1996 - GROWTH
YEAR FOR RI
General managers -
NEW AGENDA
WHAT'S NEWS Issue 2 February 1997
Last year saw an enormous growth in Rabobank International's
balance sheet total, as well as income from investment and
corporate banking.The 1996 gross profit, set to be officiaIly
announced next month, was roughly NLG 575 million, against
NLG 561 million the previous year, while the net advanced by
an (adjusted) NLG 40 million to a provisional NLG 330 million,
helped by lower-than-expected tax liabilities.
Bert Bruggink: 'Solvency bas now become a
scarce resource
kThe tentative results all met or exceeded
udgeted expectations, but there is little
room for complacency, remarks Rabobank
International's controller Bert Bruggink.
For one thing, the year also saw an
enormous growth in costs, not only
because of the expansion of personnel, in
parallel with our organic enlargement, but
also because of investments in information
technology (IT) associated with 're-wiring'
the bank. 'Although we haven't seen the
rate of profit increase on this scale before,'
notes Bruggink, 'the growth in costs is a
matter of real concern.'
GROWTH LIMITS
There has not yet been any significant
change in the business mix as a result of
recent strategie initiatives. Indeed, what
was most notable about the 1996 result
>'as the contribution to profits from
'trecht branch, and the offices in
Australia and Asia. Growth was moderate
in the US, while the European network,
with the important exceptions of private
banking and the London branch, made
little if any contribution at all. This is
significant in light of the limits to growth
imposed by our solvency requirement. At
the start of 1996 it stood at NLG 4.8
INTERNATIONAL
GROEIT
Het afgelopen jaar
groeide ons balanstotaal
fors. Het bruto resultaat steeg van NLG 561
min. vorig jaar naar ca. NLG 575 min. en het
netto resultaat met ca. NLG 40 min. tot NLG
.330 min.dankzij een lagere belastingdruk.
Helaas stegen ook onze kosten fors, niet
alleen door groei van het personeelsaantal,
maar ook door de grote investeringen in
informatie technologie.
billion, and grew by NLG 800 million
during the course of 1996.
ROS FALL
'From the perspective of the market
opportunities, we certainly could have
grown more,' notes Bruggink. '1996 was
the first year in Rabobank International's
history when we had to apply the brakes
to growth because our ability to grow the
mandated regulatory set-aside couldn't
keep pace.' Solvency has now become a
scarce resource; no business unit can
automatically expect to draw upon it to a
greater degree than it contributes to our
bottom line result. That a limitation in the
growth of costs will be the single greatest
priority for 1997 has been reiterated by
Chairman Wijffels of late. Among other
things, this year will see a relatively
smaller increase in the solvency set-aside,
from NLG 5.6 to NLG 6.3 billion.
Moreover, because of an industry-wide
mandated increase in solvency
requirements, the return on solvency,
which was 8.45 percent last year, is iikely
to go down rather than rise towards the
targeted 10 percent by the year 2000.
REDUCING COSTS
Thus, with a budgeted growth in the gross
result in 1997 to NLG 650 million, and in
net profit by NLG 50 million to NLG 380
million, 'the only way to achieve this goal
will be to seriously limit our cost
development,' says Bruggink. Another
priority will be to focus on activities that
do not necessarily require a 100 percent
solvency set-aside to generate results.
Progress will have to be made in shifting
the business mix - presently about 75
percent corporate banking and 25 percent
investment and private banking - towards
the year 2000 target of 60-40. Fixed
income, derivatives and money market
activities will also play a role, as will
structured finance on the corporate side,
Bruggink says.
In response to the increasingly regional character of our organization, Rabobank
International will implement an important change in the existing system of General
Managers Meetings. In 1997, there shall be two meetings: the General Managers
meeting will now take place in the autumn (probably in November) and Regional
Managers meetings will be scheduled in the early spring.The new structure is
intended to provide a better balance between long- and short-term planning, both
of which had to be addressed underthe previous regime.
Under the new system, the spring Regional Managers meeting will focus on long
term plans.The hope is to broaden the participation so that it allows regional officers
as well as managers a chance to participate in the dialogue and offer the benefit of
their front-line experience. At these meetings, the fine-tuning will take place
between the plans of the focus groups and those of the offices.The General
Managers meeting will focus on budget issues for the following year, and absorb
input from the newly-formed focus groups as well.