Sustainability is a core element for Rabobank Group
Although strong financial ratios are a conditio sine qua non for cooperatives as well, such ratios have never been truly inspirational. What does inspire people is the meaning of what they do and what they are trying to achieve together. What is it, then, that we at Rabobank are trying to create? We want to realise added value for our clients, hence our ambition to obtain a leading position in our home market. Obviously, a sound financial basis is important in that context, but the overriding principle is for us to act in a sustainable manner and to serve interests
that will hold for the long term. We do this for our clients, our employees and our planet. This is an important element in our vision.
For Rabobank Group, 2007 was a good year, although a tumultuous one. Never in my 38-year career have I seen so many issues in a single year as in 2007. Obviously, the most prominent issue for our sector was the credit market crisis, which upsets the entire financial world. Nevertheless, we succeeded in meeting our own financial targets in 2007 as well, with net profit increasing by 14% to EUR 2.7 billion, compared with EUR 2.3 billion in 2006. Virtually all Group units contributed to this increased result, which reflects not only the benefit of the proper spread of our activities, but also the strength of our modest risk profile. We do, after all, have a Triple A rating. In 2007, great progress was made with the realisation of a number of strategic goals. We succeeded in strengthening our positions in some Dutch markets that are of special importance to Rabobank Group, one being the mortgages market. In order to serve today’s and tomorrow’s customers, we made significant investments in new distribution channels. We also greatly expanded our international retail banking business. In addition, our subsidiaries were able to strengthen their activities and market positions in 2007 in accordance with our strategic principles. Sustainability is core to our operations. In this respect, Rabobank Group made great strides in 2007 and we strengthened our image as the pre-eminent sustainable bank globally.
Stronger market leadership position in the Netherlands
One of the chief principles in our Strategic Framework for the Netherlands is market leadership in all-finance services. In the Dutch mortgages market, where competition remains fierce, the local Rabobanks and Obvion succeeded in growing their market share by more than 2 percentage points, to almost 28%. Many new clients opened savings accounts at the local Rabobanks in 2007, causing our share of the savings market to grow by almost 2 percentage points to 41%. In the start-up market, Rabobank Group increased its market share to 38%. Rabo Bouwfonds strengthened its position in the Dutch market for real estate financing.
Expansion of international activities
As in 2006, much progress was made at the international level. In 2007 we acquired fine banks in California, Indonesia and Chile. In the summer of 2007, I was a guest at our wonderful bank in the Brazilian state of Mato Grosso. Rabobank provides sustainable financing in this region, but under a strict code of conduct. Improper deforestation, or racial or gender discrimination results in loan refusal. In addition, we increased our interest in the Polish BGZ Bank and opened our fourth foreign Internet bank, in Australia.
Internationally, Rabo Development continued its development of rural banks in developing countries in Africa, including Tanzania, Zambia and Mozambique. Paraguay followed later in 2008.
Rabobank’s partner bank in Tanzania uses cash dispensing machines that originate from our local Rabobanks. As a result, the long queues of people waiting at its doors in order to make withdrawals should become a thing of the past. Even more importantly, our Tanzanian partner bank National Microfinance Bank has granted agricultural loans to thousands of farmers.
Credit market crisis hinders Rabobank International
Since the summer of 2007, the financial world was upset by the so-called subprime mortgages in the United States. This ‘credit crunch’, as it has come to be called, also hindered Rabobank International in the second half of 2007. Results for Rabobank International were affected by the credit market crisis. Since trade in a number of professional markets was virtually stagnant, results for Global Financial Markets fell.
Organic recovery in the Netherlands
With mixed news from abroad, everything went quite well in the Netherlands. Our advertising icon Jochem was replaced by Fatima. In terms of name recognition among the Dutch public, Fatima has meanwhile far outstripped Jochem. In addition, Rabobank was pronounced one of the Netherlands’ most popular employers in 2007. According to the Intermediair magazine, we are even the number one. I am proud of these achievements and I hope we shall be able to repeat them for many years to come.
