Cooperative bonds

Cooperative bonds are bonds issued by business cooperatives, usually cooperative banks.

Сooperative bank is a bank and a cooperative at the same time, which decisively affects its activities. In accordance with the principles defined by the International Co-operative Alliance, the main goal of a cooperative bank should be to financially support its members by providing comprehensive assistance and high-quality services at reasonable prices. This does not exclude the possibility of making a profit, especially since, in a competitive environment, cooperative banks are forced to expand their client base.

As a rule, cooperative banks issue bonds in order to carry out their activities defined in the charter, invest in the development of their own network or innovative technological solutions, restructure / diversify sources of financing, restructure the timing of the repricing of obligations or increase regulatory capital.

It should be noted that the position of cooperative banks is worse than that of commercial banks. Several factors contribute to this. First, in the case of cooperative banks, the share of fee and commission income in total profit is much smaller, which significantly affects their profitability. Second, lower capital adequacy creates the risk of a collapse in lending activities when capital adequacy and liquidity ratios fall below their respective thresholds. For this reason, co-operative bonds are considered riskier on average than commercial bank, municipal, or treasury bonds, but the bonds’ more favorable interest rates offset this risk for some investors.

An example of Poland cooperative bonds: Krakow Cooperative Bank, FRN 20sep2023, PLN (SBK0923)