Annual Report Rabobank Group

Transcription

1 Annual Report 2008 Rabobank Group

2 Annual Report Key figures 4 Rabobank Group at a glance Rabobank Group 6 Chairman s foreword 9 Strategic Framework 13 Management 16 Profile About the Rabobank Group 6 22 Financial developments in Rabobank Group 28 Domestic retail banking 34 Wholesale banking and international retail banking 40 Asset management and investment 45 Leasing 49 Real estate 53 Insurance 55 Risk management 65 Responsible banking for a sustainable future 71 Why employees are key to our success 74 The members of the cooperative 76 Sponsoring Report of the Executive Board Corporate governance 83 Report of the Supervisory Board of Rabobank Nederland Control aspects Consolidated balance sheet 90 Consolidated profit and loss account 91 Consolidated statement of changes in equity 92 Consolidated cash flow statement 93 Business segments 94 Auditor's report Annual figures 88

3 Key figures Tier I ratio in % Net profit in millions of euros 3,000 2,500 2,000 1,500 1, Lending in billions of euros Due to customers in billions of euros Return on equity in % Amounts in millions of euros Volume of services Total assets 612, , , , ,574 Private sector loan portfolio 408, , , , ,958 Due to customers 304, , , , ,482 Assets under management and held in custody for clients 183, , , , ,300 Financial position and solvency Equity 33,459 31,409 29,377 26,349 23,004 Tier I capital¹ 30,358 28,518 26,391 24,860 21,404 Qualifying capital¹ 30,912 29,190 27,114 25,272 21,205 Risk-weighted assets¹ 238, , , , ,052 Profit and loss account Income 11,652 11,022 10,049 9,363 9,222 Operating expenses 7,611 7,663 6,887 6,242 6,177 Value adjustments 1, Taxation Net profit 2,754 2,696 2,345 2,083 1,793 Ratios Tier I ratio¹ 12.7% 10.7% 10.7% 11.6% 10.9% BIS ratio¹ 13.0% 10.9% 11.0% 11.8% 10.8% Net profit growth 2% 15% 13% 16% 12% Return on equity 9.7% 10.2% 9.4% 9.7% 9.1% Efficiency ratio 65.3% 69.5% 68.5% 66.7% 67.0% Nearby Member banks Offices 1,112 1,159 1,214 1,249 1,299 Cash dispensing machines 3,097 3,107 3,139 3,116 3,062 Members (x 1,000) 1,707 1,638 1,641 1,551 1,456 Client satisfaction private individuals Foreign places of business Market shares (in the Netherlands) Mortgages 30% 28% 26% 23% 25% Savings 43% 41% 39% 39% 39% Small and medium-sized enterprises 39% 38% 38% 38% 40% Food & agri 84% 84% 84% 83% 84% Ratings Standard & Poor s AAA AAA AAA AAA AAA Moody s Investor Service Aaa Aaa Aaa Aaa Aaa 1 These figures have been based on the Basel II requirements with effect from These data cover 92% and 91%, respectively, of the number of FTEs of the Rabobank Group. 3 These data cover 90% of the number of FTEs of the Rabobank Group. 2 Rabobank Group Annual Report 2008

4 Amounts in millions of euros Personell data Number of employees (in FTEs) 60,568 54,737 50,573 45,580 50,216 Employee satisfaction 86% 85% 87% 81% 85% Absenteeism 3.8% 3.8% 3.6% 3.7% 3.8% Females employed 55.1% 55.4% 55.6% 56.3% 55.6% Females in senior positions (> scale 7) 22.1% 20.7% 19.9% 19.0% 17.8% WIA-influx 0.20% 0.15% 0.18% Training expenses Training expenses in EUR per FTE 1,649 1,790 1,518 1,509 1,374 Products and services specifically geared to sustainability Investment Rabo Green Bonds (cumulative) 3,622 3,518 3,130 2,644 1,984 Robeco sustainable assets 2,620 5, Robeco sustainable equity funds Sarasin sustainable assets 4,363 4, Sarasin private equity funds Third party sustainable investment products (via Schretlen & Co and Rabobank Private Banking) Robeco sustainable capital subject to engagement 9,555 15,125 5, Sarasin sustainable capital subject to engagement 1, Rabo sustainable seed capital, venture capital and private equity Payments, savings, loans Green financing (outstanding) 3,373 2,882 2,409 2,184 1,814 Green saving Climate mortgage loan - number amount Stimulation loan, start-up loan, and Growth & Innovation loan (loans managed by Stichting Garantiefonds Rabobank) Loans with Landbouw BF/BF+ surety fund Non-commercial sustainable activities (in millions of euro s) Rabobank Foundation, loans and donations Project Funds, donations Donations by local Rabobanks Donations Rabobank Netherlands, Rabobank International and other Group entities Business operations CO₂-emissions attributable to business operations (tonnes CO₂ x1,000) CO₂ per FTE (tonnes CO₂) Electricity usage (kwh per FTE)² 5,050 4,705 4,580 4,276 3,352 Share of green electricity² 85% 85% 86% 96% 25% Gas usage (in m³ per m² gross floor area)³ A4 Paper usage (kg per fte)⁴ Lease portfolio A, B and C cars (% of total) 73.3% 70.8% These data cover 99% of the FTEs of Rabobank Netherlands, local Rabobanks and Group entities Netherlands related to the share that is purchased centrally. 3 Key figures

