We speak with Nina Schindler, the new CEO of the European Association of Cooperative Banks (EACB) to find out how the sector has dealt with Covid-19. A trained lawyer, she joined the EACB in February 2020 from Deutsche Bank where she was MD.
How were your members impacted by Covid-19?
Co-op banks saw the effects of the crisis through their clients, with the lockdown representing an immediate loss of revenue or income. This resulted in liquidity shortages and loan repayments becoming difficult. March and April of last year saw a particularly high rise in request for deferral of payments. To remedy this, they put in place different loan repayment deferrals and moratoria – public and private. They also supported other government support schemes focused at overcoming liquidity shortages. It was a steep learning curve but made a significant difference to our clients.
EACB members also had to manage the more practical effects of lockdown on their own organisations – reduced availability of staff in the beginning because of Covid-19 absences, how to provide access to financial services to those customers less agile with digital tools, and moving entire organisations to work in virtual mode. This created challenges, but they have mostly been overcome.
Were co-operative banks more resilient than other banks?
By now, the entire banking sector has mastered the problems quite well. Banks were able to provide solutions for their customers and so far helped to mitigate the economic downturn and its effects on customers quite efficiently. Certainly, co-operative banks tend to be among the better capitalised and therefore more stable institutions. Moreover, our member banks take a lot of initiatives to support their members and customers. Especially in the crisis, co-operative banks remain committed to fully supporting the local economy and try to act as stabiliser.
However, we are only in the middle of the crisis and we have not seen the entire story yet. The economic situation in some sectors is severe. The exit from the pandemic and the corresponding end of public support measures may also turn out to be a difficult phase. I have no doubt that co-operative banks will be able to master the situation. Many companies, however, do not need a bank loan if they want to move on, but immediate financial public support.
Does membership of co-operative banks generally increase during times of crisis?
Membership is what distinguishes co-operative banks from all other banks. Although the figures for 2020 are not yet available, according to a recent publication (European co-operative banks in 2019: a concise assessment, Tilburg University) in 2019 we experienced a net membership increase of 1.3% to 86 million members. On average, more than one in five inhabitants in the 13 European countries under review is now a member of a co-operative bank. During the crisis, we have acted as a stabiliser and allowed customers to get through this difficult period. These are the circumstances where the co-operative structure shows its added value by supporting their clients as they are not based on shareholder value, but long-term customer relationships. We have shown our capacity to remain stable and that is what matters for our members in order to keep their trust and attract new ones. Since 2007, our sector has experienced an acceleration in loan and deposit growth (6.1% in loan expansion and 6.4% in deposit development for 2019) and that trend will certainly keep consolidating and developing after the crisis.
How could regulators support co-operative banks to ensure they keep lending?
In the past year, swift action from regulators and supervisors was certainly key to ensuring that credit continued to flow into the economy. In some countries (e.g. Italy and Spain) public moratoria are still a reality – this should be considered and supervisory flexibility continued.
As most countries come out of the most acute phase of the crisis, and a number of support measures are discontinued, it is key to avoid cliff edge effects that can lead to sudden build-up of capital needs or operational constraints. Therefore, action on the side of the management of non-performing loans (NPL) and provisioning could be helpful.
Moreover, a wider reflection on the mechanics of the capital buffers’ system should be undertaken: it has been noticed how, despite supervisors releasing the buffers, banks were reluctant to bite into them due to implicit market perceptions and expectations. Finally, the EU is moving towards the launch of the legislative process to implement the remaining Basel reforms. These are anticipated to have massive capital impacts on EU banks. We believe that the implementation process should be postponed at least until the recovery is well under way and then take into account the very nature of EU banking and credit markets, which are much less geared towards capital markets for both institutional and cultural factors.
What are EACB’s key priorities?
Beyond what I mentioned above, climate change and digitisation are high on the agenda. The work of the European institutions on sustainable finance continues at pace. Co-operative banks highly welcome the sustainable finance project. With their large SMEs and consumer customer base, co-operative banks are well placed to support moving our society to a more sustainable economy and to accompany the transition at local level.
Having said that, the European Commission’s sustainable finance framework literally requires all hands on the deck to bring on paper concepts practically and efficiently to the market.
Additionally, the European Commission’s agenda “to make Europe fit for the digital age” is moving full speed ahead. The digital transformation of the co-operative bank model, which is based on proximity to customers, is a key challenge. The many new technologies, such as AI, Blockchain, the cloud, APIs and the increased computing power that has become available, can help but also pose some risks that need careful evaluation in the respective policy debates.
I strongly believe that our members’ experience during the Covid-19 pandemic combined with the EU Commission’s sustainable and digital finance agenda, provide an important foundation for further evolving the concept of “relationship banking” that characterises co-operative banks.
Additionally, there are an upcoming number of reviews –including those of anti-money laundering legislation, consumer protection and financial markets legislation – that require our attention.