How can we meet both the public demand
for loans and the requirements set by the
supervisor?
Dilemma
Rabobank strives to achieve sound capital ratios
appropriate to our ambition to be a rock-solid bank.
Growth in lending with no change in capital will however
lead to lower capital ratios.
The supervisor is requiring banks to maintain higher capital
buffers.This is necessary to make banks more resilient in case of
losses. Most of the buffers are currently established on the basis
of a bank's risk-weighted assets. For each loan, the bank uses
models to determine the risk weight depending on the risk
involved in the loan. The higher the risk weight, the more equity
the bank has to hold for the loan in question. The total amount
of the loans multiplied by the risk weights is known as the risk-
weighted assets. If lending increases, the volume of these assets
will also rise.
A bank has various options for strengthening its buffers.
For instance, a smaller loan portfolio with unchanged capital
will lead to higher capital ratios. A bank can also strengthen its
position in this respect by increasing its capital, for instance by
retaining earnings.
Rabobank sees the funding of economic activity by businesses
and consumers as one of its core activities. It is an important
means in serving our customers' interests.This means that we
want, as far as possible, to continue to provide lending to
international food and agri customers and for a broader
customer group in the Netherlands. We are however selective
regarding increasing our lending in order to moderate the
increase in (risk-weighted) assets. We are also exploring the
option of lending without encumbering the balance sheet, for
instance by the placement of packages of loans.
We also strive to strengthen our capital ratios by achieving
sufficient net profit. In addition to the moderation of the risk-
weighted assets, higher capital ratios require large additions to
capital in the coming years.This in turn requires a healthy level
of profitability. This poses a dilemma: how can we achieve
adequate profits and serve our customers interests at the same
time?
Adequate net profit - leaving sufficient capacity for adding
profit to our capital - requires decent margins on our products.
The price we charge our customers for a product must reflect
our own costs plus an appropriate profit margin. In addition, we
strive to keep our costs in line with the market. The banking
risks that we take must be appropriate to our core banking
business. At the same time, we have to keep these risks
manageable and our charges must be transparent to the public.
This should lead to a level of profitability and solid capital ratios
that are appropriate to our ambition to be a rock-solid bank that
puts the interests of our customers and society at large first.
45 Rock-solid bank: performance
