A firm-level analysis of development banks in Europe

Abstract

Summary: We perform a cross-country firm-level analysis of all development banks headquartered in Europe. The goal is to investigate their financial profile and efficiency characteristics and to shed light on some crucial issues, which may underline their capacity to raise external sources of finance in addition to capital contributions from shareholder governments (e. g. their capital generation and cost efficiency, the quality of their loan portfolio, the composition of their sources of finance). A financial statement analysis of their accounting features is cogent in the light of the relevance attributed by European policy makers to the economic and financial sustainability of development banks, given the key role they have been called to play in the European economy since the 2008 crises. Indeed, although development banks have goals that go beyond profitability, they need to combine their socio-economic goals with conditions of efficiency and profitability, in order to “stand on their own feet” and secure a reasonable level of financial strength and stability. We first map all development banks headquartered in Europe. We then collect financial information within the reference period 2008 – 2018 for the whole population of development banks. We also split the sample according to size, in order to assess their dimensional heterogeneity. This study provides policymakers with quantitative information on the economic and financial profile of contemporary promotional financial institutions, which may be valuable in the current debate on their role and relevance in Europe.

Innovation and Global Sustainable Development: What Role for Development Banking?

“…Additionally, especially in developed countries, development banks have been increasingly tasked with addressing specific challenges related to inclusive and sustainable development. To this aim, their efforts increasingly align with the Sustainable Development Goals for 2030, including combating climate change and ensuring environmental sustainability with a focus on innovation in renewable energy sources and food security [2, [9][10][11][12][13][14]. CPI [15] indicates that climate finance constitutes a growing proportion of development banks' business activities, accounting for an average of nearly 30%.…”

“…Financial sustainability stands out as a crucial aspect. While development banks have broader objectives beyond profitability, they must balance socio-economic goals with efficiency and profitability requirements to ensure their financial strength and stability [9,78]. As argued in [14,79], considering socio-economic goals and financial stability together is crucial for achieving a balanced and effective approach.…”

“…To this aim, it is desirable for the size of public banks to be proportionate to their mandate. Smaller development banks face potential limitations, as highlighted in [9]. Their lower financial leverage ratio results in reduced capital generation, even with similar profitability levels.…”