Impairment losses at 8 basis points
Outlook
Income up 8%
In 2008, total income was 8% higher, at EUR 6,401 (5,908) million, mainly due to growth in interest
income. The rise in lending and the amounts due to customers resulted in an 11% increase in interest
income, to EUR 5,005 (4,504) million. The margins on lending were higher because of higher risk costs
and higher funding costs, whereas the margins on amounts due to customers were depressed by
stronger competition in the savings market. Securities commission income was lower as a result of the
adverse stock market conditions. Commission income from insurances was likewise lower than in 2007.
Commission income from treasury services and payment services was higher. Total commission income
for 2008 showed a net decrease of 2%, to EUR 1,354 (1,379) million.
Operating expenses up 5%
Total operating expenses were 5% higher in the year under review, at EUR 4,044 (3,835) million. Staff costs
were 9% higher, at EUR 2,264 (2,072) million, as a result of higher cost of contractors, salary increases and
higher social insurance contributions. Staffing level in the domestic retail banking business declined by
I to 28,953 (29,304) FTEs. Other administrative expenses were 1 higher, at EUR 1,639 (1,618) million.
The item 'value adjustments'increased by 37% in 2008 to EUR 199 (145) million. Due to the worsened
economic conditions, the loan losses were higher, particularly in the corporate loan portfolio. As a result,
the impairment losses were 8 (6) basis points of average lending, against the long-term average of
II basis points.
Capital requirement and RAROC
In the calculation of capital requirement under Basel II, the risks associated with loans to private
individuals and corporate loans are estimated using the bank's own risk models and taking account of
collateral. In 2008, the capital requirement was reduced by 48% to EUR 6.4 (12.2) billion, mainly because
of the implementation of the new rules for solvency, reflecting Rabobank's low risk profile. The
economic capital, i.e. the internal capital requirement, amounted to EUR 8.7 (8.9) billion. In 2008,
domestic retail banking achieved a Risk Adjusted Return On Capital (RAROC) of 17.7% (17.3%).
2009 is likely to be a year of challenges. In its adjusted Strategic Framework, Rabobank Group has
reaffirmed its ambition to be an all-finance service provider and to pursue market leadership in all
market segments in the Netherlands.This ambition will be defined further in 2009, with additional
investments for growth in the corporate market, the market for private banking and the big cities.
The collaboration with Eureko in the area of insurance products will be intensified. Many local Rabobanks
are to participate in the Rabobank 2010 programme. In order to ensure sound balance sheet ratios,
growth in lending must for the greater part be financed from growth in the amounts due to customers.
The stronger competition in the savings market will continue to depress the margins on amounts due
to customers. With its cooperative roots, Rabobank traditionally focuses on long-term relationships
with clients. Even in more difficult times, clients must still have access to financial means. For 2009,
Rabobank expects growth in lending to be lower because businesses are likely to invest less due to
the economic downturn and because the demand for mortgages will fall as the housing market cools
down. Margins on lending are expected to improve because higher costs of risk and funding will be
charged on. For the long term, it is vital to maintain profitable. For that reason, cost management will be
even tighter in 2009.
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Report of the Executive Board
