The year 2021 was again dominated by the ongoing COVID-19 pandemic, as new waves of infection, driven by further virus mutations, such as Omicron, affected the slowly emerging recovery of the global economy. The COVID-19 pandemic continues to challenge our thinking about the setup of our economy and how it contributes to a more sustainable and inclusive society.
This goes hand in hand with policy choices governments are making today and will determine their success in building a transition to a greener, more inclusive and resilient future. Triodos Bank sees this as a great opportunity to chart a path that empowers everyone to contribute by providing truly sustainable bank products and services towards its customers based on the 'Finance Change' initiative.
Over the last 12 months we continued to support our customers with robust and resilient bank services, while some customers in selective segments faced disruptions of their own business due to the direct or indirect impact of COVID-19 on the stability of the economy in 2021.
Our co-workers continued to work primarily from home and transitioned into the new way of working by applying the preferred future mixed model approach with flexibility to work from home and our corporate offices.
In February 2021, Triodos Bank applied for a public credit rating. Fitch assigned Triodos Bank a Long-Term Issuer Default Rating (IDR) of 'BBB' with stable outlook and viability rating (VR) of 'bbb'. According to Fitch: “Triodos Bank’s ratings reflect its established niche franchise in the sustainable banking segment and a sound record of execution on its strategy. The bank's adequate asset quality and healthy funding and liquidity profile support the ratings.”
The leadership transition within the Executive Board was successfully completed: we said goodbye to both Jellie Banga (former COO) and to Peter Blom (former CEO). We welcomed a new CEO, joining us from outside the bank, and a CCO and COO were appointed from within the Triodos Bank organisation.
Redesigning our capital instrument
While our capital base continues to be sound, we had to suspend the trade in Depository Receipts (DRs) on 5 January 2021, following a previous suspension in 2020. This decision was prompted by an insufficient prospect of a stable balance between inflow and outflow of DR capital within the regulatorily approved 'market making buffer' for Triodos Bank.
During the year, we assessed the possibilities of increasing tradability of the existing capital instrument, the Depository Receipts, as well as improving the possibilities of diversifying our capital base. Multiple criteria, like market regulation, the interests of all our stakeholders, the requirements set by regulators, our attractiveness to new investors, the possibility to access new capital and the impact on the banking organisation played a role in defining a way forward and were carefully weighed.
Even though the system of capitalisation through Depository Receipts has worked very well for forty years, it has reached the limits of its growth and tradability based on the strict regulatory requirements in combination with a disbalance between supply and demand for Depository Receipts. We had to realise that a growing Depository Receipt holder base combined with strict regulatory requirements for the ‘market making buffer’ of our Depository Receipts with a set trading price based on Net Asset Value (NAV) no longer meet the requirements of Depository Receipt holders' need for tradability and can no longer ensure at the same time the bank’s long-term access to core capital. The disbalance in supply and demand for our Depository Receipts in combination with a capped ‘market making buffer’ resulted in insufficient tradability of our Depository Receipts. As a consequence, Depository Receipt trade has been suspended, with the expectation that the maximum of the capped ‘market making buffer’ (regulatorily approved maximum of 3% of our core capital) would be reached in a short period. A re-opening of the current DR-trading system was therefore not possible during the year 2021.
On 28 September 2021 Triodos Bank announced that it had concluded that the current system of raising capital and tradability, through offering DRs to investors against a price based on NAV, had reached its limits. After careful consideration of a broader range of capital options it was decided to further elaborate on two capital instrument options that were considered feasible and suitable: a listing at a community-based platform (Multilateral Trading Facility), or a listing on a public stock exchange. Listing Depository Receipts on a platform outside of Triodos Bank will enable trade in Depository Receipts between current and new Depository Receipts Holders at a variable price.
Identifying a viable alternative for facilitating trade and creating an opportunity for potential access to new capital has taken a lot of time and work from a lot of people. Thanks to these combined efforts we were able to announce our decisions just before the end of the year.
On 21 December 2021 we announced that Triodos Bank will pursue a listing of its Depository Receipts on a Multilateral Trading Facility (MTF). Based on the insights gained from interactions with multiple stakeholders, Triodos Bank has concluded that a listing on an MTF will best serve its objectives and fits best as the next evolutionary step.
