Membership Structure and Dividend Payout Policies at Hungarian Cooperative Banks more

Cooperative banks are widely seen as sustainable alternatives to profit-driven banking. However, while most banks struggle to meet the stringent capital requirements of regulators, cooperative banks are in particular need of cautious capital-related decisions given their little ability to accommodate investors. In fact, cooperative banks’ single greatest source of capital is their annual surplus.
This paper first highlights that capital protection rules related to Hungarian cooperative banks are more liberal than of other European cooperatives. This step is then followed by an analysis of Hungarian cooperative banks’ decisions on the distribution of annual surplus among their members. In doing so, the annual reports of 99 cooperative banks representing 73 percent of all Hungarian cooperatives are used, complemented with confidential data on the ownership structure of each cooperative.
The study shows that a cooperative with low number of members and high amount of average subscribed capital per member is a lot more probable to distribute high dividends than cooperatives with dispersed ownership and small amounts of contributed capital per member. This result not only sends an alarming message to policy makers, but also contributes to the peculiarities of cooperative corporate governance.