Press release interim results 2014
Rabobank interim results 2014: net profit of EUR 1.1 billion
- Rabobank Group recorded net profit of EUR 1,080 million in the first half year of 2014. The result was reduced by EUR 214 million by the resolution levy.
- Significant cost reduction in combination with slight increase in interest income led to an improvement of the efficiency ratio by 4%-age points to 61.7%.
- Solvency, expressed as the common equity tier 1 ratio, was 12.6% and the capital ratio was 19.7%.
- The liquidity position remained strong with a buffer of EUR 103 billion.
- Amounts due to customers decreased by 1% to EUR 323 billion. Private savings fell by 2% to EUR 148.4 billion.
- Private sector loan portfolio decreased slightly, by EUR 1.5 billion to EUR 433 billion.
Rabobank Group recorded net profit of EUR 1,080 million in the first six months of 2014. The result was reduced by EUR 214 million by the resolution levy, a non-recurring levy by the Dutch government for the banking sector in connection with the nationalisation of SNS Reaal.
Following a weak first quarter, the economic recovery continued in the second quarter of 2014 and the economy in the Netherlands grew cautiously, mainly due to exports and corporate investments. The recovery of the housing market is continuing fairly vigorously and consumer confidence is likewise showing an encouraging recovery. Value adjustments at the group level remained high in the first half of 2014, at
EUR 1,188 million, or 54 basis points of average lending; the long-term average is
32 basis points. Deferred tax assets relating to losses incurred in the past at ACC Loan Management contributed to a low tax burden, benefiting net profit. Higher early repayments on residential mortgages contributed to a limited decrease of the loan portfolio by EUR 1.5 billion to EUR 433.2 billion. Amounts due to customers decreased by 1% to EUR 323.0 billion. Rabobank Group’s equity at 30 June was EUR 39.9 (39.4) billion. An amount of EUR 1.1 billion of profit was added to equity. In addition, distributions of EUR 0.6 billion on (equity) instruments (Rabobank Certificates, Capital Securities and Trust Preferred Securities) were charged to equity. Solvency remained strong with a common equity tier 1 ratio of 12.6% and a capital ratio of 19.7%.
Domestic retail banking: net profit of EUR 341 million
The net result of the domestic retail banking division fell from EUR 615 million to
EUR 341 million in the first half year of 2014 (-45%). Last year the result benefited from the transition to a new pension scheme. This year the result was adversely affected by the resolution levy. Excluding these non-recurring effects, the result of domestic retail banking improved. Value adjustments remained at a high level at EUR 578 million, or
38 basis points of average lending. In the food and agri sector, the bad debt costs are concentrated in greenhouse horticulture. The first half of 2014 continued to be challenging for businesses in this sector, with prices being pressured by high production. Within trade, industry and services, the bad debt costs were relatively high for the industrial and commercial real estate sectors in particular. Value adjustments on residential mortgages in the Netherlands remained very low, at 5 basis points of the mortgage portfolio.
Many customers made early repayments on part of their mortgage. This contributed to a decrease of the domestic loan portfolio from EUR 303.1 billion to EUR 298.8 billion. Amounts due to customers fell by 1% to EUR 214.0 billion. The local Rabobanks are fully engaged in the change process Vision 2016, with a significant focus on the virtualisation of services. Vision 2016 also entails a reduction in the number of jobs; the internal employee base in domestic retail banking decreased by 1,807 FTEs to 25,192 FTEs.
Wholesale banking and international retail banking: net profit of EUR 389 million
The net result of wholesale banking and international retail banking totalled EUR 389 million in the first half of 2014, a decrease of EUR 105 million (-21%) compared with the same period of last year. This decrease was partly due to de-risking. Bad debt costs fell at both rural and retail banking and at wholesale banking, to 35 basis points of average lending. The lower gross result and higher taxation led to a decrease in net profit, however. Partly due to currency effects, the loan portfolio increased by EUR 2.1 billion to EUR 89.9 billion. The share of food and agri continued to increase to 57%. The aggregate savings deposits at RaboDirect savings banks increased by EUR 0.6 billion to EUR 29.7 billion.
Leasing: net profit of EUR 223 million
Net profit of the leasing segment in the first half of 2014, at EUR 223 million, was down 4% from EUR 232 million in the same period of last year. The lease portfolio grew by 4% to EUR 31.3 billion and the share of food and agri in the lease portfolio was further increased to 32%. The Dutch lease portfolio totalled EUR 6.1 billion. The bad debt costs amounted to 47 basis points of average lending, 21 basis points below the long-term average. Partly due to tight risk management and the adequate diversification of the lease portfolio across countries and sectors, bad debt costs fell by 12 basis points compared to last year.
Real estate: net loss of EUR 90 million
The real estate segment reported a loss of EUR 90 million, a considerable improvement compared to the same period in 2013 when the loss amounted to EUR 189 million. The result was again adversely affected by value adjustments at real estate financier FGH Bank in the first half year of 2014. The bad debt costs amounted to 391 basis points of average lending, compared to a long-term average of 53 basis points. The loan portfolio at FGH Bank remained virtually stable at EUR 19.6 billion. The situation in the Dutch housing market improved. Bouwfonds Property Development sold 2,562 properties, up 46% from the same period of last year.
Rabobank Certificates have been listed on Euronext Amsterdam since 27 January 2014. Listing the certificates on the stock exchange means that all investors, private and institutional, can buy and sell Rabobank Certificates on a daily and continual basis. In the past half year, the price increases of Rabobank Certificates were similar to those of subordinated bonds listed on the stock exchange. Rabobank includes the consequences of the stock exchange listing of the Rabobank Certificates in the periodical adjustment of the investment framework it applies in advising its investing customers. From now on, Rabobank Certificates will be qualified and treated as 'subordinated bonds' and no longer as 'cooperative participations' in our customers' investment portfolios, which may lead to a reconsideration of the composition of the portfolio. The adjustment of the investment framework is also in line with the further simplification of the investment service concepts. Rabobank will in this connection continue to discuss the composition of investment portfolios with its customers. In the end, customers themselves take decisions on the composition of their portfolio.
The potential impact of the Asset Quality Review (AQR) is uncertain, as the European Central Bank and the Dutch Central Bank DNB do not provide any interim updates on outcomes. We are expecting a cautiously continuing economic recovery in the second half of the year. Private consumption is picking up slightly more vigorously than expected and the movements in the housing market are positive. The consequences of the trade conflict with Russia that has recently flared up represent an uncertain factor, however. The Russian sanctions can have an adverse impact on a number of our business customers and may therefore also adversely affect Rabobank’s result to a limited extent. We are assuming that the current trade conflict will not continue to escalate and that the climate of trust will not be further eroded. Should this happen nonetheless, a weaker development of the economy in 2014 and 2015 cannot be excluded.