With a listing on a community based MTF platform, trade in DRs will be based on variable pricing. Both retail and institutional investors can access this new platform. Trading DRs on an MTF at variable pricing means that Triodos Bank itself no longer will be involved in trading DRs, and the DR trade will no longer be based on NAV. Performance, expectations, market developments, the ongoing commitment to the Triodos Bank mission and values, the level of supply and demand, and many other factors will together determine the trading price of the DRs once the listing takes effect. Based on current valuations of traded European financial institutions, at this moment it is to be expected that the variable trading price can be considerably lower than the former trading price based on NAV. We expect to be able to accomplish a listing on an MTF in about 12 to 18 months from December 2021.
As was to be expected, the announcement of our decision was well received by many and not so well received by some. This is understandable – we are after all dealing with a fundamental change for our Depository Receipt holders and their investment in our Depository Receipts, and a very personal topic: people’s own money and investments. We are convinced that the decision we have taken to pursue a listing on an MTF, is the best fit for Triodos Bank and in the best interests of its relevant stakeholders, including the community of investors. We did not come to this conclusion lightly. We considered many alternatives and consulted many stakeholders in the process. The focus now will be on making sure we implement our decisions as diligently and as quickly as possible, and to make sure we continue to be transparent about the intermediate steps.
Launching our first green bond
Towards the end of October 2021, Triodos Bank successfully issued a EUR 250 million subordinated green bond, having published a green bond framework shortly before. This green bond qualifies as Tier 2 capital in line with prudential requirements and supported the bank’s strategy to further diversify the overall capital base. The proceeds of the green bond will be used to fund lending in renewable energy, environmentally sustainable management of living natural resources and land use (Nature development and Forestry) and green buildings (commercial and residential), allowing us to play a leading role in promoting and driving the transition to a low-carbon and climate-resilient economy.
A strategy fit for the future
The regular strategy cycle, which saw us launch a three-year strategy in 2019, was affected by the advent of COVID-19. The disruption to the economy and to the organisation was considerable, making it necessary to reflect on the original plans and KPIs. In addition, with the strategic questions posed by the capital strategy, further reflection was required to ensure that the conditions for a listing on an MTF are optimised, supporting a successful listing as much as possible.
In July 2021, a new Corporate Development department was created to tackle these and other strategic challenges in a structured way. The team launched a review of the corporate, financial and impact strategy for the bank. We are also taking a thorough look at the ways we are organised, focusing on how we can make ‘One Bank, One Team, One Mission’ even more tangible and impactful.
The human factor
In Human Resources we made important steps forward with the Learning Hub, growing the catalogue of e-learning modules for mandatory compliance training and broadening the choice of digital training modules to enable co-workers to follow training programmes even when working from home. We introduced a new performance management methodology called 'FLOW' (Feedback, Learning, Objectives and Well-being), which encourages co-workers to take more ownership of their own development and employability.
We launched the ‘Green to Colourful’ initiative, a structured way to engage together into a dialogue about how we all can contribute to equity, diversity and inclusion within our organisation and kick-start self-driven initiatives.
We decided to structurally adopt more hybrid working, also after the COVID-19 pandemic recedes – and as a consequence we sold the Nieuweroord office in the Netherlands and consolidated all the Dutch activities in one building at De Reehorst. In Spain we also went from two to one building in Madrid, making more efficient use of the office space.
COVID-19 and the impact on our co-workers
The COVID-19 pandemic continued to have major consequences for us all in 2021. It also heavily impacted the way of working at Triodos Bank. The physical safety and mental well-being of co- workers were our primary concerns.
The continuously changing context created by COVID-19 posed different challenges for everyone in the organisation and therefore we did our best to provide support in a variety of areas.
Professional mental support, continued access to the office (if desired), home office equipment, childcare support and care leave arrangements have been provided.
We offered three fully booked and well-received open-enrolment work sessions 'turning restrictions into strength', with external coaches about the impact of working under COVID-19 restrictions and to the new possibilities that these experiences can offer for now and for the future of work (NL).