5 Rabobank Group at a glance Net profit up 2% in millions of euros Private-sector lending portfolio up 11% in billions of euros , , , , , , , As a stable market party, Rabobank Group achieved strong growth in its amounts due to customers, which increased by 10% to EUR billion. The Tier I ratio was 12.7% and return on equity was 9.7%. Rabobank Group Rabobank Group is an international financial services provider operating on the basis of cooperative principles. The operations include retail banking, wholesale banking, asset management, leasing, real estate and insurance. In the Netherlands, the strategic focus is on all-finance services and, internationally, on expanding its leading position as a food & agri bank. The organisation employs around 61,000 FTEs and has operations in 45 countries. Rabobank Group comprises independent local Rabobanks plus their central organisation Rabobank Nederland and the subsidiaries. Rabobank Group has a 39 per cent stake in insurance company Eureko. Net profit up 13% in millions of euros Private-sector lending portfolio up 10% in billions of euros , , , Despite the turbulence in the financial sector, the local Rabobanks succeeded in strengthening their market positions. Our strong position in the savings market was extended further. Lending showed a strong growth, particularly on the business side. Rabobank Group strengthened its number one position in the mortgages market. The Rabobank 2010 programme, which is aimed at customer service improvement, became available for all local Rabobanks. Domestic retail banking The domestic retail banking business comprises the local Rabobanks, Obvion and Bizner. The 153 independent local Rabobanks have over 1,100 branches and around 29,000 FTEs, and operate more than 3,100 cash dispensing machines. The local Rabobanks serve 7.5 million Dutch clients, both private and corporate, offering a comprehensive package of financial services. Rabobank is the largest mortgage bank, savings bank and insurance agent. It is also the leading bank for the small and mediumsized enterprises sector in the Netherlands. Obvion focuses exclusively on collaboration with independent brokers and it is the largest mortgage lender in this field in the Netherlands. Bizner is an internet bank where businesses can handle their own banking transactions online. Net profit down 92% in millions of euros Private-sector lending portfolio up 11% in billions of euros The financial crisis depressed results in Global Financial Markets and caused an increase in the impairment losses. As a result, Rabobank International s profit decreased. Rabobank International expanded its international retail banking activities further. It increased its existing interest in the Polish Bank BGZ to a 59% majority interest. 4 Rabobank Group Annual Report 2008 Wholesale banking and international retail banking Rabobank International the Group s wholesale banking and international retail banking business focuses on the food & agri sector. This Group entity has branches in 27 countries and employs more than 15,000 FTEs world-wide. Besides regional activities, Rabobank International has divisions with global operations, such as Global Financial Markets, Structured Finance, Leveraged Finance, Renewable Energy & Infrastructure Finance, Direct Banking and Trade & Commodity Finance. The retail activities are performed under the Rabobank label, with the exception of the Irish ACCBank, which is a fullyowned subsidiary, and the Polish Bank BGZ, in which Rabobank International has a 59 per cent stake. In addition, Rabobank International has equity investments in private equity.

6 Net profit up 21% in millions of euros Assets under management and held in custody for clients down 21% in billions of euros The decrease in assets under management, which was due to the fall in share prices, was partly offset by the inflow of assets. The strong performance of Robeco s alternative investments and the gain from the sale of Alex contributed to the result. Sarasin achieved a record inflow of assets and received several awards for its outstanding investment performance. Asset management and investment Rabobank Group s asset management business is handled by Robeco, an asset manager with global operations, as well as by the Swiss private bank Sarasin and by Schretlen & Co, the Dutch private bank. Together, these entities employ around 3,600 FTEs. Rabobank Group has a 46% stake in Sarasin and a voting share of 69%. Net profit unchanged in millions of euros Loan portfolio up 13% in billions of euros De Lage Landen reported satisfactory growth, with higher margins on new contracts. The lease car portfolio increased by 6% to 211,000. De Lage Landen s customer focus earned it the Vendor Lessor of the Year Award. Leasing De Lage Landen is responsible for Rabobank Group s leasing business. Asset financing products help manufacturers, vendors and distributors to boost sales in more than 30 countries all over the world. In addition, De Lage Landen operates its international car lease business Athlon Car Lease in eight European countries. In the Dutch home market, De Lage Landen offers a broad range of leasing and trade financing products. Through the Freo brand, among others, it supports Rabobank Group s efforts to be the Dutch market leader in consumer credits. De Lage Landen employs around 4,700 FTEs. Net profit for Rabo Real Estate Group down 65% in millions of euros Loan portfolio up 22% in billions of euros As a result of worsened market conditions, Rabo Real Estate Group sold fewer owner-occupied houses: 8,746, down from 13,173 in The loan portfolio grew further and the margin on new financings was higher. Real estate assets under management were up 35% to EUR 6.8 billion. Real estate Rabobank Group s private and corporate real estate activities are performed by Rabo Real Estate Group. This real estate enterprise focuses on three core businesses: the development of owneroccupied houses and commercial real estate, finance and asset management. In these markets, Rabo Real Estate Group operates under the brands Bouwfonds Property Development, MAB Development, FGH Bank and Bouwfonds REIM. Rabo Real Estate Group employs more than 1,700 FTEs and operates mainly in the Benelux countries, Germany and France. 5 Rabobank Group at a glance

7 About the Rabobank Group Chairman s foreword 2008 may rightly be called a historic year. The subprime crisis in the United States escalated to become a deep and world-wide financial crisis. Regrettably, it has meanwhile developed into an economic crisis. The banking sector suffered unprecedented and far-reaching consequences. Across the globe - and in our country, too - bankruptcies, government interventions and nationalisations were of the order of the day. It is difficult times like these that the benefits of a cooperative bank clearly come to the fore. Our societally oriented business culture, which is based on the Rhineland model, our democratic consultative structure, our prudent risk management, our sustainable remuneration policy all these factors, combined with our strong financial performance and solvency, have contributed to Rabobank Group s continuing stable performance. In addition, we continued to serve our clients without the help of others. Strategy adjustment called for The radically changing market conditions clearly necessitate an adjustment to our strategy. Like other banks, Rabobank will have to finance a large proportion of its growth in lending from the increase in its amounts due to customers. Even more than in the past, we shall focus on our core activities and on specific growth markets. Where possible, we are expanding our position as the leading provider of allfinance services in the Netherlands. We are claiming the position as the world s best food & agri bank. As a bank that operates in a socially responsible manner, we are making an extra commitment to clean technology and sustainable energy. We use the highest standards for our CSR policy and these will be embedded in our core processes even deeper. We believe that the adjusted strategy will strengthen our national and international market positions and will provide a sound basis for the future. Slight increase in net profit in a difficult year Although 2008 was a very difficult year for the financial sector globally, Rabobank Group realised a 2% rise in net profit to EUR 2.8 billion. Return on equity was 9.7% and the liquidity position lost none of its soundness. Amounts due to customers were 10% higher, at EUR billion. Also, we kept our good access to the capital market. Rising credit prices caused interest margins to improve, particularly for Rabobank International. Our Tier I ratio, the capital ratio that we as a cooperative bank set such great store by, remained very strong, at 12.7%. Last October and November, rating agencies Standard & Poor s and Moody s, respectively, both reconfirmed our triple A rating, with a stable outlook. 6 Rabobank Group Annual Report 2008

