Co-Operative Banks

Publication of the European Association of Co-operative Banks CO-OPERATIVE BANKS: in collaboration with Tilburg University, The Netherlands, to commemorate the 200th birthday of AT THE SERVICE OF THEIR MEMBERS Friedrich Wilhelm Raiffeisen (1818-1888). AND SOCIETY

200 Years after Raiffeisen’s birth The omnipresence and contemporary relevance www.eacb.coop of Raiffeisen’s principles in banking Follow us on

Publication of the European Association of Co-operative Banks in collaboration withTilburg University, The Netherlands, to commemorate the 200th birthday of Friedrich Wilhelm Raiffeisen (1818-1888). Editor: Prof. Dr. Hans Groeneveld

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FOREWORD

Gerhard Hofmann, Hervé Guider, EACB President EACB General Manager

This year is a special year for the global co- chosen to become members of their bank by operative movement. It is the 200th anni- subscribing to a co-operative share. Equally versary of the birth of an important co- important, co-operative banks stand for a operative pioneer: Friedrich Wilhelm Raiffei- ‘sharing economy’ and sustainable banking, sen. The European Association of Co- ideas that have been rediscovered in recent operative Banks based in Brussels plans to years and are attractive to many. The social celebrate this milestone by publishing the dividend provided by co-operative banks is views of leaders, inspired by Raiffeisen's unique in the financial industry. Neither values of solidarity and self-help, on the economic and financial crises, nor wars and future of their institutions. Throughout the their repercussions, have impaired this 20th Century, local and regional co- movement that now has a universal reach. operative banks have gradually spread out At the beginning of the 21st Century, co- across the banking landscape, offering local operative banks continue to act together and populations that were often ignored by in a united way through the EACB to address traditional banks affordable basic banking a range of new challenges. These institutions products and services, thus giving them the have proven their ability to adapt to chan- means to carry out their personal and pro- ging legal, political and economic environ- fessional projects. Local and regional co- ments. Thanks to their capacity to overcome operative banks have made a longstanding obstacles, co-operative banks continue to contribution to the financial inclusion and contribute to the socio-economic develop- education of millions of citizens who have ment of regions in Europe and on other con-

tinents. They will be able to further do so if This publication presents specific and pros- the regulatory framework allows them, and pective testimonials on the determinants of doesn’t restrict or even call into question the the strength, solidity and uniqueness of co- specific characteristics that have made them operative banks. In 2016, the International successful. It is the mission of the EACB to Committee for the Conservation of the In- defend and promote this unique model that tangible Cultural Heritage of UNESCO in- is more than ever in line with the expecta- cluded the co-operative idea among such tions of people, households and small and world heritage. There could not be a more medium-sized enterprises. appropriate tribute to Friedrich Wilhelm Raiffeisen.

Gerhard Hofmann Hervé Guider EACB President EACB General Manager

TABLE OF CONTENT

Part 1: Timeless features and recent financial 6 performance of European co-operative banks

Part 2: Testimonials of co-operative banking groups 17

Austria: Raiffeisen Banking Group 18 Belgium: Cera 21 France: Crédit Mutuel 24 Germany: National Association of German 27 Co-operative Banks Italy: Banche di Credito Co-operativo 31 Japan: The Norinchukin Bank 35 Luxembourg: Banque Raiffeisen 38 The Netherlands: Rabobank Group 41 Poland: Krajowy Związek Banków 44 Spółdzielczych

Portugal: Crédito Agricola 46 Switzerland: Raiffeisen Schweiz 49

PART 1: Timeless features and recent financial performance of European co-operative banks

Executive summary

1 On the 30th of March 1818, one of the foun- Hans Groeneveld , ding fathers of the co-operative banking Professor Financial Co-operatives movement in Europe was born: Friedrich Wilhelm Raiffeisen (1818-1888). Raiffei- sen’s 200th birthday offers a good opportunity to put the spotlights on the specificities of the co-operative banking model in pre- The banking sector incorporates a rich sent times. We start this contribution with array of banks with diverse business mo- a concise description of the differentiating dels and ownership structures. Public, characteristics of co-operative banks. state, savings, co-operative, mutual and Subsequently, we pay attention to the evo- private banks co-exist in a diversified lution of members, number of co-operative market. In policy reports and research banks, branches and employees. The follo- publications, a particular distinction is wing sections present domestic market made between Stakeholder Value (STV) shares, balance sheet developments and a banks (of which co-operative banks are a number of financial performance indica- major component) and Shareholder Va- tors. To put the performance of co- lue (SHV) banks (of which listed banks are operative banks into perspective, their a major component). The distinction is indicators are compared to those of the ultimately about the banks’ bottom line entire banking sector. Needless to say that objectives and the extent to which profit bank performance cannot be judged solely maximisation is the central focus of their by financial aspects, but a comparative business models. STV banks can be ca- assessment of non-financial performance tegorised as ‘dual-bottom line’ institu- indicators – like customer satisfaction, sus- tions, i.e. they aim at both financial/ tainability, etcetera – is beyond the scope economic goals and social objectives. of this contribution. The main conclusions Co-operative banks share many basic are summarised below. principles, which sets them apart from

1 Tilburg University, The Netherlands. The views expressed in this part are personal. For more information or clarificati- on, please mail to [email protected].

banks with other organisational forms. All sage can never be overstated. Here, we testimonials of co-operative banking groups have to emphasize that co-operative ban- in Part 2 of this publication clearly underline king is neither better nor worse than other these differences. For example, co-operative banking models. But it is different. Irrespec- banks are owned by members who are also tive of the merits and drawbacks of different customers of the bank and have equal vo- governance arrangements in co-operative ting power, do not aim at profit maximalisa- banking and all other sectors in banking, we tion, have multiple goals, apply a bottom-up are convinced that diversity is an invaluable decision making process, build their capital asset. No governance model is unambiguou- base primarily with retained earnings, and sly superior and it needs to reflect the na- have an internal guarantee mechanism (e.g. ture and ownership structure of different an institutional protection scheme), etcete- businesses. Moreover, recent experience in ra. At the same time, differences exist in the a number of countries demonstrates that practical way of operation in many other diversity can be easily jeopardised, but is areas. There is a rich diversity in co- very difficult to regenerate. For the sake of a operative business models. Co-operative healthy, kaleidoscopic and competitive fi- banks differ in size, organisational struc- nancial system, we hope that co-operative tures, membership policy, and non-core banking can remain a viable and parallel activities. Across Europe, co-operative banks alternative to all other banking models until compete with institutions which have diffe- the end of time. rent ownership, governance and capital The word ‘can’ is deliberately typed in italics structures and different business models, in the last sentence. Indeed, the expressed i.e. SHV and STV banks. expectation is based on the pre-assumption Recent data continue to evidence that the that financial policy makers and regulators timeless features of co-operative banking avoid applying a regulation tailored to listed have led to different strategic choices and banks to co-operative banks as well. On the deviating financial outcomes compared to whole, co-operative banks are neither as banks with other ownership structures. The risky as joint-stock banks, nor similar in their findings of the empirical analysis, conducted governance, organization and business prac- on a sample of 18 co-operative banking tices. At the same time, a differentiated groups over the period 2011-20162, show regulatory and supervisory approach is war- that governance arrangements are partly ranted for individual co-operative groups. In responsible for their divergent business sum, we trust that financial regulators and performance and, specifically, their ability to supervisors take into account the specifics finance customers characterised by relative- of the co-operative banking model when ly low credit risks. As a corollary, co- designing, implementing and applying policy operative banks contribute to diversity and, measures. consequently, stability in banking. This mes-

2 The data and analysis pertain to European co-operative banks which make up more than 95 per cent of the entire sector: Financial Group of the German Volks- und Raiffeisenbanken (Germany), Austrian Volksbanken Group (Austria), Raiffeisenbanken Group (Austria), Federazione Italiana delle Banche di Credito Co-operativo-Casse Rurali ed Artigiane (Italy), Unión Nacional de Co-operativas de Crédito (Spain), Banco de Crédito Co-operativo (Spain), Federação Nacional das Caixas de Crédito Agricola Mútuo (Portugal), Rabobank (The Netherlands), Banque Raiffeisen Luxembourg (Luxembourg), Raiffeisen Switzerland (Switzerland), Nykredit (Denmark), Crédit Agricole Group (France), Crédit Mutuel Group (France), BPCE (France), OP Financial Group (Finland), Building Societies (United Kingdom), BPS Group (Poland), and SGB Group (Poland).

Key characteristics of co-operative banks

To fully grasp the essence of co-operative banks, it is important to take note of their defining features and commonalities. Before briefly discussing the most elementary ones, it is relevant to accentuate that co-operative banks have a long history and share common principles. Many contemporaneous co- operative banks exist for more than a century. In German speaking countries, local credit co-operatives were set-up in the 19th century, based on the ideas and values of the globe aimed at enhancing the accessibi- Friedrich Wilhelm Raiffeisen (1818-1888) or lity of affordable financial services for ex- Franz Hermann Schulze-Delitzsch (1808- cluded population groups at that time. This 1883). Today, a large number of co- brief historical narrative of co-operative operative banking groups are either Raiffei- banks implicitly underlines the proven abili- sen banks or popular banks (see footnote ty and capability of financial co-operatives 2). to adapt to constantly changing circumstances and trends in society in the « Financial co-operatives course of time. Without this capacity to have proven ability and capa- accommodate, they would certainly not be bility to adapt to constantly around anymore. changing circumstances and trends in society in the Given the scope of this publication, it is course of time. » obvious that we cannot discuss all timeless features of co-operative banks comprehen- Whether or not based on Raiffeisen’s ideas, sively. We shall restrict ourselves to the key historical ‘champions’ of co-operative ban- aspects. First and foremost, customers of king movements in other countries under- local or regional co-operative have the op- took similar initiatives. With a time lag, the portunity to become members/owners of co-operative concept for financial services their bank. Membership is voluntary and spread to North America as well, particular- open. Moreover, a multidimensional rela- ly by the efforts of Alphonse Desjardins tionship between members and their co- (1854-1920) in Canada and Edward Filene operative bank exists. They are simulta- (1860-1937) in the USA. Both fervently be- neously owner, customer, supervisor and lieved in the potential of the co-operative stakeholder (being member of the commu- idea. In short, co-operative pioneers around nity).

3 Raiffeisen was a social reformer and local mayor. He established the first rural credit co-operative (later co-operative banks) in 1864. Schulze-Delitzsch was a German social reformer, too. He invented a similar type of co-operative bank for townspeople, providing credits to enable artisans and small business people to come through turbulent economic times and frequent depressions that accompanied the industrial revolution.