In a variety of formats and settings our Group-wide co-worker community discussed the desired post COVID-19 way of working. One thing we learned is the importance of staying connected to each other and to our mission for our co-worker's well-being and productivity. For Triodos Bank it is key to maintain a constant dialogue about the balance between co-workers’ individual preferences and their responsibilities.
Balancing growth and efficiency
This year again, it was clear that the financial sector has a role to play in addressing the climate, social inclusion and biodiversity challenges of our time by financing the right kinds of initiative. We continue to advocate for the conscious use of money and the enhancement of regulatory frameworks to ensure financial institutions take that responsibility. Regulators and governments are supporting this idea by introducing new regulations and sustainable finance frameworks.
At the same time, we must deal with the impact on our financial results of the persistently low interest rates set by the European Central Bank, and the increasing costs associated with meeting growing regulatory requirements.
In 2021, we took a number of measures to slow down the growth of funds entrusted and to offset the associated costs. In the Netherlands we introduced negative interest above the threshold of EUR 100,000 and a monthly fee on current and savings accounts. Nevertheless, the growth of funds entrusted continues, albeit at a lower pace. To safeguard a solid and sustainable financial performance, additional measures to contain the ongoing growth of funds entrusted will have to be considered.
We also improved our pricing approach for lending, making it more profitable. At the same time making sure we are not ignoring the need for advanced pricing for strategic projects and in sectors with a strong contribution to the mission, ensuring we can continue to fulfil our frontrunner role.
Given our role as gatekeeper we continue to strengthen our activities related to anti-money laundering and compliance, and hence have increased our investments and associated costs in these areas.
Triodos Bank has always been committed to improving environmental impacts and outcomes using a positive approach for both its banking services as well as its investment management activities. The global climate emergency is increasingly affecting people’s lives and impacting nature. Wildfires, heatwaves, heavy flooding, the loss of biodiversity - these events are all concrete proof of the need to urgently reduce greenhouse gas emissions well before the year 2050. We are in the decisive decade.
Early in the year, Triodos Bank became one of the first banks to join the Net-Zero Banking Alliance (NZBA), convened by the UN, laying the groundwork for the huge but critical challenge facing the global banking community. The members of the Net-Zero Banking Alliance commit to align operational and attributable emissions from their portfolios with pathways to net-zero by 2050 or sooner. We now need ambitious targets and faster action for the ultimate goal: a net-zero economy.
That is why Triodos Bank has set the high ambition to be net zero by 2035. This ambition covers both our banking and investment activities. Even for a bank which has been established with sustainability at its core and which boasts an already low carbon intensity portfolio, this is not an easy task.
Our target will serve as inspiration for our co-workers and all stakeholders that work with us to act faster and develop more robust plans as to how we, and ultimately the financial industry as a whole, will achieve net-zero ambitions. In formulating our science-based targets, Triodos Bank has adopted a holistic approach in support of our mission to create positive impact on people and nature. We can, after all, only get to zero as one.
Our ambition to reach net-zero
Triodos Bank wants to be net-zero as early as possible, at the latest by 2035. Our ambition is that the greenhouse gas emissions of all Triodos Bank's loans and funds’ investments will be greatly reduced, using a science-based targets approach. The remaining emissions will be balanced or ‘inset’ by investing considerably in nature projects that remove greenhouse gases from the air.
Triodos Bank was founded with a mission to make money work for positive change, using money consciously today without compromising the needs of future generations. We exist to help create a society that protects and promotes the quality of life of all its members, and that has human dignity at its core.
So, while addressing climate change is fundamental given its existential importance and urgency, there are many other impacts which we will address concurrently. In formulating its target, Triodos Bank has adopted a holistic approach in support of its mission to create positive impact on people and nature. We want to reduce emissions, respecting the planetary boundaries and social inclusion of all people. We believe we can only get to zero as one.
This choice presents us with practical dilemmas. For instance, regarding our mortgage portfolio. The easy choice would be only to provide mortgages for energy-efficient homes. However, we want to help finance a transition. So our new approach will be to prioritise homes with poorer energy efficiency in order to transform them (to at least an energy label B) so that they are ready to become zero-emission buildings when they switch energy source – for example when they connect to a zero-emissions district heating network.
