Financial results
Ambitions and outlook for 2005
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33 Rabobank Group Annual Report 2004
Core activities
Result increase
In 2004, domestic retail banking achieved an operating profit before
taxation of EUR 1,524 (1,479) million, a rise of 3%. Income was 4% higher
at EUR 5,398 (5,173) million, although this increase lags behind that of
previous years and the growth in lending. The chief explanation is a
markedly tighter interest margin. Due to the low interest rates in the
capital markets, many clients repaid their mortgages prematurely in the
past few years or refinanced them at a lower interest rate. In the short
term, this yields extra income, but in the longer term, it translates into
lower interest income. Partly because of this, the rise in interest income
was limited to 3%, increasing to EUR 4,309 (4,193) million. Commission
income was 9% higher at EUR 1,022 (935) million, reflecting higher
securities brokerage and insurance commission and higher commission
from payment services.
In 2005, in addition to retaining its current dominant market share,
Rabobank will focus on strengthening its position in the large cities and
in the upper segment of the private and corporate markets. The upsizing
of local Rabobanks by means of mergers, aimed at quality and efficiency
enhancement, will continue unabated in 2005. The number of local
banks - 288 at 31 December 2004 - is expected to fall by 15-20% in
2005. On the other hand, the number of service points is set to grow in
the years to come. If growth in lending stays in line with that of 2004,
a 10% result improvement should be possible, in spite of the expected
lower interest margins.
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Operating expenses increased by EUR 95 million to EUR 3,575 (3,480)
million, a rise of 3%. Staff costs declined by 1% to EUR 1,666 (1,680)
million. The salary increases and a non-recurring payment were more
than offset by a fall of 904 in the number of FTEs. Other operating
expenses were 6% higher at EUR 1,909 (1,800) million, largely due to
investments in a new marketing system. In the year under review, the
efficiency ratio was 66.2% (67.3%), in line with the long-term target of
the domestic banking operations.
Results (in EUR millions)
2004
2003
change
Interest
4,309
4,193
3%
The item value adjustments to receivables rose by EUR 85 million to
Commission
1,022
935
9%
EUR 299 million. The increase is due to the economic situation, which
Other income
67
45
49%
remains less than satisfactory, and the large number of bankruptcies in
Total income
5,398
5,173
4%
the Netherlands. The addition to this item as a percentage of average
Staff costs
1,666
1,680
-1%
risk-weighted assets was 25 (19) basis points.
Other operating expenses
1,909
1,800
6%
Total expenses
3,575
3,480
3%
IFRS
Gross profit
1,823
1,693
8%
The impact on results of the introduction of IFRS is expected to be limi
Value adjustments to receivables
299
214
40%
ted. One of the main changes is the different treatment for recognising
Operating profit before taxation
1,524
1,479
3%
results on derivative positions. Likewise, total assets should not change
Balance sheet (in EUR billions)
much as a result of the transition to IFRS. Since the interest rate risk is
Total assets
201.8
183.8
10%
hedged at Group level, consequences for the results of the domestic
Volume of lending
184.1
167.7
10%
retail banking operations should be negligible.
Savings
71.9
65.8
9%
Total risk-weighted items
124.7
116.1
7%
Customer satisfaction
Customer satisfaction, private individuals
7.7
7.7
Customer satisfaction, corporate clients
7.5
7.4
Risk-related costs (in basis points)
25
19
32%
FTEs
28,970
29,874
-3%
Market shares
Mortgages
25%
26%
Agricultural sector
84%
85%
Trade, industry and services
40%
39%
Savings
39% 38%