« The interests of members as groups, e.g. as non-executive directors or depositors coincide with the supervisors. Member representatives need interests of members as to fulfil various requirements of banking ‘owners or shareholders’: supervisors and regulators. As a result, the good quality products at fair presence of sound financial knowledge and prices on the basis of conti- practical expertise is guaranteed in local and central supervisory boards of most co- nuity and low risk.» operative banks. In addition, the majority of co-operative banks have education pro- Provided that effective governance arrange- grammes to equip members with the skills ments are in place, the interests of members necessary to make the exercising of their as depositors coincide with the interests of ownership rights effective. This means that members as ‘owners or shareholders’: good non-executive board members are able to quality products at fair prices on the basis of monitor and discipline the banking profes- continuity and low risk. In listed banks, the sionals in the boards. Co-operative decision- interests of retail depositors are not auto- making processes are characterised by a matically aligned with those of shareholders bottom-up nature. Also on this point, the as owners. In other words, the enfranchise- governance arrangements of co-operative ment of co-operative bank customers, as banks are inherently different from the members, sets them apart from the custo- practice in commercial banks which are mers of other banks. generally managed in a top-down way. With a few exceptions, a member has to buy Co-operative banks usually operate within a at least one member share or certificate decentralised network of affiliated banks (with a relatively low nominal value), where- (under the same brand) and are predomi- by the maximum number of shares owned nantly funded by retained earnings, mem- by an individual member is capped. Since ber shares and retail deposits raised locally. member shares are non-transferrable, mem- They are committed to local presence and bers cannot accumulate votes through pur- accountable to local members. In most ins- chases of shares in a secondary market. tances, local/regional co-operative local Voting rights conferred by membership are banks have collectively set up a group-level based on the principle of ‘one-member, one- entity, being an association, a co-operative vote’ and are not proportional to the size of or a corporation. The tasks and responsibili- a member’s stake in the bank. This is funda- ties entrusted to these APEX bodies vary mentally different from the distribution of across co-operative banking groups. Be- voting rights in joint-stock banks, in which sides, internal governance arrangements anonymous shareholders have decision ma- generally encapsulate institutional frame- king power in proportion to their invested works and solidarity mechanisms, such as capital (‘one share, one vote’). Institutional Protection Schemes, which sustain the structural stability of co- Co-operative banks are member-governed, operative banking groups. private institutions with a dispersed ownership structure. Elected member repre- « Profits are neither the only sentatives populate local and central go- nor the ultimate goal of vernance bodies of co-operative banking co-operative banks. »

Profits are neither the only nor the ultimate highlighted above are visible in key financial goal of co-operative banks, but a means to performance indicators relative to those of accumulate capital, to absorb shocks, to all other banks in recent years. invest and innovate, among other things. Profits are also needed for the realization of additional objectives. For instance, stimula- ting the regional economy, financing local Members governments, or providing (non-)financial services to members. Because of this orien- Co-operatives are distinguished by the fact tation, co-operative banks are usually quali- that customers can become members, and fied as ‘dual-bottom line’ institutions as they members give co-operatives legitimacy. re-invest social dividend back into society. Members and their elected representatives are an essential asset for co-operative « The co-operative banking banks. Mainly due to trends in society, com- sector can be characte- pulsory membership has been abolished rized as ‘commonality with many years ago, except for UK building so- diversity’. » cieties. Nowadays, most co-operative banks also serve large numbers of non-members. Despite similar roots and unifying go- Surging number of members may be due to vernance aspects, a particular feature of countless factors: financial benefits, imma- European co-operative banking is that there terial advantages, affinity with the brand, is no single model that applies to every satisfaction with products and services, single co-operative bank. The co-operative social goals, co-operative donations, etcete- banking sector can be characterized as ra. In fact, it is all about the ‘perceived ‘commonality with diversity’. There are im- member value’ that members derive or portant differences in sizes, levels of integra- experience from their membership. tion, organizational frameworks, governance models, capital structures, membership In 2016, co-operative banks welcomed policies, and (inter)national activities out- around 1.6 million new members. Compa- side the co-operative part of the organiza- red to 2015, the member base grew by tion. These dissimilarities can be explained more than 2 per cent to 81.2 million mem- by many factors. One of the reasons is that bers. This percentage increase is identical to numerous contextual circumstances have the long term average expansion of the shaped individual co-operative banking number of memberships. In relative terms, groups throughout their history. It concerns one can observe an upward trend. The the geography (size of the country), national member-population ratio displays an almost banking market characteristics, consumer continuous rise. This ratio climbed from behaviour and preferences, and regulatory 15.7 in 1997 to 19.5 in 2016. Nowadays, and supervisory regimes. almost one out of five inhabitants of the European countries under review is a mem- To sum up, the co-operative ownership ber of a co-operative bank. The increase structure is expected to have an impact on signals trust and confidence of customers in the orientation, business model, capitalisa- co-operative banks. Indeed, clients are pre- tion strategy and financial performance. In sumably not very eager to become and stay the next sections, we assess whether the a member of local co-operative banks if the governance and organisational features level of trust and satisfaction would be low.

Figure 1 Number of members and member to population ratio

Source: Own calculations based on data from co-operative banking groups and national statistics.

Number of local banks, branches and employees

In 2016, the number of independent local or In line with the cuts in branch networks, regional co-operative banks continued its headcount at co-operative banks contracted year-long decline, dropping 5.3 per cent to by 1.4 per cent in 2016. The number of staff 3,168. The consolidation among co- in the entire banking sector fell by 2 per operative banks speeded up in 2016. This cent. Over the last few years, a divergent acceleration is largely caused by the need to employment pattern is discernible in the create efficiency gains, to curb (regulatory broken lines. Cumulatively, all other banks and compliance) costs and the simultaneous shed staff by almost 10 per cent since 2011. shift towards digitalization and virtualization Employment at co-operative banking groups of financial products and services. In line dropped by 6.5 per cent. The downward with this development, the number of trend in bank employment is likely to persist branches fell by almost 2 per cent to about – and we believe it will actually intensify 54,200 in 2016. Figure 2 shows that co- over time– due to many interacting forces. operative banks reduced their physical pre- Co-operative banks have contributed to the sence in local societies at a more moderate capacity reduction in European banking. pace than all other banks in recent years. However, they have been reticent to dimi- Since 2011, co-operative banks shut down nish their physical presence proportionally. around 5.5 per cent of their branches, whe- Their reluctance to curb branches and staff reas all other banks closed down banking as substantially and rapidly as other banks outlets by almost 15 per cent.

Figure 2 Domestic branches and total employment (2011 = 100)

Source: own calculations based on figures from co-operative banks, supervisory authorities and central banks

can be partly explained by their ownership sence poses challenges for retaining a suffi- structure. While listed companies are sub- cient degree of member engagement, com- ject to the influence of their shareholders, mitment and involvement and the ability to they are less subject to the influence of their participate in local networks by employees. customers than are many financial co- This acknowledgement has triggered various operatives. In some instances, members as initiatives to uphold and strengthen interac- owner-users of co-operative banks opposed tions with members and local communities to branch closure programmes and/or pro- in new ways. Hence, the consolidation and posed to seek alternatives to control costs. capacity evolution of co-operative banks in This example merely illustrates that member their home countries is inextricably linked preferences play an important role in deci- with their ownership structure, which de- sion making processes and cause specific viates considerably from that of other dynamics. Besides, co-operative banks reco- players in the banking industry. gnize that the trend towards less local pre-

Domestic market shares

In 2016, co-operative banks solidified their shares were almost similar. Hence, the loan market position. They gained approximately market share has increased steadily since 0.2 and 0.4 percentage point loan and de- 2011, whereas the deposit share hovered posit market share, respectively (Table 1). around 21.4 between 2012 - 2015. The rise The former is currently almost 0.7 percen- in market shares is an important demonstra- tage point higher than the market share tion of trust in these financial institutions. deposits. Five years ago, both market

Table 1 Average domestic market shares of co-operative banking groups

Source: Own calculations based on data from co-operative banks, the ECB and national supervisory authorities.

The branch market share has always surpas- which is more than 3 percentage points sed the loan and deposit market share. This higher than in 2011. This rise masks the fact reflects a distinct feature of co-operative that co-operative banks are increasingly banks: they operate with relatively dense shifting from physical to virtual distribution branch networks and are physically close to channels for their products and services. their members. Due to the sizeable branch Hence, they invest heavily in IT technologies closures by all other banks, the share of to offer their customers and members branches owned by co-operative banks in- attractive and innovative products and ser- creased significantly in recent years. Their vices. branch market share amounted to 32.3,

Balance sheet developments

The rising market shares are reflected in operative banks have continuously supplied dissimilar balance sheet developments bet- the real economy with new loans, albeit very ween co-operative banks and all other modestly in 2012-2013. Cumulatively, the banks in 2016 (Figure 3). On balance, the loan volume at co-operative banks is more former granted sizeable amounts of new than 10 percentage points higher than in loans to the non-financial private sector 2011, while the loan portfolio of other banks (+2.5%), while the loan portfolio of the en- shrunk by more than 3 percentage points tire banking system contracted by almost 2 during this time span. Hence, lending beha- per cent. Figure 3 also reveals a divergent viour by co-operative banks was more stable loan growth pattern over the past five than that of the entire national banking sys- years. This period started with economic tem. This statistical finding can probably be recessions or slowdowns which were fol- ascribed to differences in business models lowed by modest economic recovery in and strategic orientations stemming from many European countries. From the Figure, their member-based governance. it can be inferred that, on average, co-

4 It appears that both growth figures are suppressed by the fall of the British pound after the Brexit referendum in June 2016. When the British building societies and the collective U.K. banking sector are removed from the sample, the loan growth dispersion between co-operative banks and all other banks remains significant.

For deposit growth, analogous conclusions since 2011. This is evidenced by the widening can be drawn. In 2016, co-operative banks gap between the two broken lines in Figure attracted a larger volume of new deposits 3. Obviously, co-operative banks needed (+2.4%) compared to their competitors more deposits to fund the expanding loan (+0.9%). Furthermore, the deposit base of co portfolio. Nevertheless, their deposit growth -operative banks increased much stronger significantly outpaced the rise in loans.

Figure 3 Loan and deposit development (2011 = 100)

Source: Own calculations based on data from co-operative banking groups, national supervisory authorities and/or central banks. Note: Loans concern loans and advances to the non-financial private sector, excluding government. Deposits pertain to all deposits and savings of the non-financial private sector, excluding government, placed a t banks.

Unreported data over a longer time horizon volumes of the entire banking sector led to a signify that the plotted lines in Figure 3 are substantial drop in its average LTD-ratio. On influenced by regulatory measures imple- the other hand, all non-co-operative banks mented after the Great Financial Crisis used to operate with much higher LTD-ratios (GFC). First, regulators took various steps to one decade ago. Just before the outbreak of mitigate the credit overhang within in the the GFC, private savings covered around 80 banking system. They incentivised banks to percent of the private loan portfolio of the realise a positive dispersion between de- entire banking sector, whereas co-operative posit growth and loan growth. Our computa- banks had a ‘deposit gap’ of 3 per cent. Over tions show that the loan-to-deposit ratios the past few years, the former fiercely redu- (LTD) have trend-like decreased since 2011. ced their reliance on wholesale funding. At The contrary movement of deposit and loan the same time, they limited lending growth

which also helped bringing down their ave- the implementation of new regulatory rules rage LTD-ratio. Consequently, all other has fostered to some extent an alignment banks now make more use of stable deposit between the business models of co- funding. From an organisational perspective, operative banks and all other banks.

