-being of the community, and translates directly into the construction of the business model created by European ethical banks. The 7th Report on ethical finance in Europe demonstrates this with numbers, but the difference between ethical banks and mainstream ones lies, for example, in the contribution that the so-called “significant” banks, including the European ones covered by this study, have offered in 2023 to reach the figure of 2200 billion dollars allocated globally to expenditure in the defense sector. In the opposite direction, ethical banks mark their distinctiveness by proposing financial solutions aimed primarily at fueling environmentally friendly businesses and economic initiatives in the social economy, a key development chapter for a more equitable and cohesive Europe”.