We support EU regulation about sustainability in finance, to help direct money to the right types of finance and investment. We acknowledge the positive development of the EU Taxonomy but also strongly recognise that in the first year of the phased-in approach, a significant portion of our portfolio cannot be labelled as green according to the rules of the game within the EU Taxonomy, even though we believe our entire portfolio reflects our mission and frontrunner position as a values-based bank. While Triodos Bank needs to report on the EU Taxonomy, not all exposures fall under the current scope of the scheme and therefore cannot be assessed for Taxonomy-eligibility. For example, SMEs don’t currently qualify, and other types of impact are not yet embedded in the taxonomy. In the coming years, the screening criteria will be extended to the remaining environmental objectives. Additionally, the Taxonomy might be expanded to also define criteria for economic activities that contribute to social objectives.
Creating consciousness about money
With the money deposited with us by savers and lent to our entrepreneurs, we continue to finance the social and sustainable projects we believe will have a positive impact on society and the environment.
During 2021, Triodos Bank's mortgages, offered in the Netherlands, Belgium and Spain, have received the Energy Efficient Mortgage Label (EEML), a clear and transparent label that enables consumers, lenders and investors to identify mortgages that help make the built environment more sustainable. In the Netherlands we achieved the milestone of 10.000 mortgages.
Triodos Bank Spain successfully started with the distribution of investment funds from Triodos Investment Management and selected third-party distributors; in the Netherlands a new marketing campaign (Made for Change) called on citizens to embrace the change ability within themselves and put that ability towards nurturing positive developments in society. We made a public call for more ambition from other banks in Belgium to combat the climate emergency.
In the UK, we've been instrumental in the creation of investable business models connected to nature restoration, launching the first nature restoration bond. In Germany we have introduced a new managed investment account with the highest sustainability standards. Triodos Investment Management launched the Triodos Emerging Markets Renewable Energy Fund. And for the sixth year in succession Triodos Bank received the status of Most Active Lead Arranger in Clean Energy deals, proving that you don’t have to be big to have a lot of impact.
The Triodos Foundation celebrated its 50th Birthday and seven of the Gift Money initiatives of Triodos Foundation were featured in the top 10 of the sustainable top 100 in the Netherlands.
Triodos Regenerative Money Centre is one of the initiators of Aardpeer, which strives to secure agricultural land for at least seven generations and is committed to the transition to a social and nature-friendly food chain.
In March 2021, all funds of Triodos Investment Management were designated as Article 9 products under the new European Sustainable Finance Disclosure Regulation (SFDR) – this is the highest sustainability standard available. While this may seem logical, the response process was quite onerous given that the regulation was drafted with mainstream markets in mind and not for pure-play investors or pioneers like Triodos Investment Management.
On 9 February 2021, we announced the decision of Jellie Banga to step down from her role as Vice-Chair of the Executive Board and Chief Operating Officer (COO), effective 1 May 2021. In reviewing the scope of Jellie’s role, it was decided to split the role into a COO role – focusing on the operating side of the bank – and a Chief Commercial Officer (CCO) role - focusing on the commercial side of the bank. This brings the total number of Executive Board members to five.
As announced last year, Peter Blom stepped down as Chair of the Executive Board and Chief Executive Officer, after more than 40 years’ service in Triodos Bank, much of it as a member of the Executive Board. Peter said farewell at Triodos Bank’s annual meeting on 21 May 2021. In that same meeting Jeroen Rijpkema was presented to the shareholders and subsequently welcomed to the Executive Board as the new Chair and Chief Executive Officer. Following an Extraordinary General Meeting on 28 September 2021, Nico Kronemeijer was appointed to the role of Chief Operating Officer and Jacco Minnaar to the role of Chief Commercial Officer, effective per 1 October 2021.
In addition to Andre Haag's role as CFO, he temporarily took over the statutory role as CRO as Carla van der Weerdt is on sick leave due to COVID-19.
Dealing with dilemmas
Triodos Bank has defined clear business principles, minimum standards and lending criteria for assessing the type of entrepreneurs and initiatives it wants to finance or invest in. Our mission to create positive impact through the initiatives we finance and the products we offer, with human dignity at its core, regularly presents us with challenging dilemmas.
One such dilemma is offering business banking services to NGO’s and citizen charity initiatives that offer aid in countries where there is conflict and where possible sanctions apply.