Capitalisation

Co-operative banks boosted their capital banks, growth in capital and reserves ratios relatively fierce compared to other seemed to have exceeded the increase in banks. The average Tier 1 ratio of co- RWAs. The latter observation suggests that operative banks rose by 1 percentage point co-operative banks are engaged in retail to 15.5, whereas this ratio for the entire banking activities with moderate risks, as the banking industry improved by 0.6 percen- continued growth of their loan portfolio has tage point to 14.9. Since 2011, banking sta- not led to proportionately higher RWAs. bility has clearly advanced as a consequence Implementation of the current proposals of of stricter regulatory requirements and a Basel IV by the EU to raise the risk weights cyclical upturn in the economy. Movements for mortgages and SME loans would, there- in capital ratios are caused by changes in fore, exert downward pressure on tier 1 the nominator, i.e. size of the capital ratios of European co-operative banks and buffers, and the denominator, i.e. volume of might encourage them to change their busi- risk weighted assets (RWAs). Underlying ness model, probably against the will of their data suggest that the tier 1 rise of all other member owners. It cannot be excluded that banks was to a greater extent caused by a loans to certain customer, business or reduction of RWAs in comparison to the economic segments will be rationed and/or increase in the equity base. For co-operative become more expensive.

Return on equity

After a period of gradual convergence, the net income lagged behind the rise in equity. average return on equity (ROE) of both Since the beginning of the GFC in 2008, banking groups diverged again in 2016. The ROEEBS has been structurally lower than ROE- average ROE of co-operative banks COOP. Over the entire depicted time span, the (ROECOOP) remained at the same level as in average ROECOOP and ROEEBS amounted to 2015 (6%), while this indicator dropped 7.1% and 6.8%, respectively. Figure 4 also from around 6 per cent to around 4.3 per visualizes the lower volatility of ROECOOP cent for all other banks (ROEEBS; Figure 4). compared to that of ROEEBS, which is in fact Within the context of a cyclical recovery confirmed by formal statistical tests. It can and low interest environment, the increase be safely said that this finding corroborates in capital and reserves equaled the growth earlier remarks about the different nature of of net income at co-operative banks. For co-operative banks. the entire banking system, the growth of

Figure 4 Return on Equity of co-operative banking groups and the entire banking sector

Source: Own calculations based on data from co-operative banking groups, national supervisory authorities, the ECB and World bank. Note: The orange and black lines represent the average return on equity of respectively co-operative banks and the entire banking sector over the time period 2002-2016.

Efficiency

The average cost-income ratios increased in this ratio is influenced by many factors. 2016. The CI-ratio of co-operative banks However, one can conclude that the ratios went up by almost 3 percentage points to have hardly deviated from each other since 64. All other banks experienced an increase 2012; both banking groups operate equally in this indicator of 2 percentage points to 63. (in)efficient. The relatively dense branch It is not easy to pinpoint the causes for the networks of co-operative banks do not observed decline in efficiency levels, since translate into a substantial higher CI-ratio.

PART 2: Testimonials of co-operative banking groups

The second part of this publication contains The ‘testimonials’ provide the reader a contributions from individual co-operative glimpse of the long and rich history of the banking groups which are all based on and/ respective co-operative banking groups. The or linked to Raiffeisen’s original principles. answers point to many similarities, but also Each contributor was asked to formulate some differences between co-operative concise answers to four identical and rele- banking groups. It underscores the diversity vant questions: in co-operative banking. The contributions also show that these banks have frequently 1. Could you briefly describe the origins adjusted their organisation and governance and historical milestones in the deve- to tackle all kinds of trends and changing lopment of your co-operative banking circumstances. At the same time, one can group? plainly observe constant factors that were 2. Could you briefly elaborate on the already mentioned in Part 1. The final ques- mission and vision of your co- tion addresses the current opportunities operative banking group? and challenges for co-operative banking groups. These answers reveal major topics 3. What are the key features with res- of discussion with policy makers and regula- pect to membership and governance? tors. 4. Looking ahead, what do you consider The co-operative banking groups are in- to be opportunities and challenges for cluded in alphabetical order of their home your co-operative banking group? country name.

Austria Raiffeisen Banking Group

Could you briefly describe the origins Johannes Rehulka, Executive Director and historical milestones in the development of your co-operative banking group?

The first credit co-operative in the territory 1927. Thus the three-tier development of of today's Austria was founded in 1886 in a the Austrian Raiffeisen Banking Group small village not far from Vienna. From (RBG), consisting of locally active Raiffei- then onwards, numerous more came into sensbanks, Raiffeisen Regional Banks and existence and proved valuable institutions one nation-wide central institute, had been to support socially acceptable structural completed. change in rural regions all over the former Habsburg Empire. Between 1938 and 1945, during the time of the German occupation, the Austrian In order to strengthen the Raiffeisen sec- Raiffeisen organisation lost its indepen- tor, its first central banks at provincial level dence, but after World War II and a modest – today’s Raiffeisen Regional Banks – were new beginning, RBG managed to turn itself founded in the 1890s. However, the posi- into a powerful universal banking system, tion of Raiffeisen within the total Austrian became efficient provider of financial ser- credit sector remained relatively modest. vices in rural areas and also proved to be able to penetrate urban centres. The economic damage inflicted by World War I, the collapse of the Austro- Currently, RBG consists of more than 400 Hungarian Monarchy in 1918, and the local banks, 8 Regional Banks and RBI. With following hyperinflation necessitated a around 2,000 outlets in total, it has the reconstruction of the organisation. With best developed network of bank branches the establishment of the later RZB – in Austria. 4 Million people – almost 50 todays Raiffeisen Bank International (RBI) percent of all Austrians – are customers, so – a nation-wide central institute for the co- that RBG is Austria’s largest banking group operative credit business became reality in with consolidated total assets of about

€280 billion. The name Raiffeisen and the gable cross symbol that represents the organisation in Austria, is one of the country’s best known brands. In addition to its significant role in its home market, Raiffeisen Austria is characterized by its economic commitment in CEE. In 1918 the collapse of the monarchy led to a disintegration of the former central Euro- pean network of Raiffeisen co-operatives. But as early as 1986 – that was well before the fall of the Iron Curtain – new activities of former RZB, todays RBI in central Europe were resumed with the founding of a subsidiary in Budapest. Thus, Raiffeisen Austria played a pioneering role in preparing economic co-operation with CEE countries, helping their transformation into market economies at the end of the socialist era. RZB/RBI was the first western banking group to succeed, within a short period of time, in establishing a dense network of commercial banks in the reform countries. By doing so RZB/RBI managed to position itself as one of the leading banking groups Down to this day and true to these prin- in central and eastern Europe. Today RBI ciples, Austrian Raiffeisen Banks are charac- Group employs more than 50,000 people in terised by features like customer orienta- CEE and operates a dense network of more tion, local integration, social commitment than 2,400 branches with 16.5 million and solidarity within the group, combined clients throughout the region. On account of with the strength of a large and modern these activities, Raiffeisen Austria accompa- financial services provider. Today as yester- nied the economic transformation in central day, the first aim is to increase the market and eastern Europe from the very begin- power of its co-operative’s members and to ning. improve their economic position. However, this applies to the financial sector Could you briefly elaborate on the mis- as well as to all others in which the around 1,500 Austrian Raiffeisen co-operatives ope- sion and vision of your co-operative rate: Raiffeisen in Austria, besides banking, banking group? stands for innovative and ecological agriculture as well as for strengthening the middle- The Austrian Raiffeisen Banking Group com- class economy. For industrial holdings to bines basic principles from its early history – secure domestic jobs as well as for modern self-help, self-administration and self- media. For international engagement as well reliance – with modern banking know-how. as local patriotism and solidarity.

« Solidarity within this while especially these are struggling with group makes close co- increasing and often disproportionate regu- operation for the benefit and latory pressures, with the challenges of digi- the security of Raiffeisen tization, and not least with a somewhat old- customers possible » fashioned image, many of their potential customers are turning to new trends such as sharing economy or digital crowdfunding platforms. What are the key features with respect Against this background Raiffeisen Austria to membership and governance? celebrates the jubilee year on the 200th anniversary of its name – and idea – provider The Austrian Raiffeisen Banking Group has Friedrich Wilhelm Raiffeisen under the motto: preserved its historically grown three-tier ‘Raiffeisen- The Power of Idea’. Be aware: co- structure until today: just over 400 local and operatives have a bright future, because co- independent Raiffeisen banks are owned by operative values are gaining in importance 1.6 million members. Around 5,000 elected again. But also in the knowledge: co- and voluntary officials represent the mem- operatives not only have to communicate bers interests towards the employed mana- these values, they also have to live them – gement. All local Raiffeisen banks together what requires a daily check in practice. jointly own the respective Raiffeisen Regio- For decades the organisational structure of nal Bank in their federal state. And these 8 RBG – with its voluntary and enhanced co- Regional Banks together are with a collec- operation at all levels – made it possible to tive stake of about 59 per cent the principal combine the strength and potential syner- shareholders of RBG’s central institution – gies of a large financial institute with the the listed Raiffeisen Bank International. proximity to its customers and the flexibility Solidarity within this group makes close co- characteristic of small, community based co- operation for the benefit and the security of operatives. Raiffeisen customers possible. Due to cer- Both the constant adaptation of this struc- tain liability agreements, deposits in the ture and the strong rooting in the co- Raiffeisen Banking Group are secured up to operative DNA will remain RBGs unique sel- 100 per cent and therefore far beyond the ling point. Also tomorrow. minimum levels prescribed by Austrian law.

Looking ahead, what do you consider to be opportunities and challenges for your co-operative banking group?

In times of growing anonymization and glo- balization, today's people are increasingly looking for traditional values such as personal responsibility, solidarity and regionalism – expectations, which would be well covered in small-scale co-operative banks. But

Belgium Cera

Matthieu Vanhove, Franky Depickere, Executive Director Chief Executive Officer

Could you briefly describe the origins and historical milestones in the development of your co-operative banking group?

Cera’s roots go back to 1892, when the first In 1998, Cera’s banking activities were in- Raiffeisenkas was set up in Rillaar by Jacob corporated into KBC, a newly-established Ferdinand Mellaerts (1845-1925). Back then, integrated banking and insurance group. On the organisation’s articles of association that occasion, the federation of 207 local were by and large a translation of those banks with a co-operative structure were published earlier by Friedrich Wilhelm absorbed by Cera Head Office. All members Raiffeisen (1818 - 1888). In this manner, Cera of these local banks then became direct became an important link in spreading the members of Cera, thereby establishing one Raiffeisen concept outside Germany. single strong co-operative. Also, through this transaction Cera became a major share- What began as a small, local savings guild holder of KBC. would grow to become one of the biggest financial institutions in Belgium. More preci- Today, Cera and its subsidiary KBC Ancora sely, from an agricultural savings and credit are the largest shareholders of KBC Group, institution, Cera developed into a general together owning 21.2% of KBC. KBC is a bank with activities in retail, SMEs, the cor- bancassurer with 5 core markets, 1,600 porate sector and community services. It bank branches, more than 40,000 em- provided a full range of banking products ployees and holds approximately €275 bil- and services, including mortgage loans, sa- lion in total assets. vings, payments, investment funds, asset management and corporate finance.

Could you briefly elaborate on the mis- There are six other directors, including two sion and vision of your co-operative ban- managing directors, three external directors king group? who have been appointed for their specific, complementary expertise and one director who is also a member of the management Together with around 400,000 members, committee. The majority of these directors Cera invests in communities and works to are also members. build a strong co-operative. By joining forces with its members and partners, Cera gene- The multi-stage representative structure is as rates economic and social added value in follows: three areas:  The General Meeting to which all Cera  As a principal shareholder, Cera ensures members are invited. This draws a solid base for KBC Group; around 1,500 attendees each year.

