In a first time, the following section aims to compare the results found to existing reports on older periods and periods that overlap this research time horizon. In a second time, it will pinpoint some limits of this thesis, mostly related to the results accuracy due to the sample size and the methodology used. In a third time, suggestions and recommendations to improve the quality of this work and go even more in-depth.
The topic of this research is sustainable and systemic banks performance in European Union from 2014 to 2018. This subsection will place into juxtaposition this thesis' results and the results found in the Fondazione Finanza Etica report and the GABV report. Hence, the comparisons will be done following the methodologies used in the two reports which are identical. The first comparison will be done with European banks (not only European Union banks). The loans to assets ratio and the equity to total assets ratio will be compared considering 2016, the last year of the study to identify the differences between Europe and the European Union. Then, still with these two ratios, the last year of this study, the evolution between 2011 and 2018 will be observed. Obviously, as some differences will be diagnosed between Europe and European Union banks, the evolution between 2011 and 2018 will not be fully accurate.
Furthermore, other ratios’ (growth ratios, ROAA and ROAE) the five-year average (2014 to 2018) will be compared to the EBI report’s five-year average (2011 to 2016) to highlight the impact of years 2017 and 2018. The second comparison will be done between European Union bank and worldwide banks (including the banks in European Union). As for the first comparison, the loans to assets ratio and the equity to assets ratio will be compared considering 2017, the last year of the study to discuss the disparities between the European Union’s results and the world’s results. Then, the same path will also be used for analyzing the evolution between 2012
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and 2017. Moreover, the other ratios’ (growth ratios, ROAA and ROAE) five-year average will be contrasted, using the same methodology as for the first comparison.
All the banks included in this thesis’ sample are part of the Fondazione Finanza Etica’s report’s sample too. It includes 21 sustainable banks and 15 systemic banks. Hence, we can expect more variations in sustainable banks’ results. Thus, in Europe, in 2016, the loans in the percentage of total assets represented 73.42% for sustainable banks and 38.53% for systemic banks. In our study, the percentages found are 72.4% for the sustainable banks and 39.19% for the systemic banks. About the equity to total assets ratio in Europe, in 2016, sustainable banks have a percentage of 11.22% against 5.63% for the systemic banks. In the European Union, the equity to total assets rates calculated are 19.12% for sustainable banks and 5.34% for the systemic banks. Hence the sustainable banks in our sample perform better on this ratio compared to the average European banks. Now, considering the evolution between 2011 and 2018, a small fall can be observed for the sustainable banks’ loans to total assets ratio (75.25% versus 71.68%) contrary to systemic banks that overperform (34.62% against 41.29%). About the equity to total assets ratio, ethical banks record a growth (11.22% against 18.76%) between 2011 and 2018.
However as seen previously, this rise may be due to the sample studied rather than a concrete growth. From the systemic banks' side, a little increase happened (4.39% versus 5.65%). About the five-year average ratios, we can observe for sustainable banks, a higher average rate for return on average equity (ROAE) (3.26% in 2011, against 4.40% in 2018), total assets growth (9.03% against 35.51%), loans growth (8.53% against 34.76%) and equity growth (9.04%
against 34.09%). The three growth rates are much larger in 2018 than in 2011. This is mainly due to the large increase in 2017 in equity and loans. For the systemic banks, higher five-year average rate for ROAA (0.19% in 2011 against 0.21% in 2018) and net income (598% against
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-1). There may be a difference in the way of compounding net income growth rate rather annual as the biggest rates of return are, in our sample, 2015 and 2016. Indeed, Fondazione Finanza Etica used the compounded annual growth rate while in this study the annual growth rate (see in methodology) was calculated. Thus, we can find two explanations about the evolution between 2011 and 2018. It may be related to the recent years' performance (2017 and 2018) for some ratios such as for total assets. Nevertheless, the two last years’ performances are quite good compared to the previous years studied. Hence, the gap may be explained by good performances in 2011 and 2012 and poor performances of the following years. Globally, our sustainable banks’ sample record better results than the sample from the Fondazione Finanza Etica report. This is linked to higher performances in 2017 mostly. The difference about being a member or not of the European Union do not seem to have a big impact on the performance.
In this second comparison, the results found in this thesis about the European Union will be contrasted to the results of all the banks in the world. All the sustainable banks of the thesis’
sample are also part of the GABV report sample as they are part of GABV in Europe. The GABV sample includes 44 ethical banks and 30 systemic banks. Hence, the loans in the percentage of total assets, on average worldwide, in 2017, was 71.8% against 69.28% in European Union for sustainable banks. Thus, European Union banks from our sample seem to be on the global average. The same observation can be done for systemic banks. The global rate for 2017 was 41.5% against 41.29%. About the equity to total assets ratio, EU sustainable banks appear to have a stronger position compared to the worldwide average (18.78% against 8.3%).
However, systemic EU banks are a little under the global mean with only 5.64% versus 7.4%.