Also in 2007, we enhanced our image as an innovative bank, including tests with paying via Rabo Mobiel cell phones. Rabo Mobiel is one of the many new distribution channels with which we affirm our image as a near-by bank in the new digital world. Another novelty that adds to our reputation was the launch of Bizner, the first online internet merchant bank without account managers or branches, but with self-service. In the Dutch market for consumer loans, De Lage Landen’s Freo is another new, innovative and customer-oriented label.
Best of all though was the news from the Netherlands that the results of the local Rabobanks, after a disappointing year 2006, showed strong recovery in 2007. We saw strong growth in lending, in savings and in the number of securities transactions. The strong growth in savings is good news because funding is at least as important as lending. The people at Rabobank do not work there for their salaries alone. I can tell that our people really want Rabobank to be successful and that they put in an extra effort and show genuine commitment. Their dedication to the success of a local Rabobank reflects on their local community.
Having and keeping satisfied customers is Rabobank’s number one priority
We attach great importance to client satisfaction and loyalty. As in 2006, clients were satisfied with our services in 2007, as is evidenced by the fact that Incompany business magazine awarded the title of the Netherlands’ best private bank to Schretlen & Co, with Rabobank Private Banking coming second.
Members are important to the cooperative
In 2007, work progressed to intensify the engagement and influence of the more than the 1.6 million members that the local Rabobanks now have. Professionalisation within supervisory boards of the local Rabobanks increased further. Also, the cooperative dividend was defined further, with members having a say in the specific expenditure of this money. We are working hard to strengthen ties with our members by offering special member benefits.
Sustainability is in our genes
In 2007, Rabobank distinguished itself in the field of sustainability – and not by climbing on Al Gore’s bandwagon. In fact, we were quite aware of the spirit of the times in 2006 – possibly because the concept of sustainability has been in our genes from our beginnings over a century ago. Examples include the launch of the credit card with climate compensation and the Rabo KlimaatHypotheek. In addition, Robeco acquired the Sustainable Asset Management Group, another leading Swiss sustainable asset manager besides Sarasin, in which we took a controlling interest late in 2006.
Strong performance in asset management, leasing and real estate
Our asset management, leasing and real estate activities each performed very well. It is good to see growing collaboration among the Group units. Obviously, mutual strengthening and support, where possible, are essential to the group concept.
After a number of acquisitions in 2006 and 2007, we decided, on the basis of a strategic reorientation, to sell the Alex online investment bank, because there was an overlap with the services offered through Rabo Direct Beleggen.
We do not shun dilemmas
At the same time, 2007 was not without issues. Examples include the Bouwfonds affair, the OpMaat Hypotheek, the Rasmussen issue and the significant shift in the Dutch banking landscape. When we are successful, we are in the limelight. But this does not mean that we make ourselves invisible the moment when difficult issues arise. And when we take a firm position on any issue, we say so publicly.
I can be brief about the Bouwfonds affair. The issue existed even before we acquired parts of Bouwfonds. Naturally, I regret that Rabobank Group’s newly joined unit attracted negative publicity. Still, we are confident about the competitive strength of the new Rabo Bouwfonds combination and the perspectives it offers. The OpMaat Hypotheek issue did not cause us to lose our heads. We have consistently pursued our policy of face-to-face discussions, offering tailored solutions to our clients. Because Rabobank pursues long-term relationships with its clients, the clients’ interests and Rabobank’s relationship with its clients come first. To us, our ongoing duty of care is an integral part of the way we do business with our clients.
Now for the Rasmussen issue. In last year’s Tour de France, the Rabobank cycling team had victory within reach. My ticket for Paris had been booked. And then suddenly, out of the blue, there was this courageous decision by Theo de Rooy and Rabobank. There are no winners with such decisions – at best, they command respect in the longer term. Despite this much-discussed event, our professional Rabo cycling team still had an excellent year, with good results in many prominent races and tours. It was victorious in the Tour of Spain, also known as the Vuelta, for the second consecutive year. The young talents too, showed their best. This gives us a great deal of confidence in the future results of our efforts; not only in the wonderful cycling sport, but also in field hockey and in equestrian sports.
