Profile: ProCredit Bank

Social Stock Exchange profile: ProCredit Bank

Orwell partner Gary Mead likes what he discovers about the ProCredit Bank

Can you think of a bank that offers a course on ‘The Rise and Decline of the Roman Republic’? Can you nominate a bank that might even think that offering such a course to its management trainees might make good sense for its business? Neither could I, until I encountered ProCredit Holding and its group of banks, one of the more recent recruits to the Social Stock Exchange.

I don’t have a lot of time for banks: their behaviour leaves almost everything to be desired, almost as if they see no responsibility for the systemic half-witted mayhem they helped create in 2008. In fact, the only bank I’ve had any respect for is the scrupulously squeaky-clean Handelsbanken of Sweden. Until now, that is.

The ProCredit group – an assortment of development-oriented commercial banks working in Southeastern and Eastern Europe as well as in South America, and which includes a German bank – is based in Frankfurt am Main, Germany. Many of the countries it deals with would not be given a second glance by most of the international banking giants – too risky, too esoteric…too undeveloped. In other words, precisely the kinds of territories most in need of the kind of responsible banking offered by ProCredit.

ProCredit is supervised by Germany’s Bundesbank and the Federal Financial Supervisory Authority. The group has a 42-page document entitled ‘Our Responsibility – Our Code of Conduct’, including an ‘exclusion list’ which stipulates that “no business relationship shall be established or maintained with clients engaged in any of the following activities”; the list is lengthy, detailed…admirable.

The group is also exceptionally transparent regarding its financial position; it’s rare these days to find such detailed reporting, and in its 2016 annual report, under the sub-heading ‘Our remuneration approach’ you find this rather unusual statement for a bank: “We…consciously refrain from the practice of giving bonuses as a means of incentivising our staff. We believe that such bonus payments can have a negative impact on the quality of advice provided to our clients and can even result in a degradation of relationships between colleagues.” I just had to put that in bold, in the vain hope that some bankers out there might read it and take note. ProCredit provides its middle and senior managers with training, in its own Academy, in “ethics courses covering the philosophical and ethical principles which have developed since Antiquity. Participants then correlate these principles with our specific approach to banking. We also conduct yearly staff workshops concerning our Code of Conduct.”

Of course, I have to take on trust all that ProCredit says about its staff, its Code of Conduct, how it has introduced a pay policy that seems in the best interests of its clients, and much other good stuff besides. It could all be eyewash. But I really doubt that.

In order to test for myself that ProCredit is as good as it sounds, I spoke to Borislav Kostadinov, who has been with the bank for 16 years and today forms one of the quartet of the management team. He started off by telling me why ProCredit decided to join up to the Social Stock Exchange. “We like the mission and the vision of the Social Stock Exchange and its founders and we would like to join with like-minded investors. We are convinced that this step will greatly support our successful strategy as the ‘Hausbank’ for small and medium-sized enterprises.”

Kostadinov (pictured above) emphasises the distinction between his bank and better-known banking brands. “We operate profitably but do business and achieve our results in a different way than a typical traditional commercial bank would. We want to be the local bank for SME entrepreneurs – who we assess via some very stringent lending criteria. First we ensure that their business activity is not on our exclusion list. Then we get to know the client and their business and vision. We look at the history and sustainability of their business model. We check whether they are paying taxes. We look at how responsible they are towards the environment they work in. All this assessment requires skill and experience from our Business Client Advisers [BCAs], as we call them. Each customer is somewhat different. And if we decide to lend to those entrepreneurs we then do a thorough environmental and social check; for each of the countries we operate in we have a different set of risk considerations. The core of our business is building a long-term partnership, becoming the local bank for the SMEs of those countries. We are definitely rather selective when it comes to customers, but once they are our customers we strongly support their businesses. Furthermore, the careful selection of customers with sustainable business models is also an important factor for managing our credit risk in order to safeguard our profitability.”

That kind of personalised, highly-tailored banking for SMEs is something else that is unusual in today’s banking sector – much to our loss.

What about ProCredit’s remuneration policy – doesn’t that make life difficult when it comes to recruiting and keeping the ‘talent’? Whenever the issue crops up of bloated bonuses in banking, the justification is “We have got to pay these bonuses because otherwise the talent will go elsewhere”. Which doesn’t ring true to me – does it to Kostadinov? “If you do decent banking, if you are part of the community, responsible to society and the environment you live in, I think the answer is pretty straightforward, that a banker, strongly motivated by a bonus, rather than the nature of the job he or she is doing, is undesirable. If bankers are well paid in terms of receiving a good, decent salary, enabling them to identify with the middle class in the countries in which they are based, then a bonus can only provide a wrong incentive. This is why we spend a lot of time on training, so that this is built into the ethical attitudes of our staff. The great effort we put into this works – if you look at our management level, on average people have been with the bank for 13 years. We believe the incentives are properly aligned to the job we are doing.”

And as for the course on ‘The Rise and Decline of the Roman Republic’, not even Handelsbanken offers its trainees such rarefied but ethically crucial courses as those ProCredit provides at its own training Academy. Kostadinov explains that such an education for its top managers involves 14 weeks a year for three years at the dedicated training centre near Frankfurt. “And it’s much deeper than that. At the entrance to the Academy is a statute commemorating the ‘Four Musicians of Bremen’, an old German folktale. The message of the story is captured in the terms heterogeneity, solidarity and modesty. It suggests a link to the way we see our role as financial intermediaries, and also our social mission. The corporate culture of the Academy – which was initiated by the guiding spirit of the ProCredit group, Dr Claus-Peter Zeitinger – can be summed up as tolerance and curiosity, rational thought and scientific method, solidarity and friendliness, values and principles.”

ProCredit, to my shame, is new to me. But now that I know it a little, no-one is more pro-ProCredit than I am. It has joined the Social Stock Exchange simply because it recognises a common cause – and its membership, by-the-by, further demonstrates how pan-European the Social Stock Exchange is becoming.