The debate over reviving co-operative banking in Cyprus is gaining momentum, 13 years after the banking crisis and eight years after the collapse of the island’s co-operative sector.
Interest has returned as consumers raise concerns about limited competition in banking, low deposit returns and high borrowing costs for some small and medium-sized businesses and households.
The main question is whether Cyprus can build a new co-operative banking institution without repeating the mistakes of the past.
Although the model collapsed in Cyprus, figures gathered by Phileleftheros show that co-operative banks continue to play a major role across Europe.
According to the European Association of Co-operative Banks, about 2,400 co-operative banks currently operate in Europe, serving more than 91 million members and 228 million customers and employing around 747,000 people.
Their share of the European banking market is close to 20%, making them one of the main pillars of the continent’s financial system.
They have also increased lending to households and businesses while maintaining a Tier 1 capital ratio of more than 19%, a particularly high level for the banking sector.
Strong presence across Europe
Contrary to the view often expressed in Cyprus, co-operative banks are not an outdated model.
They rank among the strongest financial institutions in countries including Germany, France, the Netherlands, Austria and Finland.
The model has its strongest presence in five countries:
In France, Crédit Agricole, BPCE and Crédit Mutuel control about 60% of the retail banking market.
In Austria, Raiffeisen holds about one third of the market.
In Italy, the Banche di Credito Cooperativo network has about one third of the market across several banking activities.
In Finland, OP Financial Group controls about one third of the market.
In the Netherlands, Rabobank holds a dominant position in agricultural finance and a strong share of deposits.
Three of Europe’s largest co-operative banking groups — Crédit Agricole, BPCE and Rabobank — are also among the continent’s biggest banks.
Their size shows that the co-operative model can combine a local focus with large-scale operations and a strong capital base.
Co-operative banks have an even larger role in financing small and medium-sized enterprises.
Their estimated share of SME lending exceeds 50% in France, stands at about 39% in the Netherlands, 38% in Finland and 32% in Germany.
Direct comparisons are difficult because some countries measure market share through deposits, others through lending or total banking assets.
However, the latest combined figures from the European Association of Co-operative Banks and related studies provide a broad picture.
In France, co-operative banks account for an estimated 60% of deposits and 59% of loans.
Their shares stand at 35% of deposits and 34% of loans in Austria, about 33% of both deposits and loans in Italy, and 34% of deposits and 33% of loans in Finland.
They hold about 32% of the market in Denmark.
In the Netherlands, they account for 36% of deposits and 19% of mortgages, while in Germany they hold 21% of deposits and 23% of mortgages.
Their role is smaller in Portugal and Spain, where they hold market shares of about 12% and 7% respectively. Their presence is also limited in Belgium and Greece.
Why some co-operative banks succeed
Experts attribute the success of European co-operative banks to four main factors: professional and independent management, strict supervision and internal controls, conservative lending policies and co-operation between local banks through strong central organisations.
The model is not built around maximising returns for shareholders.
Instead, it focuses on serving members and local communities while maintaining high levels of capital adequacy.
Cyprus followed a different path.
After the financial crisis, it emerged that the co-operative sector had accumulated a very high proportion of non-performing loans.
Factors that worsened its position included loose lending practices in previous years, weaknesses in corporate governance, inadequate control mechanisms and the wider effects of the economic crisis.
The state recapitalised the co-operative sector, but the restructuring process failed to produce the expected results.
In 2018, the healthy part of its banking portfolio was transferred to Hellenic Bank, while the troubled loans were moved to Kedipes.
Economists say the Cypriot experience does not prove that the co-operative model itself is flawed.
The performance of co-operative banks in Germany, France, the Netherlands and Austria shows that the model can be highly successful when backed by strong corporate governance, effective supervision and strict risk management.
Cyprus’ failure is therefore seen as the result of specific weaknesses in management, lending and crisis handling rather than an inherent weakness in co-operative banking.
Same supervision as other banks
Co-operative banks in Europe operate under the same regulatory framework as all other banks.
Large co-operative groups are supervised directly by the European Central Bank through the Single Supervisory Mechanism, while smaller institutions are monitored by national authorities under ECB oversight.
The rules governing capital adequacy, risk management, corporate governance and depositor protection are the same as those applied to commercial banks.
Smaller co-operative banks are supervised on a day-to-day basis by national central banks or other relevant authorities, under the ECB’s broader supervision and coordination.
In Germany, oversight is carried out by BaFin in co-operation with the Bundesbank. In France, it is handled by the Autorité de contrôle prudentiel et de résolution, while in the Netherlands it falls under De Nederlandsche Bank.
The European Banking Authority does not directly supervise banks.
Its role is to issue common supervisory rules for all member states, ensure they are applied consistently and co-ordinate EU-wide stress tests.
Europe’s experience shows that co-operative banking is not a remnant of the past. It continues to grow and remains an important part of the banking system.
For Cyprus, the debate is not about restoring the old co-operative sector.
It is about whether a new co-operative banking organisation can be created in line with modern European requirements.
Its success would depend not on its legal form, but on its management, transparency, capital strength and ability to operate under the same strict rules as every other European bank.