We recognise the tension when it comes to these initiatives: some see offering aid to people in countries that are at war for instance as crucial humanitarian aid, others see it as a possible cover for illegally channelling funds to foreign regimes. As a bank we have a duty to ensure that our products and services are not abused for unlawful and undermining financial activity. This means that we must be very demanding of our customers in being able to prove the origin and the destination of their funds and we need them to give clarity about the Ultimate Beneficial Owners of their initiative. This is often at odds with the citizen charity initiatives that are sprouting from a deep human wish to help others. Something that is also core to our organisation. Our questions and need for information is sometimes perceived as distrust or lack of support for their initiatives. We are actively trying to find ways to help these initiatives and ensure they meet the KYC, CDD and AML requirements.
Other types of dilemmas we face can occur on an individual project level. We faced a dilemma in the energy transition field. We were requested to engage in a project that provides heat from a geothermal installation to a number of non-ecological greenhouse farms. Triodos Bank typically only lends to ecological greenhouse farms. The geothermal project presented to us is on the one hand standalone from the greenhouse activities. On the other hand, it is the only client for the energy generated in this way. This is different from for instance the electricity market, where power from a renewable source is fed into the grid and it can be stated that any Mega Watt produced sustainably is a step forward. In this case the project would save gas, but at the same time keep a non-ecological farming method in place and make it more energy efficient.
In another project, we were requested to fund a biomass installation. The waste of the greenhouse farm would serve as sole resource to provide heat to this greenhouse farm. After various dilemma dialogues we have chosen to engage in the geothermal project, as it really supports the energy transition. The knowledge gained on this project will benefit future projects where geothermal heat is used for the heating of homes. We decided not to engage in the biomass project as it really is an end of pipe solution.
Triodos Bank recorded significant growth in 2021, our commitment to values-based banking is more relevant than ever for people and society. This resulted in a growth of our total assets under management by EUR 3,916 million (19%) in 2021 to EUR 24.2 billion (end of 2020: EUR 20.3 billion) per end of December 2021. The underlying trend is positive and shows significant increase of our balance sheet and funds under management last year. Our balance sheet has been grown consciously by 19% to EUR 16.5 billion (end of 2020: EUR 13.9 billion) and funds under management has been grown by 20% to EUR 7.7 billion per end of December 2021 (end of 2020: EUR 6.4 billion). The increased focus of society on sustainability and the demand for pro-actively driving the transition targets results in stronger demand for banking products with direct impact on financing real change. Our loyal customer base has grown to 747,413 customers in 2021 (end of 2020: 728,056 customers).
On the liability side, the growth of the total balance sheet was mainly realised by additional inflow of funds entrusted, participation in TLTRO tender III.7 and a successfully raised green bond that qualifies as a subordinated Tier 2 instrument. Our funds entrusted increased by EUR 1.5 billion over the last 12 months, which resulted in an overall position of EUR 13.3 billion (ultimo 2020: EUR 11.7 billion) per end December 2021. This overall increase of the liability side was further supported by our participation in the TLTRO tender III.7 with additional EUR 800 million summing up to a total position of EUR 1.6 billion (end of 2020: EUR 0.8 billion) per end of December 2021. Apart from that, Triodos Bank has successfully issued a EUR 250 million subordinated green bond, which fulfils the criteria of a subordinated Tier 2 instrument and therefore qualifies as additional capital for the bank's prudential purposes. The bank’s equity position marginally increased by EUR 42 million to EUR 1.3 billion per end of December 2021 but was overall quite stable compared with the remaining liability side.
On the asset side, the additional funding was primarily used to further develop our sustainable loan portfolio. Triodos Bank recorded an increase of sustainable loans by EUR 1.0 billion in 2021 to EUR 10.2 billion at the end of 2021 (end of 2020: EUR 9.2 billion). The remainder of the additional funding was partly invested in highly liquid debt securities (EUR 166 million) or resulted in an increase of our cash position (EUR 1,322 million).