8 Bert Heemskerk (H.), Chairman of the Executive Board of Rabobank Nederland. Robust growth in loan portfolio and capital position remains strong The loan portfolio was 11% higher in 2008, at EUR billion. Growth in corporate lending for the local Rabobanks was stronger than in Lending likewise increased at Rabobank International, FGH Bank, De Lage Landen and Obvion. The food & agri position abroad was extended further. Early in 2008, for example, we increased our stake in the Polish Bank BGZ to a majority interest. This bank fits our ambition to be a global leader as a food & agri bank. Influenced by the financial crisis, trading results at Rabobank International declined, as did, project results at Rabo Real Estate Group. Income from the participation in Eureko was negative. Non-recurring gains, such as from the sale of Alex and the consolidation of Bank BGZ, made a positive contribution to earnings. Growing loan losses, which were associated with the worsening economic conditions, caused impairment losses, at 31 basis points of average lending, to be higher than the long-term average of 21 basis points. Helped by retained earnings and the issue of hybrid capital, equity showed in 2008 a 7% net increase to EUR 33.5 billion in Growth in market shares In 2008 Rabobank s market share in the Dutch savings market increased by 2 percentage points to 43%. The local Rabobanks and Obvion succeeded in strengthening their share of the contracting mortgages market from 28% to 30%. Thanks to robust growth in lending to Dutch enterprises, Rabobank strengthened its position in the corporate market further. Our market share in the small and medium-sized enterprises sector increased by 1 percentage point to 39%. De Lage Landen saw a further increase in the volume of its leasing activities. Rabo Real Estate Group sold fewer owner-occupied houses than in 2007, but the real estate financings and the real estate assets under management were both higher. At Group level however, assets under management decreased as a result of the negative returns on stocks. The demand for Robeco s traditional investment products declined. Our Switzerland-based sustainable private bank Sarasin realised a record inflow of assets. The cooperative is there for its clients The value of our cooperative bank manifested itself clearly in In these tumultuous times, Rabobank has shown itself to be an extremely stable factor in the banking sector. As a cooperative, we serve the interests of our members and clients with our explicit focus on the long term. To us, customer satisfaction is an important guiding principle. Under the Rabobank 2010 renewal programme, the local Rabobanks made the first steps towards a better, and modern customer service. I am pleased to see that, in 2008, Rabobank continued to be among the top 3 of customer-friendliest enterprises and also had the best 7 About the Rabobank Group

9 public image among the Dutch banks. Clients likewise indicated their satisfaction with the services of our subsidiaries, such as De Lage Landen. Social engagement and responsibility As a cooperative bank, Rabobank uses clear sustainability and social responsibility criteria for enterprises we finance. The end of 2008 marked the tenth anniversary of our Ethics Committee, which advises on social and moral issues. The expansion of our sustainable investment activities included the acquisition of a stake in Econcern. Robeco likewise positioned itself more emphatically as a sustainable investor. We have started a dialogue with stakeholders on CSR issues and have joined what is known as the Equator principles and the Round Table on Sustainable Palm Oil, among others. Through the Rabobank Foundation, we continued our promotion of cooperatives and microfinance in a number of developing countries in Rabo Development has built up interests in foreign partner banks, acquiring a 40% interest in the Paraguayan Banco Regional and a 35% interest in Banque Populaire du Rwanda in Also, the local Rabobanks again distributed profits, in the form of cooperative dividend, for the benefit of people and society. Economic recovery possibly not until 2010 In 2009, virtually all western economies will have to cope with a recession, and many emerging markets will see a slowdown. An economic downturn occurring in so many countries simultaneously must lead to a fall in international trade. It is anticipated that the impact of the oil price shock in 2008 will in 2009 be followed by the consequences of the continuing state of unrest in financial markets. Of course, all this will not leave the open economy of the Netherlands unaffected. Although the Netherlands had a relatively good starting position when the recession set in - a high gross domestic product and a low unemployment rate this bright picture suddenly, darkened during the fourth quarter of It has since become evident that, with a rising unemployment rate in the offing, the Netherlands, too, is going through a recession. It is difficult to predict how deep this recession is going to be and how long it will last. Much will depend on recovery in the financial markets. If these show an upswing, the world economy could begin to slowly recover in And then the Dutch economy too, driven by growing exports, could find the way up again. Effects on Rabobank Group in 2009 There is no doubt that in 2009, Rabobank Group will feel the consequences of the unfavourable economic climate in the Netherlands and the sombre prospects for the world economy. Our solvency and liquidity are expected to remain strong. In the Netherlands, the competition for savings is likely to continue. The recession will impact our growth in lending and will result in impairment losses that maybe above our long-term average. In these exceptional circumstances, cooperative banking demands extra care in balancing risk against return. It is necessary for us to maintain our robust capital position if we wish to keep on serving our clients well, also in the long term. In 2009, we shall continue to fulfil our role as a socially committed bank that operates responsibly. Bert Heemskerk, Chairman of the Executive Board of Rabobank Nederland 8 Rabobank Group Annual Report 2008

10 Strategic Framework Rabobank Group s course into the future has been plotted in its Strategic Framework The shift in the Dutch banking landscape, which set in last year, and the turbulent developments in the international financial markets now call for adjustments to this framework. Accordingly, at the end of 2008, adjustment proposals for a revised Strategic Framework covering the period were brought up for discussion within the organisation. Under these proposals, the principles will be tightened and refocused in several areas. We firmly believe that this adjusted Strategic Framework will enable Rabobank Group to secure a strong market position for the long term, both nationally and internationally, and to maintain a sound basis for continuity and the creation of customer value. Strategy principles Since its start in 1898, Rabobank Group has grown from a collection of small, cooperative rural banks into a prominent all-finance service provider in the Netherlands and a leading food & agri bank with international operations. Hence, our Strategic Framework positions Rabobank Group as the global food & agri bank with its roots in the Netherlands, using the following strategy principles. Cooperative identity In order to ensure its distinguishing cooperative identity, Rabobank, as a large, independent bank, aims to play a part in the European process of consolidation that is expected for the future. To Rabobank as a cooperative, the client s interest is a guiding principle, and its structure and way of working are focused accordingly. Through their influence and control, members enforce discipline on the cooperative. Austere management and efficiency are integral elements of the bank s cooperative character. Its service provision is oriented for long-term continuity. Dutch all-finance service provider As an all-finance service provider, Rabobank Group offers a comprehensive package of financial products and services. The diversification within the Group benefits its financial stability. Its broad range of knowledge and expertise results in innovation and synergy benefits. Market leadership remains important to Rabobank Group, but not at the expense of unhealthy margins, for it must never lose sight of its cooperative mandate. Global food & agri bank International growth is necessary because opportunities for growth in the domestic market are set to gradually level out. Moreover, food & agri is an attractive niche because of Rabobank s global knowledge leadership, which it owes to its agricultural roots. In addition, Rabobank Group aims to be a global leader in sustainable energy and clean technology, partly in order to ensure sustainable economic development. 9 About the Rabobank Group