 Cera generates a positive impact in our  45 Regional Advisory Councils, each communities; with 15 to 25 members and just under 1,000 members in total. The advisory  Members of Cera qualify for unique councils cover all of Belgium and in- benefits. clude Dutch, French and German- Raiffeisen’s values of co-operation, solidarity speaking members. and respect for all have been underpinning  The National Advisory Council, which Cera’s entrepreneurial approach for 125 has four representatives from each of years now. the Regional Advisory Councils With its baseline of ‘Cera. Deep roots, broad (chairman, vice-chairman and two presence’, the co-operative emphasises its member representatives), plus the 14 rich history and strong base as well as its directors from the membership base wide-ranging and diverse activities in the and the two managing directors. Toge- financial, economic, social and societal ther this comes to 196 members. spheres.  The Management Board, which has 20 members in total. What are the key features with respect Members and their representatives who are to membership and governance? members of the Regional and National Ad- visory Councils also regularly participate in steering and sounding-board groups and Cera has around 400,000 members, with other consultative bodies. Members are each one investing a minimum of €1,250 (25 regularly informed about what’s going on at shares of €50) and a maximum of €5,000 Cera via the CeraScope and CeraSelect ma- (100 shares of €50) in the company. gazines, e-zines and also messages publis- The Management Board has 20 members, hed on the website. This ensures good top- 14 of whom are elected from the mem- down, as well as bottom-up information bership base. The chairman and the two vice flows. As such, consultation and participa- -chairmen of the Management Board are tion are firmly established within the struc- elected from among these 14 members. tures and operation of the co-operative group.

Looking ahead, what do you consider to By way of periodical strategic reflection and be opportunities and challenges for your on-going consultations with all stakeholders, co-operative banking group? Cera keeps its finger on the pulse with respect to social developments. With the support of the membership base and the efforts The zeitgeist is beneficial for organisations of many volunteers, Cera will continue to like Cera, since the co-operative is helping to initiate, support and supervise social pro- create a more sustainable society with its jects over the forthcoming period. This is values of co-operation, solidarity and mutual carried out at local, national or international respect. Continuous awareness of the need levels in the following areas: to broaden and rejuvenate the membership base is an essential condition for ensuring a  Poverty reduction and social inclusion dynamic co-operative structure over the  The arts and culture longer term. An extensive membership base gives Cera legitimacy and the strength to  Agricultural and horticultural fulfil its role in the economy and society in  Co-operative enterprise general.  Healthcare in society To start with, there is the contribution made  Local initiatives in education and youth towards developing the strategy of KBC and work the bancassurer’s supervision. Together with  Supporting microfinance and micro- the other stable shareholders, Cera supports insurance together in the South KBC in its role as a benchmark bancassurer and also in having a positive influence on society. Involvement and the active engagement of members must also be given a contemporary and future-oriented interpretation. Direct human contact – such as with the operation of the advisory councils or taking part in member benefit activities – will go hand in hand with the use of new media and com- munications technology. In the future, members will also be able to benefit from attractive and wide-ranging discounts on products and services. After all, the power of collective purchasing has traditionally been one of the great advantages enjoyed by co-operatives such as Cera. These discounts have proven to be a very tangible and appreciated benefit among Cera members. Moreover, Cera also endeavours to distribute an attractive annual dividend as financial compensation in return for members’ investments.

France Crédit Mutuel

Could you briefly describe the origins and historical milestones in the develop- Étienne Pflimlin, Honorary President ment of your co-operative banking group?

After a few attempts at creating mutual lending funds in France. These funds some- support funds and mutual credit funds in the times managed to join forces, but were also middle of the 19th century, the success of sometimes at odds with each other, in parti- the innovative Christian model defined by cular as regards issues such as religious neu- Friedrich Wilhelm Raiffeisen in the Rhine trality and relationships with the State. region inspired a few pragmatic utopian theorists and French clergymen wishing to The development of French co-operative help people break away from the ‘poverty, banks was marked by three phases: dependency, poverty’ cycle. The genuine 1. the first phase (from the end of the starting point of the French mutual bank nineteenth century until the econo- model is thus to be found in the region of mic crisis of the nineteen thirties): Westerwald and in the relevance of the emergence and regulated develop- economic and social success of the first Ger- ment; man Raiffeisen banks. This success allowed for the replication of the model in France, 2. the second phase (from 1945 until first in the Alsace-Moselle region (which at the beginning of the 1980s): natio- the time was annexed by Germany), and nal structuring, strong territorial then throughout the rest of France, where growth and strengthened regula- the development of co-operative banks was tions; much more fragmented because of the ac-  from the 1980s until the present tion of multiple players: farmers’ unions, time: the specific features and agronomic societies and Government autho- operational restrictions of co- rities. In this complex environment, Louis operative banks disappeared gra- Durand and Ludovic de Besse supported the dually after the enactment of the creation of rural lending funds and popular

1984 Banking Act, which converted to our clients/members high-quality diversi- co-operative banks into universal fied services adapted to each client, while banks, which incrementally be- always protecting the absolute confidentiali- came major national players by ty of computerized data. acquiring other banks. In an increasingly globalized environment mar- Retail banking – the Group’s core business – ked by European financial and re- accounts for 72% of our Net Banking Income gulatory harmonisation, Crédit and confirms the relevance of a develop- Mutuel is strengthening its ratios ment model in which co-operative proximi- (CET1 equal to 15.7%) in order to ty, technology and our ability to listen to become one of Europe’s most sol- clients play a pivotal role in the success of vent banks. our bank, which does not pay any commis- sions on sales: the proposed advice and The success of Raiffeisen’s ideas throughout solutions are designed in our clients’ inte- the 20th century is explained by the conver- rest. Bolstered by its strong commitments, gence of ethics and economics in corporate Crédit Mutuel has developed on-line offers, actions, deposits and loans, but also and but also aims at assisting clients who are most importantly by the co-operative bank’s financially weakened. Also, we have sup- ability to respond to people’s needs and ported social micro-credit initiatives. expectations by adapting its policies. Crédit Mutuel was able to do this by developing its Thanks to their involvement and expertise, products and services, the banking insurance all of our 82,000 employees and 24,000 sector and additional services (electronic elected officials strengthen our Group’s fi- money, telephony, remote monitoring, etc.), nancial solidity, by making it secure and while remaining faithful to its original co- lasting, by actively contributing to the in- operative model and founding values. crease in the proportion of French households with a bank account, while increasing democratic governance modes throughout the country. Could you briefly elaborate on the mission and vision of your co-operative ban- The Group’s results have been hailed as king group? highly remarkable, and for more than 10 years Crédit Mutuel has become the favou- rite brand of the French people, thus bearing While asserting its resolve to enjoy managed testimony to the strong trust relationship growth outside its boundaries, Crédit Mu- existing between Crédit Mutuel and its tuel primarily remains a national retail bank clients/members. wishing to offer high-quality service to its 7.7 million members and its 31 million clients. The Group’s deep regional roots and its participation in the financing of regional econo- What are the key features with respect mies are reflected by the fact that more to membership and governance? than 91% of its loans are mobilized in France, a ratio very markedly exceeding that Crédit Mutuel’s 2,107 local banks, 18 regio- observed with other large French banks. nal federations and 6 federal or inter-federal banks hold their general meeting each year. Our permanent objective consists in offering Such meetings thus enable nearly 500,000

members of Crédit Mutuel to elect 24,000 lutely modern. Such modernity can be defi- volunteer officials representing our 7.7 mil- ned as the ability to combine technology lion clients/members. During such democra- and responsibility, so as to offer diversified tic gatherings, and in particular during the services. Crédit Mutuel’s policy is clear: to renewal of the local or regional boards, Cré- ensure that local banks become the center dit Mutuel fosters diversified and balanced of the physical, telephone and digital rela- representation by our elected officials. Re- tionships with clients, as innovation and gional federations also encourage a more employment, investment and service, whe- active representation of women and prompt ther virtual or real, go hand-in-glove. the youngest citizens to become involved in the life of their local bank. Elected officials The Group has already long been digitized are made aware of generational changes and implements internal digital solutions in (age limit, limitation of the joint holding of order to facilitate, even more, all forms of corporate offices). local decision-making. Indeed, retail banks must ensure that technology serves human The efforts made in order to appoint a larger relationships. They must redefine themselves number of women as elected officials are in a more open world where competitors bearing fruit. Indeed, during the latest board may emerge from outside of the banking renewal, gender equality was nearly community. achieved during the elections made at general meetings. To that end, our already complete and innovative offer of banking, electronic payment Numerous training programs are offered to systems and insurance services must be the 24,000 volunteer officials so that they enhanced by additional products: telepho- may fully fulfil their duties. Within the Group ny, residential security monitoring, lease- as a whole, the training of volunteer officials purchase of vehicles, real estate service, represents more than 120,000 hours per connected objects, etc. year, and each official assumes the moral obligation to participate in one training pro- A bank’s business activity consists in foste- gram per year. ring economic development by assuming the management of certain risks (credit, Also, a genuine reflection focused on the interest rates, liquidity, etc.). The future of concept of Mutual and Social Responsibility retail co-operative banks depends on their (MSR) was initiated in numerous regional ability to meet three requirements: to inte- federations and now makes it possible for grate new technologies into their distribu- each local bank to prepare a mutual action tion model, to manage new risks and to plan. meet the expectations of clients/members and local communities by allowing for the

development of new forms of economic Looking ahead, what do you consider to activity. Because of their role as proximity be opportunities and challenges for your co-operatives, local banks have a formidable co-operative banking group? asset: as grassroots financial operators, they best know the local economy and are best able to select risks and to finance them. This Crédit Mutuel is proud of its co-operative is truly a model geared towards the future. and mutual development, which is reso-

Germany National Association of German Co-operative Banks

Gerhard Hofmann, Could you briefly describe the origins Member of the Board of Directors and historical milestones in the development of your co-operative banking group?