The provision for expected credit losses (ECL) was decreased by EUR 2.5 million to EUR 51.5 million per end of December 2021. Especially, the calculation of ECL stages 1 and 2 for potential future credit losses (not yet incurred) are particularly sensitive to forward-looking macro-economic parameters (e.g. gross domestic product, unemployment rate). In 2021 the global economic outlook stabilised but is still uncertain due to the ongoing COVID-19 infection waves and potential further mutations of the virus which could lead to significant disruptions in value chains. As a result of that the provision of ECL stage 1 and 2 was partially released by EUR 6.3 million over the last 12 months to EUR 13.6 million per end of December 2021. However, the releases recorded in stages 1 and 2 were partly offset by increases in stage 3. The ECL stage 3 provision increased by EUR 3.9 million to EUR 38.0 million in 2021.
For 2021, although still marked with COVID-19, Triodos Bank reports a Return-on-Equity (RoE) of 4.1% (2020: 2.3%), which is in line with the adjusted mid-term RoE ambition of 4%-6%. The bank reports a sound net profit of EUR 50.8 million after tax for the year 2021, which is EUR 23.6 million higher than the same period last year (EUR 27.2 million). Our total income, EUR 341.9 million in 2021 (2020: EUR 305.1 million), recovered over the last 12 months and is above pre-COVID-19 levels due to sustainable lending growth and higher funds under management. The underlying interest result records an increase of EUR 23.3 million to EUR 221.5 million in 2021 (2020: EUR 198.2 million), supported by conscious lending growth in sustainable sectors in Europe driving our ambitious net-zero target in 2035 and TLTRO III interest. The bank’s commission result improved by 9% to EUR 116.0 million in 2021 (2020: EUR 106.1 million) due to additional fees for payment and transaction solutions and management fees for investment fund solutions.
The bank’s total operating expenses increased by EUR 29.8 million to EUR 275.2 million in 2021 (2020: EUR 245.4) million, mainly due to additional employee expenses for compliance and anti-money laundering (AML) topics, and additional deposit guarantee scheme (DGS) contribution. The expenses without additional compliance and regulatory costs are improving due to the structural cost savings program and higher cost discipline applied across the Group. In future periods the bank will continue to focus on realising cost synergies while coping with regulatory cost increases. In 2021 the bank reports a cost-income-ratio (CIR) of 80% (2020: 80%).
Our loan business remains resilient. Cumulative ECL expenses decreased significantly over the last 12 months and resulted in a net release (gain) of EUR 0.5 million in 2021. In particular, more favourable macro-economic forward-looking parameters led to a release in ECL stages 1 and 2, which were partially offset by an increase in ECL stage 3 covering defaulted loans.
Resilient capital and liquidity position
The bank’s Total Capital Ratio (TCR) increased from 18.8% in December 2020 to 21.3% in December 2021. This sound increase of the TCR in 2021 was primarily driven by the issuance of EUR 250 million eligible Tier 2 capital in November 2021. The minimum Total Capital Ratio for the bank is 13.0% based on the overall capital requirement. The CET-1 ratio ended at 17.5% in 2021 (2020: 18.7%) in line with expectations. For the mid-term strategy, Triodos Bank aims for a CET-1 ratio of at least 15.5% in the current regulatory context. The Leverage ratio of Triodos Bank for 2021 is 8.1% (2020: 8.8%), well above the minimum requirement of 3.5%.
The bank’s overall liquidity position remains robust with an LCR of 229% per end of December 2021 (2020: 232%). The regulatory minimum LCR is 100%.
Triodos Bank will continue to work on improving its profitability while maintaining a solid equity base, capital ratios and a substantial liquidity surplus.
Social inclusion: a learning journey for Triodos Bank
COVID-19 and the visibility of the Black Lives Matter movement in 2020 have put a spotlight on existing patterns of social exclusion. The COVID-19 pandemic has negatively impacted global social progress in the past two years and the Black Lives Matter movement shows how racism and discrimination are still deeply ingrained in our institutions and society.
This has not only sparked debate in society, it has also ignited a discussion inside our own organisation. Although societal renewal to promote the quality of life has been at the core of Triodos Bank for over 40 years, societies and (awareness of) social issues change over time. This means that Triodos Bank also needs to keep developing its thinking, looking with curiosity to the world and being open to adjust beliefs and practices.