11 High credit rating Under the present economic conditions a high credit rating is even more important. Thanks to its triple A status, Rabobank has an edge in terms of access to financing at relatively favourable rates, particularly in difficult times. A robust balance sheet, stable profit growth and a high Tier I ratio are prerequisites for it to be able to sustain this exceptional position. Social responsibility As a cooperative, Rabobank feels a great social responsibility for the global promotion of sustainable economic development. It ranks among the top 3 of the world s most sustainable banks. CSR policy within Rabobank Group, including its core banking processes, must meet the highest possible standards. People are critical to our success Rabobank Group s strategic aspirations can be achieved only with talented, vibrant and motivated people. There is a growing demand, particularly in senior management positions and specialisations, for highly educated and highly qualified staff. Because of the structurally tighter labour market, inflow from outside is becoming less of an assumption that can be relied on. It is therefore important for the future of Rabobank Group to develop in-house talent and to retain that talent. In alignment with the Strategic Framework, there is a special programme to ensure succession at the senior and executive levels. Its further aim is to facilitate succession management for senior and executive managers and to promote internal mobility. Rabobank Group intends to develop similar programmes for middle management. In light of internal developments such as Rabobank 2010 and Rabo Unplugged, a properly functioning training program with clear roles and responsibilities should ensure an adequate training offer that aligns with the organisational need for highly educated and highly qualified staff. Strategy adjustment The turbulent developments in the financial markets and the changes in the Dutch banking sector have been reasons to initiate an adjustment of the Strategic Framework. At the end of 2008 and in connection with the change in circumstances, adjustment proposals for a revised Strategic Framework covering the period were brought up for discussion within Rabobank Group. These have yet to be finalised by the Central Delegates Assembly. Stronger focus on funding As a result of the change in market conditions, Rabobank Group is putting even greater emphasis on sound balance sheet ratios. Growth in lending largely depends on growth in amounts due to customers. It is important that both the local Rabobanks and Rabobank International provide for a significant part of their own funding. Expansion of the activities of subsidiaries will be aligned with the volume of funding available at Rabobank Group. Greater focus on the corporate market In the Netherlands, Rabobank aims to be the largest and most important bank for corporate enterprises. A stronger position in the corporate market offers private banks additional opportunities to the entrepreneur in private as well. Further growth is likewise sought in the private-banking segment through differentiated customer service, collaboration with subsidiaries and improved quality of advice. Implementation of Rabobank 2010 Rabobank wishes to develop further as a cooperative. Its primary target is to help clients achieve their aspirations and is indeed its license to operate. The Rabobank 2010 programme will enable local Rabobanks to offer an optimum response to the changing clients wishes. At the same time, the programme introduces an optimised servicing model and produces cost reductions from standardisation. In order to maintain their market leadership, the local Rabobanks must operate at competitive rates. International: focus on food & agri Rabobank International will focus more on Rabobank Group s core activities. In the Netherlands, this means supporting the ambition to be the largest and most important corporate bank. Abroad, Rabobank 10 Rabobank Group Annual Report 2008

12 International is to focus more on food & agri. In addition, Rabobank International will more strongly manifest itself in the areas of sustainable energy and clean technology. The business entity Global Financial Markets will confine itself to client-related activities and liquidity management; other activities will be phased out. Rabo Development will gradually increase the number of minority interests in partner banks having a food & agri focus in developing countries. Abroad, the Rabobank Foundation will focus on countries where Rabobank International and/or Rabo Development operate. Sharper focus among subsidiaries The subsidiaries likewise will focus more on supporting the realisation of Rabobank Group s core objectives, i.e. all-finance market leadership in the domestic market and building up a distinct position as the world s pre-eminent food & agri bank. Other important main functions of the subsidiaries and participations is continuing to be the leveraging of specialisations and achieving sound financial returns. Strategic and financial core objectives The strategic core objectives are: - to achieve all-finance market leadership in the Netherlands; - to strengthen our position as the leading international food & agri bank; - further growth of, and greater synergies with, our subsidiaries. A continued, high credit rating demands an adequate Tier I ratio and a stable growth in profits. Accordingly, Rabobank Group has formulated the following financial objectives: - Tier I ratio of at least 12.5%; - return on equity of at least 10%; - 10% net profit growth. The changes in market conditions and the choices made have had financial consequences. Because the Basel II regulations entered into force on 1 January, 2008, the minimum for the Tier I ratio has been raised from 10.0% to 12.5%. The shift of activities within Rabobank International towards activities with a lower risk profile has caused us to reduce the expected annual net profit growth from 12% to 10%. Realisation of Strategic Framework Market leadership in the Netherlands strengthened Rabobank Group s market shares in the various private market segments have grown steadily since After an initial decline, to 23%, in 2005, the market share of the local Rabobanks and Obvion in the mortgages market grew to 30% in In the savings market, Rabobank Group s market share grew from 39% in 2004 to 43% in Our market share of consumer credits grew partly as a result of the online Freo label and the establishment of a specialised Consumer Finance unit at De Lage Landen. In the corporate market likewise, market shares in most segments improved by a few percentage points. The policies aimed at strengthening our position in the large cities have resulted in higher market shares for the city banks within their respective operating areas. Building on our international position as a leading food & agri bank Rabobank International has strengthened its position in both traditional and emerging food & agri markets by investing in retail banks abroad. Over the past years, it expanded its activities in the United States by acquiring Community Bank of Central California and Mid-State Bank & Trust. In 2008, a majority interest was acquired in Bank BGZ, in Poland. Smaller acquisitions of retail banking activities were made in Chile and Indonesia in In Brazil, Rabobank started a retail banking network with a strong focus on food & agri. Trade & Commodity Finance, which also focuses on food & agri, shows strong organic growth. For optimum leverage of the synergies, Rabobank is set to focus on integrating the acquisitions made. Over the past years, Rabo Development has been investing in partner banks in Tanzania, China, Zambia, Mozambique, Paraguay and Rwanda. 11 About the Rabobank Group

13 Subsidiaries: further growth and greater synergies The asset management activities were expanded in 2006 by the increase of Rabobank s interest in Sarasin. Synergies were achieved in several areas, including funds distribution. Robeco improved its investment performance and shifted its focus towards alternative investment products. It achieved this by acquiring Transtrend and SAM Group in 2007, among other things. In 2007, it was decided to sell internet broker Alex because of a growing overlap with services provided by Rabo Direct Beleggen. The planned growth of Rabo Real Estate Group was achieved by acquiring parts of Bouwfonds in 2006 and organic growth of FGH Bank. The lease activities grew, both organically and as a result of the acquisition of Athlon Car Lease in The growth in car leasing contributed to Rabobank Group s stronger position in the domestic retail market. In the area of insurance, the integration of Interpolis and Eureko was completed, with the product range now also including health insurance. 12 Rabobank Group Annual Report 2008

