About this Report Chairman's Foreword Corporate Management Report Appendices Governance Consolidated Financial Company Financial Statements Statements Net Fee and Commission income Increased Slightly In 2018, net fee and commission income increased slightly to EUR 1,931 (2017:1,915) million. Investment management services and insurance policies contributed to a higher net fee and commission income at DRB. Local Rabobanks we saw higher commissions on payment accounts. At WRR, net fee and commission income increased slightly thanks to the strong performance of our Capital Markets division. Also, our Mergers and Acquisitions division performed stronger than in 2017. Net fee and commission income in the Real Estate segment decreased by 83% following the downscaling of activities by Bouwfonds IM. This was more than offset by higher income earned by our core business segments. Net fee and commission income at DLL increased by 41%. This increase comes from higher fee income for syndicated leases as well as a negative one-off adjustment in 2017. Other Results Up 23% The increase in other results to EUR 1,530 (2017:1,243) million can be partly attributed to the improved result on fair value items. On balance, the gross result on fair value items improved from a negative result of EUR 313 million in 2017 to a negative result of EUR 115 million in 2018. Also, higher results on ourequity stake in Achmea contributed to the increase of other results. Other results at WRR decreased by 26% as our Markets division could not match the previous year's strong performance. The Real Estate segment's other results increased by 19% due to gains on the sales of the residual part of FGH Bank's loan portfolio and of BPD's French subsidiary (BPD Marignan), BPD's improved performance in general. At DLL, other results went up by 32%, as a result of the reversal of an impairment taken at year-end 2017 due to a portfolio optimization. Operating Expenses Decreased by 8% Staff Costs Down 4% In 2018, the total number of employees (including external hires) at Rabobank decreased by 1,868 FTEs to 41,861 (2017: 43,729) FTEs mainly because of the large restructuring programs in the Netherlands. The largest reduction in staff in 2018 was realized at local Rabobanks. At WRR and DLL, staff levels increased as expected. At WRR more (temporary) staff came on board for the execution of several (regulatory) projects, whereas DLL needed more resources to support business growth. Overall staff costs decreased by 4% to EUR 4,278 (2017:4,472) million, which was tempered by an increase in costs for temporary staff. In 2018 the costs associated with the 2% pension accrual guarantee given in 2013 to the pension fund (covering the years 2014-2020) decreased to EUR 12 (2017:160) million. This accounts for part of the decrease in staff costs. This guarantee is capped at EUR 217 million, of which EUR 202 million has already been used up until 2018. Other Administrative Expenses Decreased by i2% Total other administrative expenses decreased to EUR 2,780 (2017: 3,176) million in 2018.This decrease can be largely explained by the EUR 310 million provision taken by RNA in 2017 for compliance program matters. Lower restructuring costs (EUR 120 million versus EUR 159 million in 2017) helped reduce other administrative expenses as well. Depreciation Down 4% Depreciation decreased to EUR 388 (2017:406) million as a result of our restructuring efforts and the consequential closing down of offices in the Netherlands. Impairment Charges on Financial Assets at 5 Basis Points In 2018 impairment charges on financial assets amounted to EUR 190 million. Although higher than in 2017 (a net release of EUR 190 million), they are still at a low level. We again saw favorable developments in most business segments. Relative to the average private sector loan portfolio, impairment charges on financial assets amounted to 5 basis points (2017: minus 5 basis points). Calculated over the past 10 years (2008-2017) and including the elevated level of impairment charges over the years 2012 - 2014, the average impairment charges amount to 34 basis points. On January 1, 2018 the non-performing loans showed a one-off increase of EUR 1.9 billion to EUR 20.2 (2017:18.3) billion due to the application of a more prudent "Definition of Default" to our sizable mortgage and SME portfolios. This change is in line with new EBA guidelines, which banks across Europe have to implement by January 12021 at the latest. On December 31 2018, non-performing loans (on a like-for-like basis) decreased to EUR 18.4 billion. Next to underlying improvements as a result of the favorable economic climate, the sale of a legacy CRE portfolio also resulted in a decrease in the stock of non-performing loans. All in all, as at December 31, 2018 the NPL ratio (non-performing loans and advances as a percentage of the aggregate amount of loans and advances) declined to 3.5% (January 1,2018:3.8%). The related NPL coverage ratio (impairment allowances, excluding Stage 1 2 allowances, as a percentage of non-performing loans and advances) decreased to 22% (January 12018:24%). The sale and write-offs of highly provisioned loans (including non-core CRE) resulted in a decline in NPL Coverage Ratio. In more general terms, Rabobank's NPL Coverage Ratio is affected by relatively sizable portfolios in the stock of non-performing loans that are well collateralized and that are generally characterized by a high cure rate and high recovery rate. In addition, the positive economic outlook enable higher expected collateral values. Annual Report 2018 - Management Report 54

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Annual Reports Rabobank | 2018 | | pagina 56