profitability or sustainability, which one goes first?

www.triodos.com/en/about-triodos-bank/

Triodos bank claims to be a sustainable bank.

Let's take a look to their balance sheet to check how they do business. As a matter of fact Triodos is a very small bank. As at 31/12/2010 total assets were €3.5 bio., with the following breakdown:

Liabilities: deposits from customers 87%, equity 10% , the rest 3%
Assets: 61% loans, 17% deposits in other banks, 17% in investments, the rest 5%.

Therefore, of the total money you deposit in the bank more than 50% is lent, but the rest is invested in government bonds (mainly Dutch and Belgian bonds) or in other banks (as ABN, Rabobank, ING, Barclays, etc.).
Could you make the investment in bonds or the deposit in the other bank directly without an intermediary like Triodos? Well, this is not how the system works.

More than 80% of the loans granted by Triodos are on periods beyond one year (of which 60% beyond 5 years), and the deposits from its customers are short term, so they need a liquidity cushion just in case customers become crazy and claim their funds back. Apart from that it's not that easy to find sustainable companies to lend them money.

And the profit and loss acccount?
Total income is mainly composed of €100 mio. of interest (average interest rate of 4% on loans and investments) and €34 mio on commisiosn (management fees).
Interest expense is €38 mio., with an average rate of 1,25% paid on deposits.

To make sustainable banking, a difference of margins between what you charge and what you paid of 2.75% is not that bad.

So the margin is €100 mio. approx. Is that profit? No, you still have to pay salaries and social expenses, with a total workers expenses of €40 mio. (with 559 average workers during 2010, results in a cost of €71.000 per employee), and other expenses (office, advertising, travel, etc.) of €33 mio.

It's not that easy and cheap to lend sustainable money! 

Triodos publishes the salaries earned by its executive board, composed only by 3 persons (three men, this of course does not change from a normal bank)

After adjustments, write offs and taxes, net income is €11.5 mio., of which 80% is distributed as dividend.

Who are the final holders of the depositary receipts of Stichting Administratiekantoor Aandelen Triodos Bank, 100% owner of the bank? According to the annual report, 12 financial institutions and pension funds own 41% of the bank shares (receipts), being the most important Delta Lloyd, Friesland Bank, Stichting Pensioenfonds ABP, etc.

Now imagime you are a Spanish resident and think about putting your money in a sustainable bank like Triodos. Let's see how they do business in Spain.

With a porfolio of €456 mio. Spain represents more than 20%  of total loans of the group (remember, loans are 60% of total balance sheet).
Which are the criteria for lending?:

Lend to companies that improve the quality of life of people and respect the environment!

Triodos, as rara avis, is publishing the list of their borrowers, but without giving details on the amounts, conditions and guarantees they request to lend.

It seems that in Spain it is more difficult to find sustainable borrowers, because almost 60% of total loans are granted in the sector of renewable energy (289 projects at an average of €1 mio. per project). Most of the projects are related with solar plants. These plants are not profitable, and the only way they can survive and pay back their loans and make a profit  is through the premiums received from the Government. So if you are Spanish, paying taxes and the electricity invoice you are already contributing to solar energy projects and making them profitable. If additionally you put a deposit in Triodos, that uses it to lend money to investors in the sector, you will become fully sustainable.

Well, they also lend to companies that manufacture prodcuts for the solar industry, as Siliken:

Siliken invests in Mexico because operating costs are cheaper. Sustainable but not stupid!

Oher important (but faraway from energy i  terms of percentage) sectors in which Triodos spends its lending in Spain are

healthcare:

organic food:

recreation/leisure:

philosophy of life:

It seems the credit risk officer of Spain likes budist centres, for Triodos has financed quite of them.


and you can even obtain a mortgage loan on your house; remember the price does not count, it is the sustainability:

without forgetting the social business:

Given the economic climate, is it Triodos bank going to suffer? Probably provision losses will sharply  increase in 2011, especially in Spain, (sustainable borrowers also default), and total profit of the bank (€11 mio.) does not allow for many surprises.

Does it mean that you have to be worried if you put money in Triodos? Well, they seem to have enough equity (with banks you never know), but the most important is:

As the register in Bank of Spain says:

Triodos is  a branch of a Dutch bank, and as such you are protected by the DGS guarantee, up to €100.000

In conclusion, a bank is a bank, for more sustainable it is.

Sometimes, the election between heroes and ghosts is not easy, but if you have to choose among Santander, BBVA, La Caixa, any other Spanish or foreign bank and Triodos for making a deposit, I think there is no doubt at all.

But if you want some help, try to take a look to any of the videos produced by companies financed by Triodos:

http://www.lapepaproducciones.com


http://vimeo.com/2659592