Financial targets
and outlook
With 12% profit growth, Rabobank Group
performed well in 2004. The Tier I ratio rose to
11.4 (10.8), partly as a result of the issue of Trust
Preferred Securities, and the return on equity was
10.1 Accordingly, Rabobank Group met
its long-term financial targets.
Key financial targets
Tier 1 ratio comfortably above target
Outlook
18 Rabobank Group Annual Report 2004
Financial targets and outlook
Rabobank Group aims at realising the highest possible customer value,
while maintaining healthy financial ratios, and employee value. As part of
this, Rabobank pursues the steady development of three financial ratios:
Tier I ratio, return on equity and net profit growth. Rabobank Group has
set the following long-term targets for these ratios:
- Tier I ratio of 10.0 each year;
- annual net profit growth of 12.0%;
- return on equity of 10.0% per annum.
In the year under review, the Tier I ratio, which provides an insight into
the solvency position, increased from 10.8 to 11.4, comfortably exceeding
the bank's long-term objective of 10.0. The Tier I ratio expresses the
relationship between core capital and total risk-weighted assets.
Core capital increased by EUR 2.9 billion to EUR 22.6 billion in 2004, mainly
as a result of the issue of Trust Preferred Securities and by the addition
of net profit to reserves. As a result, average core capital was EUR 21.1
billion. Total risk-weighted assets were 9% higher at EUR 199 billion.
Net profit up 12%
Net profit increased by EUR 166 million to EUR 1,536 (1.370) million, a
rise of 12%, which is in line with the annual net profit growth target of
12%. Income increased by 11% and operating expenses by 8%.
Value adjustments to receivables, which provide an insight into loan
losses, decreased by 9%. On balance, this resulted in net profit growth
of 12%. Net profit for 2003 was adjusted downward by EUR 33 million
to EUR 1,370 million, reflecting the decision to recognise pre-2004
issues ofTrust Preferred Securities in accordance with International
Financial Reporting Standards (IFRS), i.e. under subordinated loans
and no longer as equity. Accordingly, the payment to investors was
recognised not as dividend but as an interest charge, which resulted
in a reduction in profit.
Return on equity in line with long-term target
Return on equity for 2004 was 10.1%. Rabobank therefore met its target
of at least 10%.
Rabobank Group expects the economy to grow further, albeit very
slightly, with export growth levelling off and a further slight recovery of
domestic spending. Rabobank Group can benefit from this, provided
the gap between long-term and short-term interest rates does not
shrink much further. In 2005, Rabobank will report under International
Financial Reporting Standards for the first time, which will mean more
volatile results. Nevertheless, and barring unforeseen circumstances,
Rabobank Group expects it will be able to sustain the upward trend in
the long-term development of its results.
