Sugar
TIS sector lending
by industry at year-end 2007
Real estate 20%
Financial institutions,
excl. banks 15%
Wholesale trade 10%
Industry 8%
Building industry 7%
Information and communication 5%
Transport and storage 5%
Non-food retail trade 4%
Health care 4%
Corporate services 3%
Art and recreation 2%
Utilities 1%
Other 16%
Food agri sector lending
by industry at year-end 2007
Dairy
18%
Animal protein
18%
Grains and oil seeds
14%
Fruit and vegetables
12%
Food and retail
7%
Flowers
6%
Food agri inputs
6%
Other crops
4%
Beverages
3%
2%
Other
10%
For approximately 1% of Rabobank Group's loan portfolio, the commitments are not being
fully met and an adequate allowance has been made for this part of the portfolio. It should
be noted that the PD indicates only the extent to which the bank expects that clients can or
cannot meet their commitments. PD says nothing about the potential loss, because in many
cases, Rabobank Group has obtained additional collateral, which is reflected in the so-called
loss given default (LGD) which also takes restructuring perspectives into consideration.
In summary, it can be concluded that Rabobank Group has a healthy loan portfolio.
The Basel II parameters are increasingly being used and it is partly on their basis that
Rabobank Group determines economic capital and RAROC, which have meanwhile been
embedded in the lending processes. Once a loan has been granted, ongoing credit
management takes place assessing new information, both financial and non-financial.
The bank monitors if the client meets all obligations and can be expected to do so in the
future. If the client does not fulfil its obligations or if it is expected that they will not be met,
credit management will be intensified, with a higher monitoring frequency and stricter limit
monitoring. If necessary, new agreements will be made with the client. Guidance is provided
by a special unit within Rabobank Group, particularly in case of larger and more complex
loans with a going-concern threat. If it is likely that the debtor is unable to fulfil all its
contractual obligations, this is a matter of impairment and an allowance is made which is
charged to income, but only to the extent to which the bank's exposure vis-a-vis the client
exceeds the present value of future cash flows. These loans, for which an allowance has been
taken, are impaired loans and amounted to EUR 4,198 (4,355) million at 31 December 2007.
The allowance for bad debts at 31 December 2007 was EUR 2,355 (2,333) million,
corresponding to a 56% (54%) coverage. It is to be noted that Rabobank Group takes
provisions at an early stage and applies the 'one obligor principle', meaning that the
exposure of all counterparties belonging to the same group is taken into account.
In addition, the full exposure vis-a-vis the client is regarded as impaired, even if full coverage
5 This does not include the general allowance is available in the form of, for example, collateral. At 31 December 2007, impaired loans as
of eur 635 (583) million euro. a percentage of private sector lending amounted to 1.2% (1.3%).
31-Dec-07
31-Dec-06
Impaired loans and allowances
(in millions of euros)
Impaired loans
Specific and
collective
allowances 5
Balance
sheet value
Impaired loans
Specific and
collective
allowances 5
Balance
sheet value
Domestic retail banking
2,598
895
1,703
2,617
866
1,750
Wholesale banking and international retail banking
1,229
637
592
1,455
713
743
Leasing
350
181
169
281
169
111
Other
21
8
13
2
1
1
Rabobank Group
4,198
1,720
2,478
4,355
1,749
2,606
77
Report of the Executive Board
