Financial results
Net profit up 35%
Lower expenses
30 Rabobank Group Annual Report 2005
Core activities: domestic retail banking
In addition, the knowledge centre investigates opportunities for growth.
For example, it carried out a study of the biofuels market, which has
enormous potential. Besides offering farmers very promising opportuni
ties, it requires significant financing and the knowledge centre informs
and advises clients on this.
Stable market share in agricultural sector
Despite increased competitive pressures, particularly in horticulture,
market share in the agricultural sector remained virtually stable in 2005,
at 83% (84%). Besides market share, the customer satisfaction among
agricultural clients was also surveyed. Customer satisfaction in the food
agri sector rose substantially in 2005, with the percentage of clients
stating they were 'highly satisfied' with Rabobank rising from 86 to 93.
Innovation is also important in the agricultural sector
For the agricultural sector too, it is important to continually seek innova
tion in products, services, processes and sustainability. Almost three-
quarters of agricultural businesses are working on optimisation of their
business processes and more than half wish to improve their products
and services. External factors play a part as well. Due to the recent
strong rise in energy prices, glass house horticulturists in particular are
compelled to find solutions leading to lower energy consumption.
Not surprisingly, this sector is considered the most innovative. Good
examples are the Greenhouse as a Source of Energy and The Closed
Greenhouse, which are initiatives with close involvement of the
Rabobank. In livestock production, the rise in energy prices and the
need to store more manure has focused the attention on fermenting
installations. Co-fermentation of manure together with other organic
matter is ready for practical use in livestock production.
Targeting agricultural entrepreneurs aiming to invest in innovation,
sustainability and increased scale of operations, Rabobank introduced
the Rabo Growth Innovation Loan in 2005. This loan of up to EUR 1.5
million offers farmers a financing solution if capital intensive investments
do not provide sufficient certainty. The loans are guaranteed by the
Rabobanks Guarantee Fund Foundation, which has been established to
stimulate business activities among members of the local Rabobanks.
Lending to food agri up 8%
Lending to the food agri sector showed relatively strong growth and
was 8% higher, at EUR 21.5 (20.0) billion. The primary agricultural sector
accounted for the greater part of this increase, growing by 15% to
EUR 17.8 (15.4) billion. Growth was seen particularly in services to the
arable farming, dairy production and glass house horticulture sectors.
These sectors seem to enjoy great interest on the part of other providers
of financial services as well. The other sectors were virtually unchanged.
Lending to the pig-farming segment declined slightly. During the past
year, the local Rabobanks succeeded in growing their number of larger
loans owing to a more specialised focus on the larger businesses in
these sectors as well as the excellent collaboration between various
specialisations within the Rabobank Groep. It is becoming increasingly
clear that Rabobank is succeeding in producing tailor-made offers for
large business expansions while making optimum use of innovative
solutions. The sale lease back construction is an example that enables
entrepreneurs to achieve significant benefits.
Net profit of the domestic retail banking operations was 35% higher, at
EUR 1,024 million. Income was EUR 258 million higher, at EUR 5,431
million, a rise of 5%. The greater part of income, 77%, comprises interest
income. This item rose by 6% to EUR 4,176 (3,949) million. The growth in
interest income therefore lagged behind growth in lending and savings.
Largely due to the narrow margins resulting from the levelling-out of
the yield curve and increased competition on the mortgage market, the
growth in net interest income was unable to keep pace with the growth
in lending and savings. With many private and business borrowers
taking advantage of the low mortgage interest rates last year to refinance
on more favourable terms, interest income benefited from one-off
payments of penalty interest. In order to neutralise part of this effect,
derivative contracts linked to the mortgage loans were likewise repaid
prematurely, which resulted in losses. As a result of these two effects
interest income showed a net increase. Interest income for 2004 includes
a non-recurring charge on the investment portfolio.
Commission income was up 4% at EUR 1,205 (1,156) million, reflecting
the improved stock market climate which generated higher commission
income from securities. Commission income from funds transfer and
insurance was also higher.
Total expenses were 1% lower at EUR 3,735 (3,754) million, reflecting a
decrease in other operating expenses. Staff costs rose 8% to EUR 1,990
(1,836) million, due to higher pension expenses, regular salary adjust
ments and increased expenditure on temporary staff. The number of
internal FTEs decreased marginally to 28,909 in 2005. Other operating
expenses were EUR 173 million lower at EUR 1,745 million, due to a
decrease (9%) in expenses charged by Rabobank Nederland to the
affiliated banks and lower depreciation.
The efficiency ratio (total expenses/total income) improved in 2005 from
72.6% to 68.8%.
