Germany's church banks: Who uses them?

Major banks, private banks, savings banks, cooperative banks, farmer's cooperative banks — there are around 3,000 such institutions currently operating in Germany. And they include a few that people might be surprised to see on the financial markets these days: two Protestant and five Catholic church banks, handling billions of euros between them.

The Protestant Bank for Church and Deaconry (KD-Bank), for example, based in Dortmund, is now one of the 30 biggest cooperative banks in the country, with a balance sheet of around €7 billion ($7.8 billion). The total assets of the Catholic Bank in the Diocese Essen (BiB) are similarly substantial, at €6.5 billion.

However, customers are not required to make a profession of faith when opening an account. The KD-Bank and BiB operate on financial markets as all-purpose banks, offering all the usual services for private customers, from purchasing loans to real estate finance.

Origins in the 1920s

Like most church banks, the KD-Bank was founded in the 1920s as a church loan cooperative to finance church and charitable institutions.

"Our founder, the theologian Martin Niemöller, wanted to build a kindergarten, but he couldn't get a loan from either savings or state banks," says Ekkehard Thiesler, the KD-Bank's board spokesperson.

Thiesler says the focus of the bank's business activity hasn't changed since it was founded. It extends credit to customers from the Protestant Church and its social and welfare institutions to fund their projects, which include social real estate, hospitals, kindergartens and schools. "We're also happy to finance social and ecological projects," he adds. "We've extended loans of around $3 billion for these purposes."

Thiesler gives the example of a youth welfare center constructed in Munich. The KD-Bank also provides loans to support the building of new affordable housing as well as the renovation of older buildings, so that people with longstanding connections to an area can continue to live there in age-appropriate accommodations.

Tight margins

Churches could, of course, also take out loans from commercial banks to fund their projects, says Professor Stephan Paul, Chair of Finance and Banking at the Ruhr University Bochum.

However, in his view, church banks have specialization advantages in this field, as they have "always financed investments in the construction, maintenance, modernization, and expansion of such buildings, and this is their main focus." They also frequently offer better conditions than big banks.

Of course, church banks can't simply hand out money. However, Thiesler stresses that, for a cooperative bank, the point is to promote social projects, not maximize profits. They aim to establish a long-term business relationship with the customer, not least "by offering good, fair conditions on — and I say this quite consciously — tight margins," says Thiesler.

When banks work within these tight margins, it's not to their own disadvantage. Church banks are no different from commercial banks in this respect. Last year, the KD-Bank, which has 250 employees, generated a surplus of €11.8 million.

Its owners are now in line to receive a dividend of 4% per share. The majority of shares are held by members of church institutions.

By comparison, Sparkasse Dortmund, a savings bank, has some 1,520 employees and serves around 300,000 customers. It recently reported a net profit of €8 million.

From specialized to universal banks

In addition to its traditional clientele from the church and its social and welfare projects, the KD-Bank's customer base now includes around 28,000 private customers, many of whom are also professionally or voluntarily active in this sector.

Private customers now contribute 10% of the balance sheet total. Public finance expert Stephan Paul is not surprised that people increasingly treat church banks as universal banks. "A lot of customers appreciate the all-round service provided by a single bank," he says. "They don't want to have to take out a mortgage from one bank and lease their car through another." And the interest rates offered by church banks on short-term loans or fixed deposits are comparable to those of large commercial or savings banks.

This is also true of the Catholic cooperative bank BiB. As with the Protestant KD-Bank, BiB focuses on financing social facilities, from elderly care to hospitals.

With just 180 employees, BiB has €6.5 billion on its balance sheet — and according to its board spokesperson Peter Güllmann, the bank wants to use this money to make a difference. "We are the church bank with one of the largest loan portfolios: more than €4.5 billion."

Güllmann highlights a fund that finances microcredit institutions worldwide, providing microloans to people in developing countries, as part of the bank's social-ecological business policy. "We finance a total of more than 750,000 people worldwide with our microcredit fund," he says.

Focusing on private customers

However, the church banks are tiny in comparison with the big financial institutions. For example, in 2023, Deutsche Bank had more than 90,000 employees, and a balance sheet totaling 1,300 billion euros.

But church banks convey a sense that it is possible to reconcile money and ethics when making financial investments. And they are not just interested in the balance sheet. Last year, BiB recorded 1,500 new private customers, and the number is growing.

According to Güllmann, private customers now account for almost 15% of the bank's business volume. "Private customers are an important target group for a bank with a social-ecological orientation. We're not a bank that focuses just on institutions. We want to have roots in the wider population as well."

Being rooted in society means offering customers consumer loans and real estate financing, says Güllmann. Last year's balance sheet shows that the BiB's bankers know what they're doing: After taxes, the bank's profit was more than €30 million.

And while church institutions may be able to get loans at favorable rates, they do still have to pay interest. The dividend for members of the church cooperative bank has been increased, to 3.5%. "Ethics and returns go together, fit together, and belong together in our bank," says Güllman.

This article has been translated from German.