There were some dramatic changes in the Dutch banking landscape. As a result, we gained a significant number of new customers, and savings grew strongly. However, the new Fortis /ABN AMRO combination will be a formidable competitor in the future and the new situation will benefit Rabobank for a limited period only. Meantime, we must seek to strengthen our position, particularly in the corporate market.
Continued financial soundness
Overall, and despite the credit market crisis, 2007 was a good year for Rabobank Group. To be sure, the crisis dit not leave our operations untouched but we still met all our financial targets. Growth in net profit was 14%, which was above our annual 12% target. The Tier I ratio, which testifies to our excellent solvency position, was 10.7. This is above the target of 10. Return on equity, at 10.1%, likewise exceeded the 10% target.
Economic outlook
It is anticipated that the banking crisis will affect world economy development in 2008. Together, the large banks, most of which have global operations, took in 2007 losses totalling over EUR 100 billion. This has led to an unmistakable weakening of their respective solvencies, as a result of which fewer loans can be granted and higher margins will be negotiated.
It is expected that the Netherlands, too, will see some effects of this in 2008. Taking into account the soundness of the Dutch economy, we anticipate that our country, with economic growth of around 2.75%, will remain in first position in Europe.
For 2008, I am moderately optimistic about the world economy. A significant economic slowdown in the United States will be inevitable in the first half of 2008, possibly even a recession. This might result in economic slowdown in Europe, Asia and South America as well.
Rabobank’s economists assume 2% growth for Europe and 6% to 7% growth for Asia. Also, we anticipate that the stock exchange indexes will not rise from their closing levels for 2007.
Outlook for Rabobank Group
The local Rabobanks made a strong contribution to Rabobank Group’s results for 2007. For 2008, we anticipate continued strong competition in the mortgages market and increasing competition in the savings market. For maximum synergy benefits, we intend to focus even more on further integration of our recent acquisitions. Globally, we will continue our focus on growth as a leading food & agri bank. Following the subprime crisis, Rabobank Group will review its various activities within Global Financial Markets.
Several years ago, Rabobank decided to place the focus of its international strategy on food & agri, in line with our agricultural origins. Current events show that this decision was spot on, food & agri is a world-wide booming business. In the future, we will look into the cooperative structure and how it can be given shape in an international context.
Another goal is to expand our positions in sustainable energy globally, not only in biogases but also in wind, solar and hydrogen. Although this is not without risk, Rabobank relies on the knowledge and experience it has gained in this field over the past years. Rabobank International will increase its focus on trade in such items as emission rights, weather derivatives and harvest insurance.
In the Netherlands, the schedule for the local Rabobanks includes the Rabo 2010 project. This involves full integration of the physical local Rabobank, the local call centre, local Internet and local RaboTV, which will make us accessible locally 24 hours a day, 7 days a week. This makes Rabobank unique in the world. The operation will result also in fewer FTEs in the mid and back offices, with more people being deployed in the front office. Rabobank 2010 anticipates on the trend of products being increasingly offered and taken out via new channels, such as the Internet.
Finally, no matter how economic developments will work out in 2008, Rabobank Group will maintain its principle of opting for sustainable solutions in all its planning. Hard commodities, such as copper, iron and oil will remain scarce. Indeed, their reserves will be depleted sooner or later. The so-called soft commodities, such as soy, coffee and palm oil, although they are renewable, will likewise reach a degree of scarcity as a result of growth of the world population and their growing use in biomass as a basis for sustainable energy. This calls for caution from all of us.
What matters, is the continued, healthy existence of our planet, and mankind must not overuse it. Already, we notice climate changes and an increase in the occurrence of natural disasters. We cannot ignore this and will have to act together – all of us – to fight it, even at the cost of some growth.
All things considered, I am very proud of our bank’s performance in 2007, the year in which sustainability and profitability went hand in hand so naturally. In opting for sustainability, a choice that dovetails seamlessly with our cooperative roots, we have chosen the right path. I am convinced it is the path towards Rabobank’s sound financial and socially responsible continuity, also in the longer term.
Bert Heemskerk.
Chairman of the Executive Board
of Rabobank Nederland