The first local co-operative banks worldwide many new co-operative banks and central were established during the mid-19th cen- institutions for interbank liquidity manage- tury in Germany. In 1843, 50 citizens of ment were founded and, thanks to Schulze- Öhringen in Württemberg founded the first Delitzsch, the banks could hold up their local co-operative bank (Öhringer Privatspar private and democratic character. In 1920 - und Leihkasse) that is the predecessor of the number of co-operative banks rose to the today’s local co-operative bank called more than twenty thousand in Germany. Volksbank Hohenlohe. In the following decade, the judge and Prussian politician Her- In the aftermath of the German economic mann Schulze-Delitzsch and the mayor Frie- crisis in the 1920s and the Great Depression drich Wilhelm Raiffeisen established inde- in 1929, the first institutional protection pendently loan associations in their local scheme (as a means to safeguard custo- regions under the names Volksbanken and mers’ deposits) for the local co-operative Raiffeisenbanken. Out of this, both deve- banks was set up in 1934. This original insti- loped central guidelines for how to set up a tutional protection scheme is still in use co-operative bank that became general today; it is indeed the world’s oldest exclu- trademarks for co-operative banking in Ger- sively privately financed deposit guarantee many and later worldwide. Both wanted to mechanism for banks. The years under the support the poor and very small businesses NS-regime and the Second World War had that had often no chance to improve their been a huge material and immaterial living conditions since they were not able to burden for German co-operative banks. fund themselves. In the following decades However, after the Second World War the

co-operative banking system established with the goal to create tangible value for its itself as one of the three banking pillars in members and customers. Western Germany. The principles of self-help, self- In the second half of the 20th century two management, and self-responsibility – main events should be mentioned. First, guided by the aforementioned fundamental Volksbanken and Raiffeisenbanken merged values – are what make co-operatives under one umbrella institution in 1972, the unique organizations. Right from the begin- National Association of German -Co operative ning of the history of this movement local Banks (BVR). Second, in 1990, West German co-operative banks were driven by these local co-operative banks signed partnership liberal ideals to empower their members agreements with East German co-operative (private households and businesses) to help banks (former GDR). Finally, in 2016, the and manage themselves. Today, these prin- UNESCO honored the German co-operative ciples are still highly appreciated in the co- idea by adding the co-operative principle to operative banking network of Germany the Representative List of the Intangible (Genossenschaftliche FinanzGruppe). These Cultural Heritage of Humanity. This has been principles also mean that the individual co- Germany’s first contribution to the list and a operative banks are independent and do great honor for the co-operative idea business independently for, with, and in worldwide. their region. They are organized in the form of a network which promotes financial sta-

bility through the common institutional « The interests of members protection scheme and represents close co- are higher valued than short operation between local banks and the term profit maximization » central institution (DZ Bank). All typical financial services as well as insurance products are being offered by the local banks Could you briefly elaborate on the mis- due to the cohesion of the network and the sion and vision of your co-operative ban- use of products from DZ Bank Group. One of the characteristics and goals of local co- king group? operative banks is their closeness to the region and its people. Usually co-operative The central goal of co-operative banks in banks are an integral part of their village, Germany is to support their members. The town or region. interests of members are higher valued than short term profit maximization since the German co-operative banks consider What are the key features with respect themselves to be communities with shared to membership and governance? values whose objectives extend beyond those of purely business-driven organizations. The traditional co-operative values German co-operative banks are privately include community spirit, a sense of belon- owned SME like entities. They are based on ging, cohesion, partnership, trust, fairness, the general identity principles which say and responsibility. The work of the local co- that a co-operative is an autonomous asso- operative banks is based on these values ciation of persons united voluntarily to meet their common economic, social, and

cultural needs and aspirations through a The return for shareholders takes the form jointly owned and democratically-controlled of annual profit distribution. The co- enterprise. Customers of the bank may apply operatives undoubtedly support their mem- for membership at the Board of Managing bers, but they also expect long-term support Directors. It is only possible to become a from them. This means that members can- member of a co-operative bank by becoming not simply sell their shares whenever they a customer of the bank. Membership makes want. Usually, there exists a notice period in co-operative banks different from all other the articles of association that is defined by banks in Germany. Indeed, membership is its members, often the time until the next the USP (Unique Selling Proposition) of co- General Assembly Meeting. Moreover, the operative banks. No other banks offer this managing board and the supervisory board benefit. of a bank may restrict the redemption of co- operative share. This ensures that the co- According to its core principles members are operative banks have a stable capital base, responsible for directing and monitoring also in more difficult times. their co-operative bank. They also decide who takes on these management and supervisory roles. German co-operative banks had « The institutional protection introduced basic democratic principles long before Germany became a democracy. Each scheme of German co-operative member has always had one vote, irrespec- banks has never failed since it tive of how many shares he or she holds in was set up in 1934. » the bank (one member one vote principle, not one Euro one vote). It was not without reason that the German chancellor and mo- The co-operative principles also hold for the narchist Otto von Bismarck called co- many local co-operative banks in the co- operatives the war chests of the democratic operative banking group. With regard to idea during his years in government. The safety and stability issues, in particular, each principle of equality represents one of the co-operative bank in Germany has to meet main differences to the common share- the guidelines of the institutional protection holder principles. schemes, that are run and organized by the BVR (Institutssicherung GmbH and the BVR Sicherungseinrichtung). The aim is to ensure « Shares in co-operatives maximum safety by preventing financial are not listed on a stock ex- difficulties at the affiliated banks. The insti- change and thus not expo- tutional protection scheme of German co- sed to changes in prices. » operative banks has never failed since it was set up in 1934.

There is another difference to common shareholder enterprises: Shares in co-operatives Looking ahead, what do you consider to are not listed on a stock exchange and thus be opportunities and challenges for your not exposed to changes in prices. When a co-operative banking group? member leaves the co-operation, the unchanged par value of the shares is repaid. The opportunities and challenges are mani-

fold nowadays. The co-operative banking income in classical banking and increased group in Germany (Genossenschaftliche interest rate risks. FinanzGruppe) has shown a strong resilience Third, the digitalization is changing our lives to financial market shocks. In the past ten and banking business as well. The interac- years, local co-operative banks have proved tion between the bank and its customers has themselves as a strong and reliable partner to be adapted to the new possibilities and of retail customers as well as small and me- expectations of clients. The technological dium sized enterprises in Germany. changes have encouraged new competitors Subsequently, market shares of co-operative to enter the banking market such as FinTech banks have slightly risen on the German companies. However, the aforementioned banking market since 2008. challenges will be also great business opportunities if the co-operative banking group is able to handle those challenges successfully. « Local co-operative banks Looking at the history of German co- have proved themselves as a operative banks over the last 175 years, one strong and reliable partner of of our strength has been the ability to suc- retail customers as well as cessfully adjust to changing environments, even if these adjustments have never been SMEs » easy.

However, co-operative banks in Germany face severe challenges. They arise mainly from three areas: First, the regulation of banks and financial markets creates special challenges for small and medium sizes co- operative banks and - of course - all other banks through increasing capital, liquidity and informational requirements. While Ger- man co-operative banks are well capitalized and have ample liquidity at their disposal, the administrative costs of regulation and supervision have become enormous. Furthermore, new rules and guidelines introduced by regulators and supervisors directly and indirectly affect the governance of banks. In particular, the co-operative banking group have to put forward good argu- ments for a regulation that fully observes the principle of proportionality. Second, the expansive monetary policies worldwide pushed interest rates massively down to artificially low levels close to or below zero. This leads to shrinking interest

Italy Banche di Credito Co-operativo

Augusto dell’Erba, Chairman of Federcasse Could you briefly describe the origins and historical milestones in the development of your co-operative banking group?

Both BPs and RBs have been structured as Co-operative banking has a long history in tiered networks with independent banks at Italy. Its development is hinged on two the local level and centralized functions and different types of co-operative banks, the bodies at the upper tiers. RBs were re- Banche Popolari (BPs) and the Banche di formed in 1993 to be fully compliant with Credito Co-operativo BCCs), previously na- the universal banking model introduced by med as Casse rurali. The first BP was esta- the Second Banking Directive. They were blished in Lodi in 1864, following the also renamed as Banche di Credito Co- example of the German Volksbanken whose operativo (BCCs).5 model was introduced in Italy through the writings of the economist Luigi Luzzatti. The Despite a different inspiration, both types of first Rural Bank (RB) was set up in Loreggia co-operative banks have been endowed (close to Padova) in 1883 by Leone Wollem- with the common governance feature which borg which took as a model the German is known as the ‘one head one vote’ prin- Raiffeisen experience. Since then, co- ciple, largely shared with many other co- operative banking has experienced a long operative banks in Europe. Nevertheless, period of growth and strengthening, beco- relevant differences in their legal framework ming a relevant part of the Italian banking have influenced the organizational structure sector. and evolution of the two co-operative sectors in Italy.

5 Change of name was not strictly compulsory and the ‘Rural’ and ‘Raiffeisen’ terms were kept respectively in the Province of Trento and in the Province of Bolzano

Over the past decades, the BCCs have supported the economic and social growth of their communities becoming a relevant player in financing households, small and micro enterprises. Since the mid-nineties, BCCs activity has experienced a steady growth which favored mostly their typical customers: small enterprises and households. In 2017, 9.5 per cent of the total loans granted to Italian enterprises have been issued by a BCC-CR. The percentage rises significantly if referred to small enterprises. Also the share of financing to households has reached a significant level (8,5 per cent of the total banking industry).

« Their presence insure a true diversification and competition within the Italian Banking industry. »

6 The process of consolidation that has of largest BPs into stock company status 7 affected the Italian banking industry brings and in 2016 with the Reform of BCCs, which about a relevant and progressive disap- is the result of a constructive dialogue bet- pearing of many local banks through mer- ween the National Federation of BCCs, com- gers and acquisitions. Nowadays, BCCs re- petent Authorities and Italian Government. present the greatest majority of local banks. The BCC Reform Law was issued in April 2016 In many areas of the country they are the after several months of consultations. At the sole local banking reality. Their presence time of writing this paper, it is still on going insure a true diversification and competition and expected to be fully implemented by within the Italian Banking industry. the end of 2018. At the end of 2017 there were 300 BCCs with 4,256 branches (15.2 per cent of the Could you briefly elaborate on the mis- total banking industry) operating in 2,651 sion and vision of your co-operative ban- municipalities. These are mostly small- medium sized urban centers. Members king group? were more than 1.27 million. Total loans to clients reached €130.7 billion in 2017; total The article 2 of the BCCs statute states: ‘The funding from clients €157 billion. main purpose of the Society is to support the and to assist the members belonging to Finally, major institutional changes were the local communities with the transactions introduced in 2015 with the transformation and the bank’s services, aiming to improve

6 Law n. 33, 24 March 2015 7 Law n. 49, 8 April 2016.

the moral, cultural and economic conditions What are the key features with respect of the members and promoting the develop- to membership and governance? ment of the co-operation, the importance of the saving security, the social cohesion and The main legal aspects specifically referring the sustainable growing of the territory in to BCCs are the followings: which the bank operates’. In order to fulfill this aim BCCs have developed a strong focus a. Each member has one vote in the on traditional intermediation, based on the general assembly regardless of the originate-to-hold model and on long-lasting number of shares owned; fiduciary relationships with members and b. share capital: each member may own other customers, even though lending to more than one share, but the overall non-member clients is legally limited. There- fore, the mutualistic nature of BCCs is signifi- nominal value of the shares owned cantly assured by law and regulation and has may not exceed €100,000; been maintained over time. Furthermore, c. members composition: they must the local character is also enforced by law, have their domicile and/or continua- with specific restrictions concerning their tive business within the territory operational areas. where the bank operates; So far, the BCC system has been endowed d. mutualism: at least 51% of the risk with the functioning of a tiered banking activitymust be carried out with network, with independent local banks, members; regional federations, and other bodies at national level, including the guarantee e. territorial ties: 95% of the lending funds. The independent character of each must be in the catchment area BCC has not only been a legal feature but (defined by the municipalities where also a fundamental value of this co- the BCC has a branch and the neigh- operative banking form. boring municipalities); In 2016, the Reform of BCCs started by law f. profit distribution: at least 70% of the process toward the establishment of co- profit must be put to legal reserve. A operative banking groups within the net- further 3 per cent must be paid into work. Although legal independence of BCCs a national fund for the development is preserved, the group form to be adopted of co-operation. Reserves cannot be is not different from those of other Euro- distributed to members (even in pean co-operative groups and is expected to case of liquidation). reduce the degree of freedom at the local All these legal provisions will be maintained bank level through centralization of pro- in the new legal framework following the cesses and internal controls. Despite the 2016 reform. radical change of the organizational form, the mission of the BCCs remains the service on behalf of members and local communities.

