dn todays business climate,
our triple A status is like
the gold Standard
Why is funding currently one of Rabobank's
major priorities?
t "Simply put, because of the turbulence in the world's financial
markets. In the past, the Rabobank balance sheet was mainly
asset driven. We looked at ways to help clients with loans,
and it wasn't a problem when the balance sheet grew quickly
because funding always came in. In today's climate, however,
we're dealing with the reverse situation. We're more liability
driven, meaning that funding has become scarce and growth
possibilities have declined. Investors are cautious about
investing in the banking sector and remain worried about
risk. Consequently, we need to remain focused and vigilant."
What can Rabobank do to attract funding?
"A bank is an intermediary between those that have a surplus of
money - the depositors at Rabobank's branches or the investors
who invest in bonds - and those that have a shortage of capital, and
need to borrow money. One possibility to increase our funding
level is to say to our local banks that they should make savings
more attractive, thereby increasing deposits. To Rl we can say that
they need to fund themselves up to a certain level through their
clients - in other words, if they give loans to clients, they should
ensure that their clients hold their deposits with Rabobank.
"At the moment the total level of long-term funding on the
balance sheet raised by Treasury Rabobank Group is about
110 billion - or about 20% of the total balance sheet. We have to
be aware that this has to be refinanced on a regular basis - so every
yearyou haveto attract money out of the marketjustto maintain
the current stock. And on top of that you have to incorporate
growth. In today's climate, we expect to grow the balance sheet
at around 5% per year. Historically speaking, this is quite low.
So from a strategie point of view there has to be rationing of the
long term funding between the business units. This will result
in a change in growth opportunities across the bank."
There has been talk that many retail customers in the
Netherlands are moving to Rabobank. Is that the case?
"Yes. We have seen a steady influx of funds at the retail level in the
Netherlands over the past year, starting around the time of
the ABN AMRO takeover and continuing through this year as
Fortis faced its troubles."
Many banks are taking capital injections to boost their
Tier 1 capital levels. How is Rabobank placed on this front?
"I think it's important we don't compare apples and oranges, here.
I read in the press that some of our Dutch peers now have a Tier 1
capital ratio of 10% while Rabobank has a Tier 1 ratio of 11%.
However, this 10% is conforming to Basel II requirements,
and if we look at Rabobank's Basel II requirements we are
over 13%. So you have to be very aware of what you compare.
Having said that, it's a signal we have to take seriously.
For Basel I we have a minimum ratio of 10%, and we have to
ensure we maintain that. The main way to keep our Tier 1 level
where we want it is to limit growth. Basically, the Tier 1 ratio
is the capital a bank has, divided by the capital it needs for
its activities. So when the growth in activities is slower,
the Tier 1 ratio can be maintained."
One of the factors that exacerbated the credit crisis
was the reluctance of banks to lend to each other. Is there
a sense of normality returning to inter-bank lending?
"Overnight lending is not a problem, as there are funds available
for those banks that need to borrow. However, term funding -
so funding over a longer time period - is still not doing well.
To try to combat this the Unico Banking Group - which represents
eight cooperative banks with a joint market share of 21% percent
in the European retail banking market, including Rabobank -
has taken the initiative to try to reinstate the European inter-bank
funding market. We've agreed to reintroduce reciprocal unsecured
inter-bank credit lines for business with tenors up to 3 months.
But it's still a trust issue. At the moment, when you as a bank don't
lend to one ofyour peers because of worries about their long-term
prospects, they won't lend to you. To a large extent the market
is still driven by rumours, and, as we've seen in the recent past,
rumors in the market that a bank is in trouble can quickly lead to
a self-fulfilling prophecy."
What needs to happen to restore confïdence
within the financial markets?
"One step in the right direction, for both the global and the US
economies, would be an upturn in house prices in the United
States. That would certainly be beneficial. However, I think it is
a mix between the real economy and the perceived economy.
By that I mean confidence has to be restored among borrowers
and lenders within the financial sector, and there needs to be
a tangible upturn in the equities markets and across the job
and housing sectors in the United States."
What are the opportunities for Rabobank in today's
economie climate?
"We are often asked: 'Why don't you buy banks that are available
at bargain prices?' The answer to that is: There's a reason they're
cheap.' We believe the best way forward is to continue in a low-key
manner: grow slowly, focus and therefore make choices and
maintain our financial aims. In other words, produce profit growth
of around 10% and maintain our Tier 1 levels at around 10%.
That's also what ratings agencies and our investors expect us to do.
One lesson we've learned is that in today's business climate, our
triple A status is like the gold Standard. It's one of the best there
is. So we are looking beyond this crisis. Now is the time for a strict
focus on our core business."
ISSUE 18
THE WORD
