Notes to the financial results of Rabobank
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Contents Foreword Management report Corporate governance Consolidated Financial Statements Company Financial Statements Pillar 3
Net profit landed at EUR 2,024 million
Rabobank posted a net profit of EUR 2,024 (2,214) million in
2016. Impairments on Rabobank's stake in Achmea lowered net
profit in 2016 by in aggregate EUR 700 million, whereas in 2015
an impairment on goodwill with regard to our retail subsidiary
RNA in the United States reduced net profit by EUR 604 million.
The net profit was pressured by higher administrative expenses
due to the additional provision for adopting the SME interest
rate derivatives recovery framework and due to higher
restructuring costs. Furthermore, Rabobank's increased
contribution to the resolution fund and ex-ante contribution to
the DGS fund affected net profit by EUR 106 million. The loan
impairment charges decreased to EUR 310 (1,033) million in
2016, positively influencing net profit.
Underlying performance improvement on track
The underlying performance improvement is on track to
achieve the targets of the Strategic Framework 2016-2020, as
illustrated by the development of the underlying operating
profit before tax. The underlying operating profit before tax was
EUR 4,090 million, an increase of EUR 498 million compared
to last year. In calculating this underlying profit, a correction
was made for the impairment on Rabobank's stake in Achmea,
the book profit on the sale of Athlon, the provision for interest
rate derivatives, restructuring costs and for the fair value items.
The 2015 underlying profit was also corrected for the goodwill
impairment for RNA.
Development of underlying operating profit before tax
Amounts in millions of euros
2016
2015
Operating profit before tax
2,718
2,869
Impairment Rabobank's stake in Achmea and
goodwill impairment RNA
700
604
Book profit on the sale of Athlon
(251)
Provision for interest rate derivatives
514
150
Restructuring costs
515
245
Hedge accounting and structured notes
(106)
(276)
Underlying operating profit before tax
4,090
3,592
Rabobank Group retained EUR 749 million of its net profit to
bolster capital in 2016. Tax amounted to EUR 694 (655) million,
with the effective tax rate amounting to 26% (23%).
Total income decreased by 2%
Net interest income down 4%
Net interest income amounted to EUR 8,743 (9,139) million.
Lending at local Rabobanks and FGH Bank was down, which'
development is reflected in a lower contribution of net interest
income. At Wholesale, Rural and Retail commercial interest
margins stabilised. Among others negative interest rates, the
relatively flat interest rate curve and higher liquidity buffer
costs led to lower net interest income from the Group Treasury
activities. Net interest income at DLL was stable. The average
net interest margin, calculated by dividing the average net
interest income in 2016 by the average balance sheet total in
the corresponding period, decreased from 1.33% to 1.29%.
Net fee and commission income up 1%
Net fee and commission income increased to EUR 1,918 (1,892)
million in 2016. At the local Rabobanks, net fee and
commission on payments increased. At WRR, net fee and
commission income increased in line with the strategy of
more fee-generating business and as result of growth of the
loan portfolio. Also, at DLL, the growth of the loan portfolio
resulted in higher net fee and commission income. However,
the rise was tempered by the fall in net fee and commission
income from the real estate segment, due to the demerger of
Fondsenbeheer Nederland, which still contributed to net fee
and commission income until June 2015.
Other income up 8%
In 2016, other income increased to EUR 2,144 (1,983) million,
mainly as a result of the sale of Athlon. This sale resulted for
DLL in a book profit of EUR 251 million. More information on
this sale can be found in the chapter Leasing. Furthermore,
the sale of mortgages by the local Rabobanks contributed
to the increase of other income. At WRR, Markets performed
better compared to 2015 and also the release of foreign
exchange reserves connected to the closing of Rabobank's
office in Curagao contributed to the increase in other income.
The increase of the other income item was tempered by the
lower (regular) results on our investment in Achmea and lower
results on structured notes and hedge accounting.
Structured notes
The gross result on structured notes and hedge accounting
decreased by EUR 170 million to EUR 106 (276) million.
Structured notes are issued notes with optionality and/or other
embedded derivatives which are mainly linked to interest rates,
inflation and equity, or which have a callable feature and are
issued in a wide range of currencies. The primary objective is
to increase long-term funding under favourable conditions
compared to the larger public bond issues. This is possible as
structured notes are sold to investors and structured at their
request ('reverse enquiry'). Furthermore, issuance of structured
notes diversifies Rabobank's funding profile and allows for
issuing with non-standard terms. To reduce the volatility in the
statement of income, with the exception of own credit risk, fair
value accounting is applied to these notes.
30 Rabobank Annual Report 2016
