Report of the Managing Board
RESULTS
The net profit for 2002 was 38.6 million, which was
therefore 9.2 million higher than in 2001, when a net
profit of 29.4 million was recorded. This growth was
largely attributable to higher net interest income and lower
transfers to provisions.
In the year under review, net interest income including
commission income was 4.0 million higher than net
interest income for 2001, which was due to a larger average
portfolio in 2002 relative to 2001.
At 21.3 million, operating expenses were 1.3 million
higher than in 2001, which was mainly due to the increase
in other operating expenses by 1.0 million.
Personnel costs and other administrative expenses rose by
just 0.2 million, in spite of substantial pay and price
growth during the preceding year. The decline in the number
of personnel and more intensive cost control made a
substantial contribution to this result. In the wake of less
favourable economic conditions, and the effect that this has
had on the real estate market, the portfolio declined in 2002.
On a number of occasions, FGH Bank was confronted with
continuity problems of some of its customers. At 17.1
million, the tax charge was significantly higher than for
2001 as a result of an improved operating result relative to
2001, when the tax charge was 14.1 million.
The loan portfolio fell by 68 million (-1.5%) to 4.406
billion, compared with growth of 11.7% in 2001. Including
renewals/extensions of facilities, new lending was just over
1.2 billion, compared with 1.7 billion in 2001. The
volume of repayments (including renewals/extensions) was
virtually unchanged in 2002 (2001: 1.3 billion).
Shareholders' equity, expressed as a percentage of risk-
weighted assets (BIS ratio), was 11.4% at the end of 2002
(2001: 11.5%).
OUTLOOK
ECONOMIC TRENDS
2002 was a difficult year for the global economy, and the
Dutch economy was no exception to this trend. Prices fell
sharply on the stock markets and exports and business
investment declined. The fact that economic growth was
recorded in spite of this was therefore mainly due to the
continued growth in consumer spending. Against a
background of falling purchasing power, rising
unemployment and cuts in government expenditure, it
remains to be seen whether consumption will again be the
driving force behind the economy in 2003.
In 2002, consumer prices rose sharply relative to prices in
other European countries. Nevertheless, inflation has fallen
and an economy, which has cooled down, will allow
inflation to fall further. Inflation is expected to be about
2.5% for 2002. The weakening of its competitiveness is a
major cause for concern for the Dutch economy. Unit costs
are high relative to other countries and a reduction in these
costs will contribute to an economic recovery.
In 2003 FGH Bank expects to see a slight improvement in
the economy relative to 2002. The much-hoped-for economic
recovery will probably take some time to materialize.
OFFICE MARKET
Supply in the office market increased rapidly, while the
demand for office space contracted. The rapid increase in
supply is due to two self-reinforcing factors. First, a large
number of speculative developments were under
construction in 2002. Secondly, many companies in the ICT
sector, and to a lesser extent, companies from the financial
and other commercial services sectors, have leased too much
space over the last few years in anticipation of growth.
A large proportion of this space is now being offered for
subletting. A third factor is that the high levels of take-up in
previous years often represented demand for replacement
space. Owing to the fact that virtually no new speculative
developments were started in 2002, the increase in supply
has gradually levelled off. Due to the increase in the supply
of space on the market, average rents have fallen slightly
and incentives are increasingly being offered on leases.
The office market responds to economic trends with a time
lag and therefore FGH Bank is not expecting a strong
recovery in the take-up of office space for the time being.
Since there is less speculative development under
construction, supply could stabilize in 2003. The amount of
space on the market is placing rents under slight downward
pressure.
RETAIL MARKET
In spite of the weakening of economic conditions, the retail
market continued to grow slowly in 2002, but the
differentials between locations have been widening. In A1
locations, where the retail chains are still competing for
space, there is a shortage of high-quality space and rents are
still growing slowly. Elsewhere in town centres, for example,
in the B locations and the approach routes, there is evidence
of an increase in supply. The increase in scale in edge-of-
town locations is continuing, but even here there are signs
of an increase in supply.
Over the next few years, quality and size of the various
locations will increasingly determine the likelihood of their
survival. FGH Bank expects consumers to become more
cautious in 2003. The main reasons for this are falling
purchasing power, an increase in unemployment and the
decline in wealth of private investors. There are challenging
times ahead for retail sales growth.