With 16% profit growth, Rabobank Group perfor
med well in 2005. Partly as a result of the issue of
new Member Certificates, the Tier I ratio rose to
11.6 (10.9). Return on equity was 9.1 (9.0)%.
Key financial targets
Net profit up 16%
Tier I ratio well above target
Return on equity 9.1%
Outlook
18 Rabobank Group Annual Report 2005
Financial targets
and outlook
Rabobank Group aims at realising customer value, with financial stability
and employee value as preconditions. The precondition for financial
stability will be realised by pursuing the steady development of three
financial ratios: net profit growth, Tier I ratio and return on equity.
Rabobank Group has the following long-term targets for these ratios:
- Annual net profit growth at least 12.0%;
- Tier I ratio at least 10.0 per annum;
- Return on equity of at least 10.0% per annum.
Net profit was EUR 290 million higher, at EUR 2,083 (1,793) million, a rise
of 16% and comfortably exceeding the long-term target. The growth of
net profit went hand in hand with an improvement of the efficiency
ratio and a lower tax burden.
In the year under review, the Tier I ratio, which provides an insight into
the solvency position, increased from 10.9 to 11.6. This is well above the
target of 10.0. The Tier I ratio expresses the relationship between core
capital and total risk-weighted assets. Core capital increased by EUR 3.5
billion to EUR 24.9 billion in 2005. The Tier I ratio rose due to the addition
of net profit to reserves and the issue of EUR 2.0 billion in Member
Certificates. This issue was partly offset by a EUR 650 million redemption
of Trust Preferred Securities. Total risk-weighted assets were 9% higher at
EUR 213.9 billion.
In 2005, return on equity on an IFRS basis was 9.1%. This is below the
long-term target of 10.0%. In 2004, return on equity on a Dutch GAAP
basis was 10.1% but on an IFRS basis, it was 9.0%. In 2005, return on
equity therefore improved by 0.1 percentage points to 9.1%. Although the
long-term target of 10.0% was based on Dutch GAAP, Rabobank intends
to hold on to its target return on equity of 10.0%, even under IFRS.
The recovery of the Dutch economy, which commenced in the second
half of 2005, is expected to continue and gather momentum in 2006.
Domestic spending, such as private consumption and corporate invest
ments, will show a healthy increase in 2006. Exports are likewise set to
increase, in line with the growth recovery that has started elsewhere in
Europe as well. Because of the Europe-wide economic upturn and the
slightly higher rate of inflation, a slight rise in both the short-term and
the long-term interest rates is foreseen for 2006. Rabobank expects that,
viewed in a historical perspective, the interest rate in the Eurozone will
remain relatively low. The domestic banking operations could benefit
from the economic growth, precisely because the sectors with a more
domestic focus are now also contributing to the upturn. It is anticipated
however, that the fierce competition between banks in key market
segments such as small and medium-sized enterprises and the market
for mortgage loans, added to the continued low interest rate, will cause
interest margins to remain under pressure in 2006.
Worldwide, Rabobank expects a favourable economic trend for 2006,
with continuing, although somewhat lower growth in the United States
and China and moderate recovery of growth in Europe. These conditions
will present good opportunities for Rabobank Group to expand its inter
national operations, particularly in leasing, wholesale and international
retail operations. By means of organic growth and selective (minor)
acquisitions, Rabobank will further expand its operations abroad.