14 Management Membership of the Executive Board of Rabobank Nederland From left to right standing: Bert Heemskerk, Piet Moerland. Seated: Piet van Schijndel, Bert Bruggink, Sipko Schat. Members of the Executive Board and their responsibility areas Bert Heemskerk (H.) Chairman (until 30 June 2009) - Group Audit - Communication - Legal and Tax Affairs - Human Resources, corporate - Supervision & Compliance - Knowledge and Economic Research - Executive Secretariat - Rabobank International - Managing Board Rabobank International, Chairman - Regional Management Americas, Asia and Europe - CFRO domain Rabobank International - HR domain Rabobank International Piet Moerland (P.W.) Chairman (from 1 July 2009) - Cooperative & Management Member Banks - Human Resources, Cooperative & Management - SME - Business Management - CSR Bert Bruggink (A.) CFO - Control Rabobank Group - Group Risk Management - Credit Risk Management - Special Credit Management - Treasury - Investor Relations Piet van Schijndel (P.J.A.) - Private individuals - Private Banking - Group ICT - De Lage Landen - Robeco Sipko Schat (S.N.) - Rabobank International - Managing Board Rabobank International, Deputy Chairman - COO domain Rabobank International - Corporate Clients Netherlands - Global Financial Markets - Corporate Finance - Trade & Commodity Finance - Equity investments - Rabo Real Estate Group Hans ten Cate (J.C.) Mr Ten Cate retired on 1 July Secretary to the Executive Board Rens Dinkhuijsen (L.A.M.) 13 About the Rabobank Group

15 Membership of the Supervisory Board of Rabobank Nederland Membership of the Supervisory Board⁵ Name Function Year of first appointment End of current term Lense Koopmans (L.) Chairman Antoon Vermeer (A.J.A.M.) Deputy Chairman Sjoerd Eisma (S.E.) Secretary 2002 (1998)⁶ 2010 Leo Berndsen (L.J.M.) Member Bernard Bijvoet (B.) Member Louise Fresco (L.O.) Member Rinus Minderhoud (M.) Member Paul Overmars (P.F.M.) Member Herman Scheffer (H.C.) Member 2002 (1998)⁶ 2010 Martin Tielen (M.J.M.) Deputy Secretary Aad Veenman (A.W.) Member 2002 (1998)⁶ 2010 Cees Veerman (C.P.) Member Arnold Walravens (A.H.C.M.) Member The committees of the Supervisory Board are stated in the Report of the Supervisory Board of Rabobank Nederland. Directors and Chairmen Directors of Rabobank Nederland⁷ Cor Broekhuyse (C.F.) Rabobank International Ralf Dekker (R.J.) Rabobank International Ab Gillhaus (A.J.) Credit Risk Management Rob ten Heggeler (R.H.L.) Rabobank International Harold Knebel (H.A.J.M.) Rabo Wielerploegen Jos van Lange (J.H.P.M.) Rabo Real Estate Group Hans van der Linden (J.A.M.) Rabo Real Estate Group Bert Mertens (H.H.J.) Cooperative & Management Member Banks Monika Milz (M.R.) Communication Pim Mol (P.W.) Private Banking Rik Op den Brouw (H.) Private individuals Sander Pruijs (J.A.) Rabobank International Harry de Roo (J.H.) Rabobank International Karel Schellens (C.A.C.M.) (until 1 June 2009) De Lage Landen Rutger Schellens (R.V.C.) Rabobank International Gerlinde Silvis (A.G.) Human Resources Rabobank Ronald Slaats (R.A.M.) De Lage Landen Rinus van der Struis (M.) Audit Rabobank Group/Supervision (acting) Jan van Veenendaal (J.) Legal and Tax Affairs 5) Members at 1 January Mr Berndsen, Mr Koopmans and Mr Tielen will retire by rotation in Mr Berndsen has decided not to be available for reappointment for personal reasons. 6) Year of first appointment to the Board of Supervisors of Rabobank Nederland. With the change in Rabobank Nederland's corporate governance structure in 2002, the Supervisory Board replaced the Board of Supervisors. 7) As from 1 March Rabobank Group Annual Report 2008

16 Managing Board of Rabobank International Bert Heemskerk (H.), Chairman Sipko Schat (S.N.), Deputy Chairman Arjo Blok (A.J.) Cor Broekhuyse (C.F.) Ralf Dekker (R.J.) Rob ten Heggeler (R.H.L.) Sander Pruijs (J.A.) Harry de Roo (J.H.) Rutger Schellens (R.V.C.) Chairmen of major subsidiaries Jacek Bartkiewicz (J.) Bank BGZ Roy van Diem (R.) Obvion Hans van der Linden (J.A.M.) Rabo Real Estate Group George Möller (G.A.) Robeco Gerbert Mos (G.A.) Schretlen & Co Harry de Roo (J.A) ACCBank Karel Schellens (C.A.C.M.) (until 1June 2009) De Lage Landen Ronald Slaats (R.A.M.) (from 1 June 2009) De Lage Landen Joachim Straehle (J.H.) Sarasin 15 About the Rabobank Group