Considering the evolution between 2012 and 2017, on a global perspective, the loans to assets ratio remains constant (71.6% in 2012 versus 71.8% in 2017). This evolution is similar for the
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period 2014 to 2018 for sustainable banks. A slight increase between 2012 and 2017 occurred for worldwide systemic banks as for EU systemic banks between 2014 and 2018. For the equity to total assets ratio, the average of global sustainable banks keeps the same position such as the EU banks between 2014 and 2018. On their side, between 2012 and 2017 global systemic banks record a small rise in their equity to total assets ratio such as the EU systemic banks between 2014 and 2018. Hence, for these ratios in general, EU banks seem to follow the global banks' trends. Then, about the five-year average ratios, EU ethical banks higher total assets, loans and equity growth than the global average. But it is not the case for the ROAA and ROAE. The period of comparisons is not exactly the same, from 2014 to 2018 for the EU banks and 2013 to 2017, for the global banks. However, if the growth ratios are higher in the EU, it is mainly due to the year 2017. About the systemic banks, almost all the ratios show an underperformance of the EU systemic banks compared to the rest of the world. Several studies have already shown the underperformance of EU banks in contrast to US banks in the near past, and this study reinforces this position for more recent years.
The comparisons done above cannot be considered as totally consistent due to several limits which need to be identified in this research. Once, this will be done, it will help the future research community to improve the results and the analysis of this thesis. The first limit is the sample size. Indeed, the sample size is quite small because of a sum of difficulties : the period studied is very recent meaning the banks financial statements were not all available at the time of this thesis, the language and presentation of the balance sheets (some banks do not put every time the same assets in the same asset class) and the lack of data about savings accounts interest rates. In any way, while starting this research, it was obvious that the results found will not be statistically verified because of the limited number of banks, not permitting to reach the number
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of one hundred observations and perform some regressions. The second limit of this thesis is the choice of the indicators calculated. Indeed, some other performance indicators could have been added but it was decided that it was more consistent to follow the methodology tracked by the GABV and the Fondazione Finanza Etica in their reports. Two derogations were done for the ROAA and ROAE, calculating these ratios rather than the systemic ROA and ROE presented in the reports because of the better adequacy of these ratios for the banking sector.
Therefore, about the indicators’ calculations, they cannot be totally exact because of the rounded amounts given in the balance sheets as all the values are in millions or even billions. Also, all the members of the European Union did not adopt the euro, so it was necessary to convert all the local currencies and even the euro into the dollar. This choice was done to be able to make a comparison between the results of this study and the existing literature. Indeed, due to inflation, it would not have been possible to compare values in different currencies. Hence, as the accounts are always presented at the December 31st, the exchange rate applied for every currency was the December the current’s year exchange rate for each year. This can be considered as a bias in the calculations. All the bias evoked were considered before starting this study. Hence, the errors they could create have already consented.
The previous bias mentioned should be taken into consideration for future studies on this topic.
Also, if the research is carried on for more than a semester as it was the case for this thesis, it may be easier to gather more data by contacting the banks. Although this was done in the case of this study, many banks took a long time to answer and even more, to find a date for a potential interview. Furthermore, some other performance and risks metrics could be added to this study such as the deposits to total assets ratio, the debt-to-equity ratio, the loan loss provision, the earnings retention, etc. This list is not exhaustive and only indicative.
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6. Conclusion
The banking industry such as many other industries may drastically change in the next decade due to the climate change threat. Indeed, a radical change in our lifestyle, especially in developed countries like Taiwan or European countries, is necessary.
The change will pass through three drivers: governmental regulations, populist pressure and switch of capital flow. Hence, sustainable investment is one the keys to change. Investment industry covers many asset classes such as mutual funds, stocks, bonds, cash and cash equivalents. Most of the existing literature failed to show an outperformance of SRI over their systemic counterparts.
In this thesis, by doing a comparison between sustainable and systemic banks, an under-researched asset class has been studied: cash and cash equivalents, and more precisely deposits.
Following some existing methodology about performance, adding some new criteria unconsidered at the moment, and suggesting the idea of risk assessment, the main contribution of this thesis is to open the door to some further analysis. As presented, during the five years studied, some performance indicators such as the ROAA and ROAE were higher for sustainable banks than systemic banks on five year average. Several reasons were advanced in thesis to explain these gaps. Sustainable banks have higher level of equity and lower level of debt, making them be safer than systemic banks. Also, the impact of the financial market activities on banks’ performance and their level of risk could be an argument. This last point needs further research to see if financial market activities and ROAE and ROAA are positively correlated.
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Many limits were pinpointed in the discussion, demonstrating some weaknesses in the accuracy of the results. However, the assumptions stated in the beginning still found some answers. From an investor’s perspective, considering the neglecting gap in the interest rates offers between ethical and systemic banks, sustainable banks can be a suitable option now and probably even more in the future. With a more solid structure, the sustainable banking industry growth, the transparency and the opportunity to do good without much effort, if not to learn about the accounts proposed by ethical banks, the sustainable banking sector will hopefully progressively shake the large systemic banks.
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7. Bibliography
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8. Appendices
Appendix 1: “The two teams compared in the research” – Fondazione Finanza Etica
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Appendix 3: Systemic banks' ratios from 2014 to 2018
Appendix 4: Evolution of the equity growth
Appendix 5: Evolution of the loans growth
Appendix 6: Evolution of the total assets growth
Appendix 7: Evolution of the net income growth
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Appendix 8: Evolution of the equity growth
Appendix 9: Evolution of the loans growth
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Appendix 10: Evolution of the total assets growth
Appendix 11: Evolution of the net income growth
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Appendix 12: Standard deviations
Appendix 13: Sustainable banks' interest rates
Appendix 14: Systemic banks' interest rates