Outlook for domestic retail banking
innovation and group costs. Reorganisation costs were much lower in 2014 than in 2013,
although costs of innovation due to virtualisation of the service provision in 2014 remained at
a similar high level to 2013. With effect from 2014, the costs incurred by Rabobank Nederland
associated with group activities are recharged to the local Rabobanks, in addition to the normal
amounts recharged. On balance, other administrative expenses fell by EUR 175 million to
EUR 2,233 (2,408) million. As a result of lower depreciation on software, depreciation was down
12% to EUR 127 (144) million.
Bad debt costs at 48 basis points
Bad debt costs at domestic retail banking rose, despite the fragile economic recovery in 2014,
and bad debt costs rose by EUR 38 million to EUR 1,422 (1,384) million. Bad debt costs thus
amounted to 48 (45) basis points of average lending, against a long-term average of 19 basis
points. The increase is the result of the charge recognised in connection with the Asset Quality
Review. Bad debt costs in the agri sector mainly concerned greenhouse horticulture. There was
no improvement in the situation for business owners in this segment in 2014. Bad debt costs also
remained high in the commercial real estate sector in 2014. Other sectors such as manufacturing
and wholesale were able to benefit from the pick-up in exports.
Regulatory capital down 2%
In calculating the regulatory capital, or the external capital requirement, risks associated with
loans to private individuals and businesses are estimated using internal rating and risk models.
The regulatory capital for domestic retail banking fell during 2014 to EUR 6.5 (6.6) billion. The fall
in credit risk was to some extent offset by a rise in operational risk. The lower credit risk is in line
with the developments in the loan portfolios. The economic capital, or the internal capital
requirement, amounted to EUR 8.8 (9.1) billion. The economic capital was lower as a result of a
lower interest rate risk position, however the decline was offset by an increase in operational risk.
The economic recovery that began in 2014 will continue in 2015. Unemployment is expected to
fall, and disposable household income will rise for the second consecutive year. The recovery in
the housing market will also contribute to economic growth. Exports will continue to be the
main driver of the Dutch economy, but increased business investment and private consumption
will also contribute to the expected economic recovery. Domestic sectors like construction,
retailing and hospitality will also begin to feel the effects of the recovery. We expect our private
customers to continue to reduce their mortgage debt at a faster rate in 2015, which will lead to
a slight contraction in the size of the domestic retail banking loan portfolio. Modest growth in
the savings market in combination with additional repayments will mean that amounts due to
customers will remain more or less stable. Based on the economic outlook, we expect to see a
decline in bad debt costs. The Vision 2016 programme is reducing operating expenses, and this
will lead to a further recovery in the result of the domestic retail banking division in 2015.
Annual Report 2014 Rabobank Group
