Operating expenses up 7%
Bad debt costs at 52 basis points
Net profit at EUR 2,112 million
RAROC down 2.8 percentage points
Outlook for Rabobank Group
Rabobank Group's operating expenses were up 7% in 2012, rising to EUR 8,831 (8,252) million.
Staff costs saw a 10% rise to EUR 5,325 (4,862) million because of an increase in pension costs
in the Netherlands, the UK and the US, and a temporary step-up in outside staff. These costs
climbed also due to routine pay increases. The headcount at group level stood at 59,628
(59,670) FTEs. It rose on the one hand because of the acquisition of Friesland Bank and a higher
number of employees at the local Rabobanks, and fell on the other due to the completion of
the sale of Sarasin. The acquisition of Friesland Bank and an increase in consultancy fees at
Rabobank International caused an increase in other administrative expenses, whereas the
completion of the sale of Sarasin produced a drop in these expenses. Due, in part, to these
developments, other administrative expenses stood at EUR 2,979 (2,850) million. The sale of
Sarasin was decisive in the 2% drop in impairment losses to EUR 527 (540) million.
Because of the economic climate in the Netherlands and the weak property market,
a relatively high number of TIS customers and customers operating in the property sector
found themselves in financial difficulties. This situation forced Rabobank Group to increase its
provisions, particularly at the local Rabobanks and FGFI Bank. All in all, value adjustments
were up 46% at group level, rising to EUR 2,350 (1,606) million. At 52 (37) basis points of
average lending, bad debt costs were considerably above the long-term average of 25.
Net profit was down 20%, falling to EUR 2,112 (2,627) million, because of higher allocations
to the provision for loan losses and the introduction of bank tax in the Netherlands in 2012.
The bank tax led to an additional expense item for Rabobank Group of EUR 196 million, which
is about one-third of the total amount that was raised against the Dutch banks. The income
tax expense was EUR 160 (355) million, which corresponds to an effective tax rate of 7.7%
(12.5%). Net of non-controlling interests, payments on Rabobank Member Certificates and
hybrid equity instruments, EUR 897 (1,549) million was available in retained earnings.
This amount was used to further shore up Rabobank Group's capital position.
Risk Adjusted Return On Capital (RAROC) is used as a measure whereby profitability is
consistently weighed against risk. The RAROC ratio is used also for pricing at transaction level
and in the credit approval process. Rabobank Group's RAROC ratio after taxes stood at 9.0%
(11.8%) in 2012, a 2.8 percentage point drop on 2011, as a result of a decline in net profit
against 2011 and an increase in economic capital.
Given the economic outlook, lending is expected to show very limited growth only in 2013.
Rabobank Group foresees relatively low demand for home mortgages in the Netherlands
because of the ongoing uncertainty in the housing market, mandatory repayments on
mortgage loans issued in 2013 and mortgage interest relief restrictions. Expectations are
that Rabobank will continue to see competition on the Dutch savings market. Rabobank will
seek to bring about further growth in its International Direct Banking activities. It is planning
extra investments in ICT over the coming years so as to facilitate the envisaged profitability
improvements in 2016. Rabobank Group first became liable to bank tax in 2012; the new
resolution levy will be another additional one-off expense in 2013 or 2014. Although, in view
of these developments, Rabobank Group's first priority in 2013 will be an organisation-wide
focus on margins and costs, this will not be enough to escape pressure on net profit in 2013.
11 Financial developments