17 Profile Rabobank Group is an international financial service provider operating on the basis of cooperative principles. It comprises 153 independent local Rabobanks and their central organisation Rabobank Nederland and its subsidiaries. Rabobank Group employs around 61,000 FTEs in 45 countries. Its operations include retail banking, wholesale banking, asset management, leasing and real estate. It serves some 9.5 million clients around the world. In the Netherlands, its focus is on all-finance services and, internationally, on food & agri. The Rabobank Group entities have strong internal ties, that stem from its cooperative roots. Rabobank Group has the highest credit rating, Triple A, awarded by the well-known international rating agencies Standard & Poor s and Moody s. In terms of Tier I capital, Rabobank Group is among the world s twenty largest financial institutions. Local Rabobanks, Rabobank Nederland and Rabobank International The independent local Rabobanks make up Rabobank Group s cooperative core business. Firmly rooted in society, committed, near-by and a leader, each has its own work district. Clients can become members of their local Rabobank. In turn, the local Rabobanks are members of Rabobank Nederland, the supralocal cooperative organisation that advises and supports the banks in their local services. Rabobank Nederland also supervises the operations, sourcing, solvency and liquidity of the local Rabobanks. With around 1,100 branches and nearly 3,100 cash dispensing machines, the local Rabobanks form the densest banking network in the Netherlands. Together, they employ nearly 29,000 FTEs. In the Netherlands, the local Rabobanks serve approximately 7.5 million clients, both private and corporate, offering a comprehensive package of financial services. Rabobank Nederland is the holding company of a number of specialised subsidiaries in the Netherlands and abroad. Rabobank Nederland employs more than 6,000 FTEs. Rabobank International is Rabobank Group s wholesale bank and international retail bank. It employs more than 15,000 FTEs world-wide and has branches in 27 countries. Mission and ambition Rabobank Group works for the common interest of people and communities, with the objective to achieve their present and future ambitions by supplying the best possible financial solutions and by strengthening mutual collaboration. Based on its commitment, Rabobank Group aims to be a driver and an innovator that contributes to the sustainable development of prosperity and well-being. Based on this mission, Rabobank Group s ambition is to be the largest, best and most customer-driven and innovative financial institution in the Netherlands. In the international environment, Rabobank Group aspires to be the best food & agri bank, with a strong presence in the major food and agriculture countries. For this purpose, Rabobank Group uses the expertise it has accumulated in the Netherlands over many years. In addition, Rabobank Group aims at global excellence in sustainable entrepreneurship, as would befit its identity and position in society. Rabobank Group works hard to embed corporate social responsibility in its core activities even further. The Rabobank values Rabobank s stance in the world is defined by core values that are derived from its mission and ambition: respect, integrity, professionalism and sustainability. All Rabobank Group entities have endorsed these core values as the preconditions for our actions. 16 Rabobank Group Annual Report 2008

18 - Respect: Rabobank Group works with others on a basis of respect, appreciation and commitment. - Integrity: Rabobank Group aims to be fair, honest, careful and reliable in all its actions. - Professionalism: Rabobank Group serves its clients with high-quality knowledge and facilities. It strives to maintain that high quality anticipating where possible on clients future needs and to offer its services in an efficient manner. - Sustainability: Rabobank Group aims to contribute to the sustainable development, both economically, socially and ecologically, of society. It achieves this through, among other things, the Rabobank Foundation, which is funded by Rabobank Group as a whole and helps disadvantaged groups, both at home and abroad, with the aim of giving them the perspective of becoming self-supporting. In addition, Rabo Development has been established with the aim of supporting, with both people and means, the development of partner banks in emerging countries. Based on these core values, Rabobank Group offers all the financial services needed by clients as they participate in an economy-driven modern society. Rabobank respects the culture and traditions of the countries where it operates without losing sight of its own objectives and values, and laws and regulations. Rabobank Group Situation at 1 January million clients 1.7 million members 153 local Rabobanks Rabobank Nederland Support of local Rabobanks Rabobank International Rabobank Group staff functions Private individuals Small & medium-sized enterprises Private Banking Other support units Food & agri Wholesale banking International retail banking Corporate Social Responsibility Investor Relations Long Term Funding Other staff units Labels Asset management Leasing Real estate Insurance Housing Business Robeco Schretlen & Co Sarasin IRIS Orbay De Lage Landen - Athlon - Freo - Crediam Rabo Real Estate Group - Bouwfonds Property Development - MAB Development - FGH Bank - Bouwfonds REIM - Fondsenbeheer Nederland Eureko (39%) - Interpolis Obvion Moviq Zoekallehuizen.nl Bizner Rembrandt F & O The local Rabobanks and their members make up the core of the banking business. They are the cooperative s key stakeholders. Being the central (legal) entity, Rabobank Nederland is in the centre of the organisation chart. In the Netherlands, Rabobank Nederland facilitates the local Rabobanks, including the development of new products and marketing support. It performs staff functions for the local Rabobanks and for Rabobank Group as a whole, including Shared Services & Facilities, Group ICT and Cooperative & Management, Corporate Social Responsibility, Investor Relations, Long Term Funding, Human Resources, Legal and Tax Affairs, Knowledge & Economic Research and Communications. Finally, Rabobank International, with its expertise, serves a large number of corporate and retail clients all over the world. The bottom part of the diagram of the organisation describes the chief labels within the Rabobank Group operating in the various markets under their own brands. 17 About the Rabobank Group

19 Rabobank Group entities Local Rabobanks With more than 1,100 branches and nearly 3,100 cash dispensing machines, the 153 independent local Rabobanks have the densest branch network in the Netherlands and are Holland s pre-eminent near-by bank. The local Rabobanks are independent entities, each with their own operating area. Together, they employ nearly 29,000 FTEs. Being near-by and committed to their clients, they excel in quick response and decision-making. This commitment is reflected in their close ties with local clubs and institutions. Together, the local Rabobanks serve some 7.5 million Dutch clients, both private and corporate, with a comprehensive package of financial services. Many private individuals have current, savings and/or investment accounts and/or mortgages with Rabobank. Traditionally, the local Rabobanks have close ties with the agricultural sector. In addition, they finance a broad range of enterprises, from small shops in the High Street to listed enterprises. Together, the local Rabobanks are the largest insurance broker in the Netherlands. Rabobank Nederland Rabobank Nederland is the central organisation and serves both the local Rabobanks and the Group entities. Rabobank Nederland comprises market support to SMEs, private individuals and private banking clients. In addition, it performs several central staff functions for Rabobank Group. Rabobank Nederland employs more than 6,000 FTEs. Rabobank International Rabobank International - the wholesale banking business and international retail banking business - focuses its activities on the food & agri sector. This Group entity has branches in 27 countries and employs approximately 15,000 FTEs world-wide. Its activities are subdivided into the following regions: Netherlands, Europe outside the Netherlands, North and South America, Australia and New Zealand, and Asia. Across these, Rabobank International distinguishes a number of units with global operations, i.e. Global Financial Markets, Structured Finance, Leveraged Finance, Renewable Energy & Infrastructure Finance, Direct Banking and Trade & Commodity Finance. For optimum service to their clients and markets, the various regions and the units with global operations work closely together. The retail activities are performed under the Rabobank label, with the exception of the Irish ACCBank, which is a wholly-owned subsidiary, and the Polish Bank BGZ, in which Rabobank International has a 59 per cent stake. In addition, Rabobank International has interests in private equity. Subsidiaries In the Netherlands, Rabobank Group operates several financial brands in various markets. These brands are complementary and strengthen Rabobank Group as a single, coherent entity. This helps Rabobank Group achieve the customer value and continuity it pursues. Bizner Bizner is an Internet bank for entrepreneurs who prefer to manage their own banking transactions online. At Bizner, entrepreneurs can purchase, manage and change all basic financial products. Bizner employs around 30 FTEs. De Lage Landen De Lage Landen is the lease subsidiary within Rabobank Group. It offers flexible asset finance products in order to help producers, vendors and distributors in more than 30 countries around the world market their products. With its innovative financing programmes, De Lage Landen can distinguish itself in a competitive market. In its Dutch home market, De Lage Landen offers a broad range of lease and trade finance products, either directly to clients or through the local Rabobanks. Through international car lease company Athlon Car Lease, De Lage Landen operates in eight countries in Europe. In the Dutch market, De Lage Landen supports Rabobank Group in its pursuit of market leadership in consumer credits, in part through the Freo label. De Lage Landen employs around 4,700 FTEs Rabobank Group Annual Report 2008