Looking ahead, what do you consider to has developed over a long period of time, be opportunities and challenges for your usually under the oversight of the national co-operative banking group? supervisors and governments. Finally, a further challenge for the future The banking sector is undergoing important BCC Groups is to find the right equilibrium changes: new competitors are entering the between the joint stock form of the group market, the technology is transforming the and the mutual co-operative aim that should field and regulation is narrowing the degrees guide the strategies of the same group. of freedom in organizational and governance Reconciling the BCC vocation to support choices. members and local business with the strategies defined by the parent company (and the « Adapting to the environ- constraint stemming from the European ment has always been a supervision) may not be a smooth task; the comparative advantage of crucial factor will probably be the real prac- the co-operative banks. » tice of the new group governance that will be set up in order to manage processes and The radical transformation of the BCCs from decisions. If well implemented, the new one common voluntary network to three organizational structure will allow the nas- centralized banking groups entails opportu- cent co-operative banking groups to fulfill nities and challenges. even more than in the past their role of local bankers in compliance of globalized stan- The group structure should enable the BCCs dards. to better deal with the rapid evolution of the banking sector in the following terms:

 cost rationalization and better capital allocation;  investment opportunities by pooling re- sources;  diversification of the business model;  streamlining the decision making process. Nevertheless, the group structuring is a challenge as well: the complexity of setting up and running such type of group with a large number of banks of different size and geographical location should not be underesti- mated. Moreover, partitioning the BCC network into three co-operative groups, two of them with nation-wide extent, brings about restructuring a relevant number of common network entities which have been set up over time. It is worth noting at this regard that, in many EU countries, the evolution from bank networks to centralized groups

Japan The Norinchukin Bank

Yoshio Kono, President and Chief Executive Officer Could you briefly describe the origins and historical milestones in the development of your co-operative banking group? operatives Act’ enacted in 1900, which formed the foundation of Japanese agricul- Firstly, I would like to express my sincere ture co-operative system today. appreciation to the 200th anniversary of Friedrich Wilhelm Raiffeisen. Readers may The Norinchukin Bank (the Bank) was esta- wonder why a Japanese co-operative ban- blished as the national federation for such king group celebrates the father of Euro- Japanese agriculture, fishery and forestry co- pean credit co-operatives. In fact, the rise of operatives in 1923. Since its inception, the Japanese agriculture co-operatives has close Bank has maintained the spirit of ‘one for all, connections to the German agriculture co- all for one’, while adjusted its role and busi- operative system that stemmed from the ness models corresponding to the needs of idea of Mr. Raiffeisen. members and society. The Bank initially played the role financing the regions of in- The notion of co-operatives has been deve- sufficient funds, but as deposits at Japanese loped naturally and simultaneously across Agriculture co-operatives (JAs) increased the globe. In Japan, advocated by practice nationwide, the Bank shifted its role to the leaders such as Yugaku Ohara and Sontoku institutional investor in 1970s. In 1990s the Ninomiya, the prototypes of co-operative Bank has focused on sophistication of its systems such as Senzo-kabu-kumiai and Go- globally diversified investment strategy and jo-ko were developed and the spirit of mu- on enhancement of the financial services tual assistance was fostered across village and soundness of JAs’ banking business communities in early 19th century. Based through the integrated operation as ‘JA Bank on such background, gouvernement officials Group’. In 2016, the Bank defined ‘Food and who studied in Germany led drafting ‘Co- Agriculture Business’ as the new major busi-

ness domain and declared to create and further strengthen financial network system offer added values to turn Japanese agricul- of JA Bank Group and offer solutions to con- ture, fishery and forestry industries into tribute to the development of the industries growth industries. and local communities. Today, JA Bank Group has established itself Also, the Bank created its corporate state- as the major Japanese retail banking group ment ‘dedicated to sustaining all life’ in that consists of 687 banks (654 JAs, 32 Shin- 2017, reflecting the voices of the Bank’s all no-rens or prefecture-level federations, and employees. Agriculture, fishery and forestry the Norinchukin Bank), over 10 million indi- industries, after all, produce and nurture life vidual co-operative members with deposit as a legacy for future generations, despite totaling approximately 100 trillion JPY. facing overwhelming natural disasters from time to time. All of the Bank’s employees

unitedly supported the devastated Tohoku Could you briefly elaborate on the mis- regions both financially and non-financially sion and vision of your co-operative ban- to recover from damages by the Great East king group? Japan Earthquake and Tsunami that struck in 2011. We believe it is our unchanging mission to make the chain of life that con- The Norinchukin Bank has responded to the nects us more bounteous and more certain trust and needs of its members and the so- by utilizing our financial knowledge from the ciety since its inception through its founda- view of the field of the industries. tional mission to ‘contribute to the development of the agriculture, fishery and forestry industries and to national economic prospe- What are the key features with respect rity by facilitating access to financial re- sources,’ as stated in the Article 1 of the to membership and governance? Norinchukin Bank Act. The Norinchukin Bank is the national-level As the environment surrounding the indus- banking federation for the three-tier net- tries changes over time, however, JA Bank work that comprises local-level co- Group receives even bigger expectations to operatives namely JAs, Japanese Fishery co- address the societal need to increase in- operatives (JFs) and Japanese Forestry co- come of producers and workers in the indus- operatives (JForests), prefecture-level fede- tries and to revitalize rural areas through rations such as Shin-no-ren, and the Norin- developing its platforms that support JAs chukin Bank. and offer financial services that bridge agriculture and the communities. One unique feature of JA is its comprehen- sive business structure that conducts not Therefore, the Bank declared its future vi- only banking business but also a broad sion in 2016 to become ‘a leading bank that range of businesses such as guidance (e.g. supports the agriculture, fishery and forestry on management and production for far- industries, food production and consump- mers, fishermen and foresters), economy tion, and the daily lives of local communi- (e.g. sales of produce and supply of produc- ties’ toward its 100th anniversary in 2023. tion materials), mutual aid, and health and The Bank is developing various initiatives to welfare, among others, to respond to mem-

bers and local community’s needs. added ‘Food and Agriculture Business’ as the new main business domain under the Bank’s JAs, Shin-no-rens, and the Norinchukin Bank, mid-term management plan. We aim be the while maintaining their independence, form bank that people call on first in this field, by JA Bank Group to operate integrally under providing the broad range of financial and one rule. non-financial services to increase value added across the entire food value chain. Looking ahead, what do you consider to Mr. Raiffeisen established the agriculture co- be opportunities and challenges for your operative to promote self-help and recovery co-operative banking group? of farmers facing severe economic environment. As Japanese rural areas face challenges today, the Bank is determined to Japanese agriculture, fishery, and forestry contribute to the revitalization and sustai- industries – the foundation of the Norin- nable development of the regions by con- chukin Bank – face macroeconomic environ- quering these challenges and growing the mental challenges such as the aging and industries ahead. shrinking population both nationwide and regionally, which impact membership base of co-operatives. From the perspectives of financial institutions, we also perceive the tougher and drastically changing business environment, such as long-lasting negative interest rates, compliance to various enhanced regulations, competing with new industry entrants such as fintech companies, and adapting to rapidly evolving digital technologies. Fulfilling the needs of members and society with the co-operative spirit of mutual assistance despite such environ- mental changes is the enormous but unavoidable challenge.

« the Bank is determined to contribute to the revitalization and sustainable development of the regions » On the other hand, a noteworthy opportunity is that Japanese government for the first time positioned Japanese agriculture, fishery and forestry industries as growth industries with strong support under Abenomics policy, and Japanese society’s interest and expectation to the industries has risen to - all time high. Pursuing this key opportunity, the Bank

Luxembourg Banque Raiffeisen

Guy Hoffmann, Could you briefly describe the origins CEO Raiffeisen Luxembourg and historical milestones in the development of your co-operative banking group?

The first Raiffeisen credit co-operatives were specialists offering notably a bespoke service founded in Luxembourg in 1925. In early and advice in project financing. Finally, the 1926, the existing banks set up the ‘Centrale bank’s asset management specialists provide des Caisses Raiffeisen luxembourgeoises’, a professional service to savers and inves- renamed in ‘Banque Raiffeisen’ in 2001. tors. The Raiffeisen model developed very quickly Since 1925, Raiffeisen has always been com- and by 1970, the network had 138 outlets mitted to solely working in the interests of across the country. New technologies, its clients and members. Today Raiffeisen namely payment cards, self-service and on- has some 30.000 members. Year after year, line banking changed the habits of the custo- surveys consistently showed that Raiffeisen mers and led to the merger of many clients are those that are the most satisfied branches of the network which is now made with their banking relations. up of 13 ‘Caisses’, each with several branches, plus 12 branches that report directly to Banque Raiffeisen. Could you briefly elaborate on the mis- Today, with a network of some 40 agencies, sion and vision of your co-operative ban- Raiffeisen serves retail, private banking and king group? corporate clients. We assist private clients with their everyday banking transactions, As an independent co-operative bank, finance their projects and manage their Banque Raiffeisen provides banking services savings and investments. We also serve busi- to clients living or working in Luxembourg. nesses and freelancers through a team of

« We seek to forge long- sen member. Members are both owners and lasting relationships that are clients of their local bank, they are entitled built on trust and rewarding to attend the general assembly and can for both our customers and themselves be elected as member of the the bank. » board of directors. It is especially for our client-members that Using efficient processes, Raiffeisen offers the ‘OPERA Advantages’ program has been premium solutions to meet the clients’ designed and we are more than pleased to needs at key moments of their life, through have over 30,000 members today compared whichever channel they choose. We seek to to 10,000 members at the start of the pro- forge long-lasting relationships that are built gram. Thanks to this program, they have on trust and rewarding for both our custo- benefited from advantages of about one mers and the bank. We aim at being the million euros in 2017. We are proud to say clients’ natural choice for their main bank in that at Raiffeisen, the client-members bene- Luxembourg. fit directly from the result realised by their We undertake to respect, apply and share bank. the company’s longstanding values day after day: Looking ahead, what do you consider to  Respect - esteem and long-lasting be opportunities and challenges for your relationships co-operative banking group?  Ambition - the best of ourselves to achieve success and customer satis- The high implementation costs of ever- faction increasing regulatory requirements are par- ticularly challenging for a bank like ours. We  Proximity - local actions and cordial operate in a country that has less than relations 600,000 inhabitants. Its multilingual society,  Passion - enthusiasm as we strive for with about half of the inhabitants being excellence foreign nationals with different cultural backgrounds, part of them living in Luxem- bourg for a few years only while others are What are the key features with respect coming to stay, makes it difficult and costly for companies to design their strategies, to membership and governance? offers and services. We are thus facing dra- matically rising costs, at a time when low Responsible banking is in our DNA. As an interest rates are putting more and more independent co-operative bank, one of our pressure on banks revenues. guiding principles is the responsibility we have for the welfare of all of our stake- Digitization is changing our lives and is chal- holders. We put emphasis on our prudent lenging some if not most of our traditional commercial approach and serve above all co-operative values. But digitization also the interests of our members and clients. offers new opportunities. There is no doubt that a state of the art digital customer expe- Each customer can easily become a Raiffei- rience is a must for all banks, be they finan-

cial institutions driven by shareholder value ving projects such as investments or finan- or co-operative banks driven by member cing their new home. Being a local co- value. But we don’t think that all of our cus- operative bank, whose first ambition is not tomers will be satisfied by an online-only to maximize its revenues, remains one of banking service. We believe that part of our biggest strengths in that context. It them will continue to privilege using the enables us to offer premium quality services branch and that the need for a real person through all channels, which is the best way to discuss with will not disappear. We are to ensure high levels of long-lasting loyalty convinced that a lot of customers will conti- and customer satisfaction. nue to seek personal advice for more invol-

The Netherlands Rabobank Group

Wiebe Draijer, Chairman of the Could you briefly describe the origins Managing Board and historical milestones in the development of your co-operative banking group?