In 2021, Triodos Bank published an internal discussion paper to further enhance a broader discussion on social inclusion. In each business unit, local coordinators supported the discussion on different topics like financial inclusion, how Triodos Bank can contribute to the empowerment and inclusion of marginalised groups, or the importance of inclusive or ‘just’ transitions in relation to the ecological transformation that is needed to live within planetary boundaries. What can be done to change Triodos Bank, finance change or change finance? The internal paper and discussions are steps to a better understanding of how Triodos Bank can contribute to social inclusion.
Triodos Bank in 2022
Within the broader perspective of our capital strategy, an important focus for Triodos Bank, is to implement the decision to pursue the listing of the Depository Receipts of ordinary shares on a Multilateral Trading Facility and carefully manage the impact this transition has on our Depository Receipt holders.
To bridge the period that the trade in DRs remains suspended, Triodos Bank is exploring further intermediate solutions to help mitigate some of the consequences of the suspended trading for the DR holders.
In this context, an amount of EUR 14.4 million, equivalent to the remaining room to purchase DRs (“Market Making Buffer”) will be made available to facilitate a restricted DR Buyback Programme, subject to EGM approval. Out of the EUR 14.4 million an amount of EUR 3 million will be reserved as solidarity arrangement for those Depository Receipt holders, that are in most urgent need for liquidity to meet ongoing vital expenses. Details of this programme have been shared with DR holders on 15 February 2022.
We expect to grow fee income over time by further growing the activities of Triodos Investment Management as well as fees-based banking activities. Triodos Bank has the ambition to grow its bank balance sheet modestly, maintaining a stable loan to deposit ratio. Our ongoing focus on developing both our investment management and banking activities will further increase the positive impact we create, contribute to a fair return while maintaining an overall modest risk appetite. Furthermore, we will continue to work on improving our cost efficiency to work towards a cost/income target of less than 75% by 2025 and a return on equity of 4 - 6%.
Together, these efforts are expected to lead to more positive impact created by our customers, the realisation of profitable growth within a challenging interest environment and will ensure we can continue to meet regulatory requirements. We are confident that Triodos Bank will be able to fulfil its frontrunner role to support our customers to deliver the positive change the world’s sustainability challenges demand, through innovative finance solutions and by changing the role of finance in the global transition on the way to a net-zero society.
The geographical and sectoral diversification of the loan portfolio contributes to a modest asset risk profile and therefore reduces the earnings volatility. In line with statements made at the publication of results for the first half of the year, as the COVID-19 pandemic effects continue, the economic developments will remain uncertain, even more so due to the yet unknown effects of the recent Russian invasion of Ukraine. The build-up of the ECL provision may therefore continue through the year 2022 in line with the IFRS requirements.
Triodos Bank’s capital and liquidity position is in line with internal target ratios and well above the regulatory minimum requirements. In the second half of the year Triodos Bank is expecting to receive guidance from the regulator about the new MREL1 capital requirement, which results from the implementation of the guidelines on capital reserves set by the European Banking Authority.
The invasion of Ukraine by Russia at the end of February 2022 presents new uncertainty. Triodos Bank is deeply concerned about Russia’s attack on a sovereign European country and feels for the people in Ukraine.
The impact on the short term and the longer term on society and financial markets is hard to predict at this moment of publication of our annual report. Triodos Bank does not have direct exposure in Russia, but we anticipate that the effects on society and financial markets will amongst others influence management fees and Expected Credit Losses. It is hard to predict the further impact of the war in Ukraine on our activities and our ability to realise our ambitions for the year. In responding to these developments, fulfilling the bank’s mission while maintaining a sound level of risk and return will remain key. Connections of our business with Ukraine and Russia are considered very limited. There are no identified links in the bank’s credit portfolio or Treasury activities with Ukraine or Russia. The Funds of Investment Management have a total exposure of EUR 21.3 million in Ukraine, including a EUR 3.0 million provision. There is no investment exposure identified in Russia.
Considering the achieved net result for the year 2021 and the development of external market circumstances, Triodos Bank proposes a dividend amount of EUR 1.80 per share. This dividend proposal is equivalent to a pay-out ratio of 50%, which is in line with Triodos Bank's internal dividend policy. The remaining profit will be attributed to the retained earnings of the bank.