Outlook for domestic retail banking
Operating expenses up 15%
Total operating expenses at domestic retail banking were up 15% in 2013, rising to EUR 5,015
(4,360) million. Other administrative expenses increased EUR 653 million to EUR 2,408 (1,755)
million, driven by higher reorganisation costs to EUR 283 million in connection with Vision 2016
and increased costs of innovation at Rabobank Nederland, which are fully recharged to the local
Rabobanks. Despite the lower staff complement, staff costs remained more or less unchanged
at EUR 2,463 (2,454) million. This was due to the increase in individual redundancy payments in
2013. As a result of lower amortisation of intangible non-current assets, amortisation costs fell
by EUR 7 million to EUR 144 (151) million.
Bad debt costs at 45 basis points
The weak economy in the Netherlands led to a high level of value adjustments in 2013.
In the food and agri sector, bad debt costs were mostly incurred in greenhouse horticulture.
In theTIS sector, the real estate sector and sectors focusing on the domestic market experienced
difficulties. In the transport sector, it was mainly the inland shipping business that suffered.
There continue to be concerns about the non-food retail, construction, hospitality and
automotive sectors. Companies focusing on international markets can benefit from higher
exports. The value adjustments at domestic retail banking came to EUR 1,384 (1,329) million in
2013. Bad debt costs came to 45 (44) basis points of average lending, against a long-term
average of 16 basis points.
Regulatory capital down 3%
In calculating the capital requirement, risks associated with loans to private individuals and
businesses are estimated using internal rating and risk models. Compared to a year earlier, there
was a slight fall in the regulatory capital for the domestic retail banking division to EUR 6.6 (6.8)
billion at the end of 2013. This decline is in line with the development of the loan portfolio.
Operational risk also declined. The economic capital remained unchanged at EUR 9.1 (9.1)
billion, as a decline in credit risk and operational risk was offset by an increase in interest-rate risk.
The period of long and deep economic contraction appears to be coming to an end in 2014.
This does not mean that the economic problems in the Netherlands are over. The global
pick-up in growth has not (as yet) provided sufficient counterweight to the domestic problems,
which are expected to restrict the Dutch economy to a negligible rate of growth and to cause a
further rise in unemployment. Consumption is under pressure because households, banks and
government institutions want to improve their capital position. Disposable income is still tight,
because of the rise in unemployment and limited wage increases. All in all, this is expected to
lead to a slight contraction in lending and a stabilisation of amounts due to customers for the
domestic retail banking division in 2014. The further implementation of Vision 2016 should lead
to better customer service and a more efficient organisation. Based on the economic outlook,
we expect to see a small decline in bad debt costs. Taking everything into account, we expect
to see a modest recovery in the result for domestic retail banking. The need for restraint and
cost control will however continue to be as essential as ever.
Broad range of services in the Netherlands