It is a challenge to pinpoint the most salient banks (Boerenleenbanken), spread rapidly developments in the long and rich history of throughout The Netherlands. They provided Rabobank in a few words. Basically, the their farmer and horticulturist-members common thread since its inception is to offer access to affordable loans which were prima- financial solutions for economic needs and rily funded by local savings. Members of the social issues. In practice, Rabobank has fre- LBs decided to reserve the largest part of the quently reoriented its strategy, business realised annual surplus, while a modest part model and governance structure in anticipa- was reinvested in local societies. This capita- tion of or in response to shifting trends in lisation and reinvestment policy has been society, technology, competition, banking pursued ever since and has been recorded in regulation and supervision, etcetera. all subsequent articles of association. Each LB initially applied the principle of solidarity Poor economic conditions in the Dutch agri- between its members. Since the 1960s, LBs cultural sector in the late 19th century trig- also serve non-members. gered people’s initiatives to establish local co-operative banks (LBs) in their village com- The central banks of the LBs were not only munities, i.e. self-help in Raiffeisen’s words. helpful in overcoming the disadvantages of After the foundation of the first LBs in the the local banks’ limited scale and fostering years 1895-1897, two central organisations their development by performing the coordi- were created in 1898. During the next de- nating role of a ‘banker’s bank’; they also cades, LBs of both co-operative banking served as internal control or audit institu- groups, i.e. Raiffeisenbanken and Farmers’ tions as well as knowledge centres for LBs. In

1972, the central organisations of Raiffeisen- The Netherlands’ is closely linked with our banken and Boerenleenbanken merged into social agenda which was formulated in co- Rabobank Nederland (RN). RN ‘inherited’ the operation with our member representatives. responsibility to exert delegated supervision In accordance with its Dutch roots, the inter- over LBs and to ensure compliance of LBs national strategy centres around ‘Banking with the prevailing capital adequacy and for Food’. Rabobank intends to contribute to liquidity regulations. From the 1980’s on- resolving the food issue worldwide in view of wards, the domestic and international activi- the predicted increase in world population, ties expanded gradually. A recent milestone formulated in our mission: “Growing a better concerns the merger of all LBs and RN into world together”. Both the domestic and one co-operative bank in 2016 as will be international mission encapsulate the core explained below. In short, Rabobank has values of the co-operative and are firmly always operated as a strongly integrated co- anchored in the infrastructure and go- operative banking group, which partly ex- vernance of the organisation. These features plains the high credit ratings provided by have safeguarded Rabobank’s special posi- international rating agencies. tion in the financial sector, its long-standing focus on servicing the real economy and, last

but not least, its ambition to serve the inte- « Rabobank commits itself to rests of local sustainable development. achieving progress in society

and in the Sustainable Deve- lopment Goals defined by the What are the key features with respect United Nations. » to membership and governance?

Members give co-operatives legitimacy. Could you briefly elaborate on the mis- Currently, around 1.9 million, or 25 per cent, sion and vision of your co-operative ban- of our Dutch customers are members of a king group? local Rabobank. Members are represented in local and collective governance bodies Being a co-operative, profit maximalisation and exert an important ‘bottom-up’ in- has never been our overriding purpose, but fluence on the course of the local Rabobank profits are necessary for meeting capital as well as the entire organisation. Members requirements, continuity and the pursuit of have access to knowledge, information and our social goals. Of course, entrepre- networks of Rabobank. Members don’t re- neurship, cost-effective distribution concepts ceive individual financial benefits, but Local and innovative financial concepts at fair Members’ Councils determine how the prices are prerequisites for every financial co largest part of co-operative funds, amoun- -operative. In Raiffeisen’s spirit, Rabobank ting to around 3-4 per cent of net annual stays faithful to the ‘dual-bottom line’ ap- results, is spent locally. The remaining part is proach. Through its ‘Banking for The Nether- used to support rural co-operatives in deve- lands’ and ‘Banking for Food’, Rabobank loping and emerging economies via Rabo- commits itself to achieving progress in socie- bank Foundation. Since it is crucial that ty and in the Sustainable Development Goals membership remains meaningful and attrac- defined by the United Nations. ‘Banking for tive in this digitalising and virtualising era,

enhancing member involvement, commit- co-operative bank. There is a distinctive ment and engagement is high on our agen- place for a co-operative customer-oriented da. bank that provides relevant knowledge, networks and financial solutions nearby. In January 2016, Rabobank adopted a new governance structure. In the Netherlands, all

LBs and RN now operate as one co-operative bank with one banking licence and one set of « the new capital proposals financial statements. Delegated supervision pose a serious threat for co- by RN ceased to exist. The key features of operative banks » the member-based governance have never changed, though. These include the bottom- up decision-making process, the associated focus on retail banking with its relatively Concerning major challenges, Rabobank stable income streams and retained earnings strongly argues in favour of a stabilisation of as the primary source of capital building. the legislative framework. Its outlines and Moreover, a defining aspect of the go- contents are constantly changing, which vernance is that the co-operative part is adds to uncertainty and high adaptation linked with the tactical and operational ban- costs. Moreover, the new capital proposals king business. The bank is governed by me- pose a serious threat for co-operative banks chanisms and rules connected with its co- with a low risk profile due to a loan portfolio operative ownership structure. secured by strong collateral. These proposals do not take proper account of collatera- lisation and differences in markets and legal Looking ahead, what do you consider to systems between countries. The result may be less lending, or more expensive lending. be opportunities and challenges for your This would hamper employment and econo- co-operative banking group? mic growth throughout the Eurozone

The co-operative organisational form has great merits. Therefore, this initiative by the EACB to seize Raiffeisen’s 200th birthday to showcase the specificities of the co- operative banking model to a broad Euro- pean audience is very much welcomed. As a core feature of the co-operative governance, membership has always led to divergent internal dynamics and a different – strategic – orientation compared to other major financial institutions. Rabobank is indisputably different and has a ‘presence value’ in Dutch society and banking. Local autonomy of LBs and active participation of our employees in local networks and communities are cheris- hed as distinguishing characteristics of our

Poland Krajowy Związek Banków Spółdzielczych

Michal Krakowiak, Vice – President of the Management Board Could you briefly describe the origins and historical milestones in the development of your co-operative banking group? whole turbulent 20th century internalizing Raiffeisen’s key ethical values and democra- Polish co-operative banking emerged in the tic principles of governance and combining second half of the 19th century. The quickly them with the latest developments in pru- developing movement based on bright ideas dential, supervision and remedial dimen- by Friedrich Wilhelm Raiffeisen was sprea- sions. ding across the whole Polish territory. Main activists and organizers were Dr. Franciszek Stefczyk, Reverend Piotr Wawrzyniak, and Could you briefly elaborate on the mis- Augustyn Szamarzewski. By 1914, there were sion and vision of your co-operative ban- approximately 1,500 associations and credit king group? co-operatives as well as savings and loan unions with nearly 650,000 members, en- joying substantial popularity. After 1918, The aim of the credit co-operatives was to savings and loan local financial institutions provide aid to weaker and economically based on Raiffeisen’s idea were strengthe- excluded social classes, in particular far- ned in their legal form, emphasizing mem- mers, in meeting their financial needs, main- bers’ rights and obligations. The cooperative ly by granting them access to loans, as well model in banking enjoyed the greatest po- as strive to increase the level of culture and pularity across the entire country. morality of their members, as well as patriotism. They were self-aid institutions based The Polish co-operative business model in on the principle of co-operation and respon- 2018 is the successor of the life-changing sibility. At present, the cooperative sector period of the turn of the end of 19th and includes 551 local banks associated in two

groups structured in the forms of inverted ner. In the heyday of large corporations, pyramid. Their main goal is to serve as much unrestrained technological progress and as possible services for their members and digitisation of consumer relations, co- customers from a holistic perspective. To be operative banking needs to return to its attractive and useful for young generations ethical roots and skilfully advertise them in in their search for innovative services in its local and pan-European surroundings modern times is a main goal. twice as much. They constitute a great coun- terbalance to the processes of atomisation

of post-modern societies and may constitute What are the key features with respect an invaluable hint on how to combine mo- to membership and governance? dernity, sustainable growth and responsibility in the 21st-century banking. In the couple of last decades, co-operative banks in Poland have won trust of more than million members and nearly eight million clients across the country. The current business model applies Raiffeisen’s traditions as key ethical values and modern democratic principles of governance including the check&balance rule together with live-long relationships with local communities. The continuous perfecting of governance rules and practices is one of the key aspirations of the whole sector.

Looking ahead, what do you consider to be opportunities and challenges for your co-operative banking group?

Co-operative traditional advantages like proximity and direct contact and relations will be tested by new era challenges, i.e. mainly digitalization and behavioural changes on members/customers side. We envisage opportunities in eagerness of our banks to become agile and responsive to new customer needs, while endorsing principal values of locality, democracy and prima- cy of ordinary people. Such values and principles have been key for co-operative banking to this day. They remain unchanged and exceptionally important. However, they must be emphasised anew in a strong man-

Portugal Crédito Agrícola

Licínio Pina, Chairman of The Executive Board of Directors Could you briefly describe the origins and historical milestones in the development of your co-operative banking group? as the Group’s financial head, were two In 1896, a royal decree created the first agri- important milestones to cement CA Group cultural co-operative credit legal framework as an entity of national relevance. Moreo- in order to serve farmers seeking funds. ver, in 1991 and under a new legal frame- However, it was in 1911 that Crédito Agríco- work (RJCAM), Caixa Central was mandated la (hereinafter, CA Group) was formally by the national supervisory authority to created in Portugal, under a co-operative supervise and to provide financial and ma- structure by means of a new law published nagement guidance to SICAM.9 by the recently-formed republican government. Despite the increase of local banks in In 1994, Caixa Central has broadened its the 1920s, during the crisis of 1930 and for scope of activities and invested in busi- political reasons, control over agricultural nesses beyond retail banking to provide an loans was transferred to a State-owned bank universal offer (e.g. life and non-life insu- until 1982. rances) to everyone. The insurance companies are both success stories. After celebra- The creation, in 1978, of FENACAM8, aimed ting its centenary, in 2013, the Group to represent the local banks (CCAM) at insti- started a reorganization process as part of tutional level and, in 1984, of Caixa Central its corporate strategy.