20 IRIS The Institute for Research and Investment Services is the research unit for Rabobank and Robeco and focuses exclusively on private investors. IRIS operates as an internal service provider to Rabobank and Robeco in the fields of publishing and independent research. In December 2008, Rabobank and Robeco announced their intention to review the future status of IRIS against the background of a new set-up of investment research. IRIS employs around 30 FTEs. Moviq Moviq is an online platform in the housing market for both buyers and sellers who are moving house. Private individuals can search for a new home on Moviq. They can also find and share comprehensive information about buying, selling, moving, renovating and furnishing their homes. Moviq provides business clients with an effective and cross-media platform for generating reach, contacts and transactions with moving consumers. On Moviq, Rabobank provides users with relevant information about financing, such as mortgages, but also about the associated insurance policies. Obvion Obvion is a joint venture of Rabobank Group and ABP (the Dutch civil service pension fund). It is a provider of mortgages and several service products, including guarantees and bridging loans. Obvion focuses exclusively on collaboration with independent brokers. Employing nearly 300 FTEs, Obvion is the largest mortgage lender in this field in the Netherlands. Orbay Orbay provides business process outsourcing and integrates customer processes and individual work flows seamlessly with its clients front office operations. Orbay delivers state-of-the-art technology, a stable infrastructure and extensive experience in the banking sector, thereby assuming and executing the back office operations from a growing number of banks and financial institutions. Orbay combines the best of both worlds by turning economies of scale, shared facilities and knowhow into cost benefits and high-quality services. In this way, Orbay links its value chain to that of its clients. Orbay is located in Eindhoven and employs more than 90 FTEs. Rabo Real Estate Group Rabo Real Estate Group is a leading international real estate enterprise and one of the largest in Europe. It operates in the private and corporate markets and has three core activities: project development, finance and asset management. Within Rabo Real Estate Group, Bouwfonds Property Development is responsible for the development of owner-occupied houses, and MAB Development for the development of commercial real estate. Financing commercial real estate is done by FGH Bank. Bouwfonds REIM is responsible for real estate related investments. In addition to these three core activities, Rabo Real Estate Group contributes to social real estate development and financing through Fondsenbeheer Nederland. Rabo Real Estate Group employs more than 1,700 FTEs and operates in several European countries. Rembrandt Fusies & Overnames Rembrandt Fusies & Overnames is an organisation whose core business comprises advice and assistance in sales and purchases of enterprises. Rembrandt Fusies & Overnames focuses on owners of smaller and medium-sized family businesses seeking a solution for their succession, as well as on ambitious entrepreneurs planning to expand their businesses. Rembrandt Fusies & Overnames employs around 30 FTEs. Robeco Robeco was founded in Rotterdam in It provides investment products and services to approximately 700 institutional and some 1.5 million private clients around the world. Services to private individuals are provided both through banks and other distribution partners, and through direct channels. Robeco s product range includes equity and fixed-income investments, money market and real estate 19 About the Rabobank Group

21 funds, sustainable and socially responsible investments, as well as alternative investments, including private equity, hedge funds and structured products. In addition to its home markets in the Netherlands and the United States, Robeco operates in Europe, Asia and the Middle East. Worldwide, Robeco employs around 1,700 FTEs. Sarasin Founded in 1841, the Sarasin Group is traditionally one of Switzerland s leading private banks. Its shares are listed at the Swiss stock exchange SWX. Rabobank Group has a 46% shareholding in Sarasin and a voting share of 69%. The Sarasin Group is an international service provider that has sustainability high on its agenda. It is represented in 13 countries in Europe, the Middle East and Asia and employs around 1,500 FTEs. Sarasin offers a high level of services and expertise as an investment advisor and asset manager for high net-worth private individuals and institutional clients. Schretlen & Co Schretlen & Co is the private banking specialist within Rabobank Group. Its activities include asset management and advice, combined with asset planning, which are focused on high net-worth individuals and medium-sized institutional investors in the Netherlands. In addition to its head office in Amsterdam, Schretlen & Co has branches in Apeldoorn, Heerenveen, Rotterdam and Waalre. Collaboration with local Rabobanks has resulted in, among other things, Rabobank Beheerd Beleggen and the Rabobank Effecten Advies Desk. Schretlen & Co employs around 300 FTEs. Zoekallehuizen.nl Zoekallehuizen.nl is the search engine that each day scans the websites of virtually all estate agents in the Netherlands. It also scans all the websites on which private individuals offer houses for sale. Zoekallehuizen.nl covers houses offered by estate agents that are members of the official Dutch professional organisations NVM, LMV and VBO, as well as those offered by estate agents not affiliated to such organisations. Participations Eureko Rabobank has a 39% interest in Eureko, an international provider of financial services in the area of insurance with some 25,000 FTEs. Achmea, which is part of Eureko, is the largest insurance group in the Dutch domestic market, with labels including Centraal Beheer Achmea, Interpolis, Avéro Achmea, FBTO, Agis Zorgverzekeringen and Zilveren Kruis Achmea. In the Netherlands, Eureko serves a broad customer base of private individuals as well as government and corporate clients. Abroad, Eureko operates in twelve European countries. Rabobank and Eureko work closely together in the area of insurance. The greater part of the insurance products sold by local Rabobanks is from Interpolis. It concerns a broad range of non-life, health and life insurance policies for both private individuals and enterprises. With more than a million private individuals and several hundreds of thousands of enterprises as clients, Interpolis is one of the major players in the Dutch insurance market. Interpolis is market leader in the agricultural sector Rabobank Group Annual Report 2008

