Notes to financial results
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Pillar 3
Income decreased 2%
Rabobank's domestic retail banking business total income
decreased to EUR 6,859 (7,000) million in 2016. Margins
on new lending improved, whereas margins on payment
accounts were lower. At the same time, we observed increased
volumes of early interest rate revisions in our mortgage book.
These early revisions include interest rate averaging, which
was offered to our clients as from the second half of the year.
Combined with the decrease in lending volumes net interest
income was pressured and decreased to EUR 5,467 (5,661)
million. The income received from prepayment penalties,
which is recognised as part of interest income, was used
for the recouponing of swaps. By recouponing a swap, the
historical interest coupon paid is lowered which ultimately
will bring down the future total interest rate risk costs. Higher
commission on payments contributed to an increase in net fee
and commission income to EUR 1,334 (1,321) million. The sale
of mortgages contributed to an increase of other income to
EUR 58 (18) million.
Operating expenses up 7%
Total operating expenses for domestic retail banking
increased to EUR 5,028 (4,720) million. Excluding restructuring
expenses (EUR 325 (245) million) and the additional provision
following Rabobank's adoption of the SME interest rate
derivatives recovery framework (EUR 514 (150) million),
operating expenses amounted to EUR 4,189 (4,325) million.
Staff costs fell to EUR 1,798 (2,134) million as the virtualisation
and centralisation of services impacted the size of the
workforce. The number of internal and external employees
in the segment decreased to 17,455 (24,341) FTEs in 2016.
Part of this decrease is the result of the movement of
employees from local Rabobanks to the central organisation.
Other administrative expenses rose to EUR 3,113 (2,470) million,
mainly due to the additional provision of EUR 514 million in
the first half of 2016 following Rabobank's adoption of the
SME interest rate derivatives recovery framework. Furthermore,
the restructuring costs also increased due to the high level
of redundancies compared to 2015. As a result of higher
depreciation on intangible fixed assets, depreciation increased
to EUR 117 (116) million.
Loan impairment charges remained low
In the Netherlands, the further recovery of the economy was
clearly reflected in the limited number of newly defaulted loans
and high releases on the loan impairment allowance. Also the
allowances for loans for which a provision had already been
taken proved to be sufficient. Low loan impairment charges
decreased to only EUR 25 (343) million in 2016. This translates
into 1 (12) basis points of the average loan portfolio - far
below the long-term average of 23 basis points. The low
impairment charges are noticeable in almost all sectors, except
for sea and coastal shipping, for which structural problems
continue. Although loan impairment charges in glasshouse
horticulture were negative for the second consecutive year due
to releases, the sector is still facing fragile market conditions.
The dairy sector also saw low loan impairment charges, but was
confronted with liquidity shortages and uncertainties regarding
the phosphate policy, which will result in a significant decline in
livestock in the coming years.
The positive economic developments in recent years will
probably continue in 2017. Despite uncertain factors in global
politics, the Dutch economy is, according to RaboResearch,
expected to grow 1.8% in 2017, after growth of 2.1% in 2016.
We forecast expenditures within the Netherlands to increase
and unemployment rates are expected to go down even further.
High consumer confidence combined with an increase in
disposable household income will stimulate consumption
in 2017. Loan impairment charges are expected to remain
relatively low. In this respect, the international situation is
a cause for concern: there are currently many downward risks to
global trade growth that could negatively affect Dutch export
growth in 2017 and beyond.
In 2017, Rabobank will continue to focus on its customers,
optimisation of the balance sheet and a further performance
improvement. Our forecast is that mortgage interest rates will
remain low, but will not decline further in 2017. As a result of
the historically low interest rates on savings, extra mortgages
repayments are expected to remain relatively high in 2017,
leading to a moderate reduction of the retail banking business
loan portfolio. The decrease of total assets also reflects our efforts
to make the balance sheet more flexible and reduce its use.
37 Our output and impact: improving performance