8 National Federation of Agricultural Co-Operative Credit Institutions in Portugal 9 SICAM - a co-responsibility perimeter comprising CCAM and Caixa Central, altogether ruled by RJCAM.

Nowadays, in the financial and insurance reinvesting the generated income in the local Portuguese industries, CA Group is the sole communities, both to improve its long term financial group with all equity shares value and to foster the well-being of Portu- (securities) held by Portuguese people10. guese regions (e.g. customers, partners, Moreover, CA Group has one of the largest employees, suppliers, public entities). network of branches in Portugal (as of

December 31st 2017, 669 branches managed by 81 local banks), when compared with What are the key features with respect other banks, post offices and even some to membership and governance? public services, serving more than a million customers (individuals and companies). Local banks (CCAM) are co-operatives ruled by the principle ‘one man-one vote’, each one having its own ‘Board’, ‘Audit Council’ Could you briefly elaborate on the mis- and ‘General Meeting’ of members. General sion and vision of your co-operative ban- Meeting approves the statutory accounts of king group? Y-1 in March and Budget for Y+1 until December. Each local bank has its indepen- CA Group mission can be described as ai- dent chartered auditor. Local banks’ confi- ming to develop the local communities ned geographical area may be one municipa- through the fulfilment of customers’ finan- lity or several contiguous municipalities. cial and protection aspirations and projects, Customers may become local bank’s mem- through a customer-centric multichannel bers by underwriting a minimum of 100 approach. CA Group’s vision includes to be equity shares with an unitary value of €5, as recognized as the ‘Best Financial Group’ in its long as they live or develop economic activi- markets. ties in the region where the local bank is located, noting that restrictions on the per- « soundness, proximity, centage of businesses non-related with pri- simplicity, sustainability mary sector still apply. and trust » Caixa Central is a higher-order co-operative According to its business value proposition, and its members are the local banks CA Group rules its activities by the principles themselves. By law, no local bank holds of soundness, proximity, simplicity, sustaina- more than 10% of the equity capital of Caixa bility and trust. Its widespread network of Central. The governance model of Caixa branches and ATM, together with its more Central follows the so-called German model: than 4,000 employees, are the key success ‘Supervisory Board’, ‘Executive Board’ and factors for its ‘act local’ strategy. the ‘General Meeting’. Caixa Central has an As a co-operative based Group, CA is not independent chartered auditor, at present subject to capital markets’ pressure to ob- PWC, which certifies the accounts of Caixa tain financial results or to pay periodic divi- Central on an individual basis as well as the dends. In fact, CA Group’s strategy relies on consolidated accounts and procedures of CA

10 In this case, local banks’ members (individuals and companies).

Group, having in mind that the supervisory After the crisis, the confidence of the gene- banking prudential rules apply both to Caixa ral public in Group CA stands at a high point, Central on an individual basis and to the which has been contributing to a steady Group as a whole on consolidated terms. All increase in the flow of customer deposits the Group's companies are either directly from competitors with lower NPS13 to CA held by Caixa Central and/or CCAM, or indi- Group (local banks and Caixa Central). This rectly held by a fully owned SPV (the holding enabled the exploitation of commercial op- ‘CA SGPS’). portunities, but putting further pressure on the loans to deposits ratio14.

CA Group has been increasing its business Looking ahead, what do you consider to through enlarging its customer base, taking be opportunities and challenges for your advantage of its recognized financial stability co-operative banking group? (e.g. adequate equity, comfortable liquidity), as well as its unique knowledge of the mar- Besides the challenges affecting all traditio- kets where local banks operate. As a result, nal banks11, some specific issues can be iden- the Group has been steadily growing. CA tified. Although regulations on prudential Group is focused on investing on a digital requirements (namely Directive CRD IV/CRR strategy to offer simple, relevant, fair, 24x7, and Regulation EU nº 575/2013 of 26th June) safe and secure services; capturing younger defend the principle of proportionality, co- generations living on growing urban areas; operative banking groups classified as LSI12, and retaining the higher worth customers as is the case of CA Group, face additional with binding value propositions. To succeed, complexity to proceed with the implementa- CA Group will have to keep on focusing on tion of measures to ensure compliance with growth, intensify its actions to improve cost guidelines on internal governance (EBA GL44) efficiency and bring negotiations with third and to safeguard the financial sustainability parties (e.g. Fintechs) to a good end. required to comply with its corporate mis- Thanks to its recognition, CA Group has the sion, having in mind the new regulatory envi- opportunity to leverage its local knowledge ronment and the more demanding capital and autonomy and complement it with inno- and liquidity requirements (ex. MIFID II, vative services that comply with its low risk IFRS9, GDPR, AML, CCR II/CRD V, MREL, Sol- appetite and contribute to enhance its stra- vency II). tegic positioning in a changing competitive arena.

11 For instance, improving revenues in an unprecedented low interest rate environment and under the consumer associations’ pressure; divesting NPE and foreclosed assets, removing friction from customer journeys; embracing PSD2 and open API banking; navigating through compliance and regulatory changes; competing with digital banks / GAFA and expanding the use of advanced analytics; adapt to blockchain and other advanced technologies. 12 LSI – less significant institutions according to SSM Framework Regulation (ECB). 13 NPS – customer net promoter scores. 14 L2D ratio is quite low due to the CA Group’s traditionally conservative approach to fund its lending business entirely with customer deposits.

Switzerland Raiffeisen Schweiz

Hilmar Gernet, Director, Delegate for Policy, Co-operative and History Could you briefly describe the origins and historical milestones in the development of your co-operative banking group? Raiffeisen thus became the principal bank of Following the example of Friedrich Wilhelm the broad middle class. The number of inde- Raiffeisen, Reverend Johann E. Traber (1854 pendent Raiffeisen co-operatives peaked in - 1930), son of a joiner, created the Spar- 1986 with 1,229 institutes – from then on, und Darlehenskassenverein Bichelsee- the bank’s areas of business circles were Balterswil in Canton Thurgau in Eastern Swit- expanded and banks began to merge. zerland in 1899. The first Swiss Raiffeisen For the first time in Raiffeisen’s history, institute aimed to increase wellbeing in the about 11,000 staff and board members con- community by self-help. In 1902, Reverend vened in Basle on 26 September 2015. Toge- Traber founded the Swiss Federation of ther, they set out the new fundamental Raiffeisen co-operatives, which was joined by strategy based on a five-year process. Accor- ten institutes. In 1936, the Federation ding to this, the heart of the Raiffeisen co- settled in St. Gallen, where it is still located operative group has been the values of today. Thanks to the important growth of ‘closeness’, ‘reliability’, ‘sustainability’ as well mortgage lending, Raiffeisen was trans- as ‘entrepreneurship’. formed in the 1960s from an agriculturally- based institute into a retail bank that now As the leading Swiss retail bank and ‘third also granted consumer credit. In order to force’ in the Swiss banking market, Raiffei- reduce the bank’s dependency on interest sen today has 1.9 million members and 3.7 margin business, the first diversification million clients. Assets amount to 228 billion strategy was launched in the 1980s, and Swiss francs.

Could you briefly elaborate on the mis- king services and price reductions on leisure sion and vision of your co-operative ban- activities. Closeness to the customer is ba- king group? sed both ideally as well as geographically on this business philosophy. In many cases, bank managers and staff know their mem- The new business principles on the future bers and clients personally. Each Raiffeisen orientation of the Raiffeisen co-operative bank has its own clearly defined geographi- group will be submitted to the 2018 assem- cal business area. bly of delegates. They include the following vision and mission: Raiffeisen banks are members of the Raiffei- sen Switzerland Co-operative, which is res-  Vision: Raiffeisen – THE Swiss part- ponsible for the strategic management of ner for living, working, assets and the group and provides central services for entrepreneurship the banks. The Raiffeisen group is a mutually  Mission: We open up the future. supportive, joint-liability community. This mutual responsibility between Raiffeisen banks as well as with Raiffeisen Switzerland What are the key features with respect signifies a high level of security for its mem- to membership and governance? bers and clients thanks to a well-endowed solidarity fund. Concerning governance, stability is provided by mutual controls and Participation and - co determination are at ‘checks and balances’ between the bodies of the heart of membership and governance at the co-operative group. Raiffeisen. Each of Raiffeisen’s current 255 banks is an independent co-operative with self-selected banking authorities. Each Raiffeisen bank is carried by its members. Their share certificates make the members co-owners of their Raiffeisen bank in the same measure. Members participate in the general assembly with their voting rights (one member – one vote) and thus represent their Raiffei- sen bank’s supreme body. They elect the board and auditors, vote on changes to the articles of incorporation, approve the annual accounts, issue discharge to the board and make other decisions such as, for example, on mergers with other Raiffeisen banks or modifying the branch network. Based on its co-operative model, each Raiffeisen bank’s economic policy is geared towards the sustainable funding of its members, who thus benefit from attractive interest on their shares, better terms for ban-

Looking ahead, what do you consider the The greatest opportunities for the Raiffeisen opportunities and challenges for your co- group are: operative banking group?  Social and political commitment: as a co-operative, Raiffeisen focuses on its The greatest challenges faced by the Raiffei- members’ benefits. Major importance is sen group are: placed on social and political commitment.  Digitalisation: Specifically, this can be seen in members’ reductions for sports’ and cultural events, Closeness to the clients: the many branches progressive working conditions, the promo- are frequented less and less and transactions tion of sustainable investments and in the are increasingly made online. The challenge Raiffeisen Forum, the first permanent mee- is to ensure the bank’s closeness to its mem- ting place for the economy, politics and so- bers and clients with fewer branches and ciety in Switzerland. In this innovative and larger banks. Such efforts are already sup- transparent political agora, new ideas or ported today by local, digital communication further proposals are introduced to the poli- channels that each Raiffeisen bank operates tical debate to contribute to the shaping of for its members and clients, as well as the the Swiss political landscape. Raiffeisen thus local public. contributes transparently to the democratic Flexibility and complexity: clients want more competition for political concepts and ideas flexibility from their banks in terms of time for the benefit of society. and place. However, there is still a demand for personal advice, especially on more complex subjects. The challenges faced by custo-  Co-operative model: mer advisors continue to increase. as a member of the IG Genossenschaftsun-  Competition & growth and regulation: ternehmen, the interest group for Swiss co- operative enterprises, Raiffeisen contributes competition for the internal Swiss market, to the promotion and contemporary deve- which has been rediscovered by major banks lopment of the co-operative business model UBS and Crédit Suisse, continues to increase. in Switzerland. Through its local co-operative Competitors from outside the field, i.e. pen- banks, Raiffeisen maintains its closeness to sion funds and insurance companies as mort- its members. This is the purpose of the gage providers, must be added to these. Raiffeisen Community: members can thus Navigating national and international regula- participate to an even greater degree and, tions is also becoming increasingly more especially, digitally. Together with the bank’s complex and time-consuming. As a co- staff, they will be included in the (further) operative, Raiffeisen is not looking for development of products. Their participation growth at any cost. Prudent credit policies, will increase and their trust in Raiffeisen as a restrictive risk control and non-participation lifelong, locally-based partner in financial in price wars are paramount for Raiffeisen. issues will be durably strengthened.

EACB Contacts: E-mail: [email protected] Phone: (+32 2) 230 11 24