On the liability side, the growth of the total balance sheet was mainly driven by additional inflow of funds entrusted, participation in TLTRO tender III.7 and a successfully raised green bond that qualifies as subordinated Tier 2 instrument.
Funds entrusted increased by EUR 1.5 billion over the last 12 months, which resulted in an overall position of EUR 13.3 billion per end December 2021(end of 2020: EUR 11.7 billion). 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 per end December 2021(end of 2020: EUR 0.8 billion). Triodos Bank also 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 bank prudential purposes.
The bank’s equity position has 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. Triodos Bank suspended trading in its Depository Receipts (DRs) as per 5 January 2021. As result of that Triodos Bank initiated an extensive investigation on how to ensure its access to new core capital and restore the tradability of its DRs.
During the investigation, Triodos Bank analysed numerous options. We have concluded that listing our DRs on a community exchange (a so-called Multilateral Trading Facility or MTF) offers the best prospect of securing our access to capital and restoring tradability for our DR holders. After due consideration, including dialogues with DR holders and various other stakeholders, Triodos Bank announced its decision to proceed to a listing of DRs on an MTF on 22 December 2021. The implementation horizon for the MTF approach including mandatory regulatory approvals is estimated to take 12 to 18 months.
For 2021, the 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% to 6% as communicated in the Extraordinary General Meeting of 28 September 2021. Triodos Bank believes that, despite the ongoing impact of COVID-19, annual RoE in this range is achievable in the mid-term (in previous years this was 3% to 5%).
On the asset side, our additional funding was primarily used to further develop our sustainable loan portfolio. Triodos Bank recorded a EUR 1.0 billion increase in sustainable loans in 2021 to reach EUR 10.2 billion by the end of the year (end of 2020: EUR 9.2 billion). The remainder was partly invested in highly liquid debt securities (EUR 166 million) or to increase our cash position (EUR 1.3 billion).
The provision for expected credit losses (ECL) shows a limited decrease of EUR 2.5 million to EUR 51.5 million per end of December 2021. 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. The bank is closely monitoring the development of forward-looking macro-economic parameters and applies adjustments to its internal ECL model at least monthly. The provision of ECL stages 1 and 2 decreased 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.
Triodos Bank benefits from high credit quality and a geographically well diversified loan portfolio. The bank will continue to stay prudent by keeping the above-mentioned overall ECL provision. The risk profile of our loan portfolio implies that any improvement in the forward-looking macro-economic parameters, perhaps because of better-than-expected post-COVID-19 economic conditions, might result in a reduction of the bank’s overall ECL provision. Further details can be found in the following paragraphs on our financial results.
EUR 10.2 billion
Loans to projects across Europe benefitting people and planet
The asset side was further impacted by Triodos Bank's decision to structurally change the way of working and apply a hybrid corporate office strategy. All co-workers have the opportunity to continue working with a split model from home and/or office. This is providing additional flexibility in our new work environment. In the Netherlands, Triodos Bank decided to concentrate all corporate activities at a single new office (De Reehorst in Driebergen) and sold the old head office building (Nieuweroordweg in Zeist). This will allow Triodos Bank to realise further cost savings, improving the overall shape of the bank. With the sale of the building a one-off gain of EUR 0.1 million is recorded in our 2021 P&L.
Assets committed to the triple bottom line (TBL) and the real economy
Triodos Bank is a values-based bank. We lend and invest in the real economy because that is where we can have a positive impact on people’s lives and safeguard the environment. We apply the Global Alliance for Banking on Values (GABV) scorecard using indicators like ‘assets committed to TBL’ and ‘assets committed to real economy’ to monitor and qualify impact. For more information and the complete GABV scorecard see section Understanding impact (see page 58) and Appendix IV– Global Alliance for Banking on Values scorecard (see page Appendix IV – Global Alliance for Banking on Values scorecard – quantitative evidence of our impact).
Real-economy assets in a values-based bank should be relatively high. In 2021, this was 70% (2020: 75%). Triodos Bank targets a ratio of loans (in the real economy) to deposits of 75% to 85% to make sure it always has enough money available (i.e. liquidity) to support its clients in case of disruptions in the market. The total loan portfolio, as a percentage of the total amount of funds entrusted, was 77% in 2021 (2020: 78%).
Triodos Bank has 70% (2020: 74%) of its total assets committed to triple bottom line. This figure provides the best indication of a bank’s commitment to sustainability. Triple bottom line assets refer to assets not only focused on economic benefits, but also on positive social and environmental benefits.
An increased cash position, due to additional funding in 2021, explains the lower real economy and TBL ratios in 2021 compared to previous years.