About this
Report
Chairman's
Foreword
Corporate
Management Report Appendices Governance
Consolidated Financial Company Financial
Statements Statements
The final impact of Basel IV could be mitigated through:
Changes in product and portfolio composition and, for
example, a reduction of committed credit lines and undrawn
headroom in credit lines;
Distribution of assets;
Data improvements such as data mapping, improved revenue
information storage, collateral information and external
ratings, and/or
Repricing the longer term assets.
The Basel Committee's latest proposals must still be reviewed and
approved by the EU and then be enacted into Dutch law and
regulations. In the coming period we will continue to maintain
an active dialogue with regulators on several topics of uncertainty
relating to the Basel framework.
Realization of Cost/Income Target in 2020 Will Be
Unlikely
Realizing our Rabobank's targets for performance improvement
will enable future growth. We have already taken several steps to
enhance our effectiveness and efficiency, contributing to an
ROIC' of 7.4% (2017: 6.9%) in 2018. Our cost/income ratio,
including regulatory levies, improved by 5.4% point to 65.9% in
2018 (2017: 71.3%). Several exceptional items affected our cost/
income ratio. In calculating the underlying cost/income ratio,
adjustments were made for these items. On December 31, 2018,
the underlying cost/income ratio, including regulatory levies,
improved to 63.9% (2017: 65.3%).
Transforming Rabobank's operations continued in 2018. The
implementation of our ongoing performance improvement
program "Performance Now!" will help us achieve our targets.
This program consolidates all initiatives that contribute to
performance improvement. Its focus is broader than achieving
greater efficiency and effectiveness: it also ensures that our bank
is ready for the future. The next step in this transition is to ready
the launch of a new omni-channel client service model in our
local Rabobanks in the Netherlands in 2019. Our restructuring
efforts have brought total staffing levels down by 1,868 FTEs,
reducing them to 41,861 FTEs, which also had a downward effect
on our staff costs. The FTE reduction was the consequence of
lowering staffing levels at Domestic Retail Banking (by 1,523 FTEs)
and Real Estate (by 522 FTEs as a result of the sale of BPD
Marignan), and expanding the employee base at both WRR (by
361 FTEs through temporary hires for several projects) and
Leasing (by 308 FTEs)
Improvement of our cost/income ratios will remain a priority for
the coming years, but it will be very challenging to realize the
targeted improvements to a level of 53%-54% by 2020 given the
continuing low interest rate environment and the acceleration
of investments in digitalization and our (data) infrastructure.
Nonetheless, we are still committed to bringing our cost/income
ratio down to 53%-54% in the medium term. We expect that we
need a few more years to see it through, also depending on the
evolution of the interest environment over the next couple of
years. In the meantime, we will continue to further rationalize our
business.
Dilemma: Investing in Digitalization and Innovation
The implementation of new rules and regulations like PSD2,
Basel IV, IFRS9 and privacy regulations (GDPR) present a
dilemma. Adopting the new standards is costly and time
consuming. The same goes for our transition becoming an
even more client-oriented, innovative and digital
organization. At the same time, we have set ourselves targets
to lower our cost base. We have taken a well-informed
decision to continue to invest in initiatives, that we deem
necessary to making Rabobankfuture proof, even if these
investments prevent the realization of our targeted cost/
income ratio by 2020.
Balance Sheet Optimization Continued in 2018
In response to the implementation of several regulations, such
as Basel IVand MREL requirements, Rabobankdecided late in 2015
to further optimize its balance sheet structure. This entails
prioritizing core business like selling assets and portfolio
selection. Asa result, our total outstanding wholesale funding has
decreased by EUR 50.0 billion since year-end 2015, In 2018 our
total outstanding wholesale funding decreased by EUR 7.2 billion
to EUR 153.2 billion, excluding the TLTRO take-up, which
remained stable at EUR 5.0 billion. In August 2018 the bank
completed the inaugural issue of non-preferred senior bonds,
which was well received by investors. Over the coming years,
Rabobank will continue to issue non-preferred senior and
covered bonds in order to further diversify and optimize our
funding composition. The current level of wholesale funding is
satisfactory.
Our total liabilities decreased to EUR 548 (2017: EUR 563) billion,
which can be attributed to decreases in financial liabilities and
debt securities in issue. Our total assets decreased to EUR 590
1 The ROIC is calculated by dividing the net profit realized after non-controlling interests by the core capital (actual tier 1 capital plus the goodwill in
the balance sheet at the end of the reporting period) minus deductions for non-controlling interests in Rabobank's equity.
Annual Report 2018 - Management Report
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