Performance Comparison of European Cooperative and Commercial Banks in a Low Interest Rate Environment

Our aim is to empirically assess differences in behaviour and performance of European cooperative and commercial banks in a low interest rate environment. We employ dynamic panel data methods to assess the relative performance of both ownership structures based on a data set of nearly 1,000 banks from 11 European countries for the 2009-2015 period. Our findings are threefold. First, we find that commercial banks are more profitable than cooperative banks in all three metrics used (return on average assets, return on average equity and net interest margin). Second, commercial banks decrease their loan loss provisioning to maintain their profitability. Interestingly, this trend is not present in the financial statements of cooperative banks. Third, cooperative banks are significantly more stable than commercial banks in terms of Z-score. In addition, the Z-score of cooperative banks increased during the observation period, whereas the Z-score of commercial banks remained stable. Therefore, our results show structural differences in the priorities and behaviour of both ownership types in a low interest rate environment: European commercial banks focus on maintaining their profitability, whereas cooperative banks seek to increase their stability by increasing their capital buffers.