Outlook for domestic retail banking Bad debt costs at 13 basis points stood at EUR 313 (323) million and commissions from life insurance came to EUR 16 (30) million. Other results were comprised mostly of dividends from Rabobank Nederland; this item amounted to EUR 294 (505) million. Operating expenses down 2% Total operating expenses at domestic retail banking saw a 2% drop in 2010, falling to EUR 3,833 (3,898) million. There was a decline in costs of contract staff and staff costs. The headcount was down 4% to 27,322 (28,529) FTEs. Owing to these developments, staff costs fell by 2% on balance to EUR 2,161 (2,196) million. Landing at EUR 1,553 (1,569) million, other administrative expenses were virtually stable. Depreciation charges on real estate and equipment were lower in 2010, as a result of which the item depreciation and amortisation decreased by 11%, dropping to EUR 119 (133) million. The economic recovery of 2010 is reflected in developments in bad debt costs at domestic retail banking, which dropped compared to 2009. But the recovery did not yet benefit every sector. The construction industry, for instance, is at the tail end of the economic cycle and is still suffering the consequences of the recession. Due to low consumer confidence, sectors specialising in durable consumer goods did not yet benefit from the economic upswing either. Value adjustments fell by 50% to EUR 358 (721million. This corresponds to 13 (26) basis points of average lending, which is moving towards the long-term average of 11 basis points. Of total lending, 69% is comprised of home mortgage loans. Bad debt costs on home mortgage loans were low at 4 basis points. Capital requirement and RAROC In calculating the capital requirement, risks associated with loans to retail clients are estimated using internal rating and risk models. Allowance is made for any securities or collateral provided. 2010 saw an increase in lending combined with an improvement in client ratings, which resulted in a stable capital requirement for domestic retail banking at EUR 6.7 (6.7) billion. Economic capital, i.e. the internal capital requirement, stood at EUR 8.1 (7.6) billion. Risk Adjusted Return On Capital (RAROC) was up 8.6 percentage points to 23.8% (15.2%) thanks to an increase in earnings. World trade is pulling the Dutch economy away from the recession, but growth remains slow. Economic growth is even expected to weaken again in 2011Moreover, owing to government spending cuts, consumer purchasing power will hardly increase on balance, and developments for the period after 2011 are uncertain. Consumer spending will more or less stagnate and investment growth at businesses will be limited as a result. For these reasons, we expect only limited growth in lending in 2011. House prices are likely to stabilise, but regional differences will remain large. Although more volatility in the pricing of agricultural commodities is expected in the food and agri sector, the outlook is positive thanks to the steady growth of the world population and a higher standard of living in countries such as India and China. The relatively limited growth in activity levels weighs down on the increase in income.This will prompt domestic retail banking to implement further cost control measures. The deeper collaboration between Rabobank and Eureko will lead to further integration of the processes of the two organisations. Interpolis is also developing innovative and accessible products and services for clients. After the success of the Interpolis ZekerVanJeZaak Polis insurance policy for businesses with revenues under EUR 1 million, we are now also exploring options for offering larger businesses a single product application. 32 Annual Report 2010 Rabobank Group

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Annual Reports Rabobank | 2010 | | pagina 33