A new report on the state of co-operative banking in Europe found that one in five Europeans is a member of a co-operative bank.
Drawn up by Prof Hans Groeneveld of Tilburg University, the research examines 18 co-operative banking groups in 13 European countries, comparing their performance to that of the entire banking sector. According to the report, which includes figures from 2018, the number of members of co-operative increased by 3.3% in 2018 to almost 85 million.
Co-operative banks attained the highest domestic market shares ever, with the loan and deposit market share rising by 0.5 percentage points. The market share was 23.1% for loans and 22.0% for deposits.
In terms of capital ratios, the average Tier 1 ratio of co-operative banks rose to a record high of 15.9, while declining to 15.3 for all other banks.
Co-operative banks provided more new loans to the real economy, reported a higher deposit growth, and reduced their branch network and employment to a lesser extent than all other banks, the report found. Furthermore, the sector expanded its loan portfolio by 4.7%; the highest increase since 2011.
Co-operative banks coped with a low interest rate environment with the return on equity of co-operative banks stabilising at 6.7%. Meanwhile, net interest income as a percentage of total assets has dropped from 1.5% in 2011 to 1.2% in 2018. Co-op banks had lower operational revenues in 2018, and as a result, the cost-to-income ratios of co-operative banks and all other banks rose by 1.5 percentage points.
Banks in the sector have also undergone mergers, leading to a decline in the number of local or regional co-operative banks. However, this decline slowed from 5.3% in 2017 to 3.4% in 2018. At the end of 2018, there were about 2,900 co-operative banks.
Branch closures are another change affecting the sector. In 2018, co-operative banks reduced their branch network by 3.1%, which is less that the 5.4% rate in other banks.
The research explains that while co-operative banks continue to operate with relatively dense branch networks and are physically close to their members, they are increasingly shifting from physical to virtual distribution channels for their products and services. These trends may erode various distinguishing features of co-operative banks, warns Prof Groeneveld.