22 Global presence The Rabobank brand is used by the local Rabobanks and by Rabobank International in 27 countries. With all its other Group entities, Rabobank Group operates in 569 locations spread over 45 countries, including the Netherlands. In addition, Rabo Development operates in 9 countries and Rabobank Foundation in 26 countries. North America Canada United States Latin America Argentina Brazil Cayman Islands Chile Curacao Mexico Europe Austria Belgium Czech Republic Denmark Finland France Germany Guernsey Hungary Ireland Italy Luxembourg Netherlands Norway Poland Portugal Romania Russia Slovakia Spain Sweden Switzerland Turkey United Kingdom Asia Bahrain China India Indonesia Japan Korea Malaysia Oman Qatar Singapore United Arab Emirates Australia Australia New Zealand Rabobank label Group entities Rabobank label and Group entities For more information on branches, including location and contact details, please visit: 21 About the Rabobank Group

23 Report of the Executive Board Financial developments in Rabobank Group Handsome result in turbulent times Financial targets - Tier I ratio at 12.7% - Return on equity 9.7% - Net profit up 2% Balance sheet - Loan portfolio up 11% to EUR billion - Amounts due to customers up 10% to EUR billion - Equity up 7% to EUR 33.5 billion Net profit EUR 2.8 billion - Efficiency ratio improved by 4.2 percentage points to 65.3% - Impairment losses at 31 basis points and above long-term average - RAROC 12.5% Despite all the turbulence in the financial markets, Rabobank Group s Tier I ratio of 12.7% still outstripped the desired high level of 12.5%. Return on equity was 9.7% and Rabobank Group realised a 2% increase in net profit. Although the bank failed to achieve its targeted net profit growth, this still is a strong performance, given the conditions in the market. The growth in corporate lending in the Netherlands was an important factor in the 11% increase, to EUR billion, in the private loan portfolio. There was a strong, 10% growth in amounts due to customers, to EUR billion. The general choice for security in turbulent times yielded many new clients and a lot of new funds. Due mainly to the higher interest result, income was 6% higher, at EUR 11.7 billion. Because of the stronger focus on cost reduction, operating expenses were 1% lower at EUR 7.6 billion. The strong performance of Rabobank Pensioenfonds resulted in lower pension charges. Thanks to these developments, the efficiency ratio improved by 4.2 percentage points to 65.3%. All told, Rabobank Group realised a net profit of EUR 2.8 billion, with RAROC at 12.5%. 22 Rabobank Group Annual Report 2008

24 Financial targets Rabobank Group uses three financial targets: Tier I ratio, return on equity and net profit growth. The Tier I ratio, i.e. the ratio between core capital and total risk-weighted assets, was 12.7% (10.7%⁸) at year-end 2008, exceeding the desired level of 12.5%. This increase was related to the introduction of Basel II. The return on equity, i.e. net profit expressed as a percentage of core capital, was 9.7% (10.2%). Net profit for 2008 was 2% (15%) higher, which is below the target. Balance sheet General Given the amendments to IAS 39 and IFRS 7 were applied in 2008, Rabobank Group decided to reclassify a portion of its assets worth EUR 12.0 billion to loans to customers and due from other banks. For more information, see Note 11 to the Rabobank Group Consolidated Financial Statements. To ensure a correct view of the various trends, the comparative figures at year-end 2007 were restated in this annual report by taking this reclassification into account. For comparative and analysis purposes, therefore, the year-end 2007 figure for loans to customers is EUR billion, rather than EUR billion. Lending by sector in billions of euros Food & agri TIS Private individuals Lending by activity year-end 2008 Domestic retail banking 65% Wholesale banking and international retail banking 25% Leasing 5% Real estate 4% Other 1% Higher loan portfolio volume, partly due to increased corporate loan portfolio Despite the unfavourable economic conditions during the year under review, the balance sheet item loans to customers increased by 11% to EUR (385.7) billion, the greater part by far of which concerned the private loan portfolio. The item loans to customers further comprises lending to government clients, securities transactions due from private sector lending and interest rate hedges. Lending to government clients amounted to EUR 8.8 (5.1) billion. The volume of the item securities transactions due from private sector lending decreased to EUR 3.8 (14.4) billion. Rabobank Group uses derivatives to hedge the interest rate risk on loans to customers. Because these derivatives are valued at market value, whereas the private-sector lending portfolio is valued on the basis of amortised cost, a temporary asymmetry in valuation occurs. To prevent this difference from causing unnecessary fluctuations in the profit and loss account, Rabobank Group applies hedge accounting. The valuation differences are recognised under interest rate hedges. This item had a volume of EUR 5.0 (-2.5) billion. The growth in corporate lending in both domestic retail banking and at Rabobank International was an important contributor to the 11% growth of the private loan portfolio, to EUR (368.7) billion. Of the private sector loan portfolio, 47% consists of loans to private individuals, 36% of loans to the trade, industry and services sector (TIS) and 17% of loans to the food & agri sector. Due to the growth of the mortgage portfolio in the Netherlands, the volume of loans to private individuals increased by 8% to EUR (180.1) billion. Virtually all of this part of the portfolio consists of mortgages, the remainder being consumer credits. The loan portfolio to the trade, industry and services sector increased by 13% to EUR (129.2) billion. The loans to the food & agri sector were 15% higher, at EUR 68.3 (59.4) billion. 8) For pages 1 to 87, the numbers in brackets ( ) are comparative figures. For profit and loss data, they are the figures for 2007; balance sheet data are the figures at 31 December The comparative figures have been restated as and when new knowledge became available. 23 Report of the Executive Board

25 Loan portfolio TIS by industry at year-end 2008 Real estate 20% Financial institutions excluding banks 19% Wholesale sector 10% Industry 7% Building 6% Transport and storage 6% Non-food retail 4% Health care 3% Corporate services 3% Information and communication 3% Art and recreation 1% Utilities 1% Other 17% Loan portfolio food & agri by industry at year-end 2008 Animal protein 19% Dairy 17% Grain and oil seeds 13% Fruit and vegetables 12% Food retail 7% Food and agri inputs 7% Flowers 6% Beverages 4% Miscellaneous crops 3% Sugar 3% Other 9% The greater part of of the portfolio concerned the primary agricultural sector. The growth in loans to the meat sector contributed to the increase in lending to the primary agricultural sector by 9% to EUR 43.8 (40.1) billion. Of the private sector loan portfolio, 73% is from the Netherlands, 11% from Europe outside the Netherlands, 12% from America, 3% from Australia and New Zealand and 1% from other countries. Breakdown of amounts due to customers in billions of euros Breakdown of amounts due to customers at year-end 2008 Other amounts due to customers Repurchase transactions Corporate time deposits Current accounts/ settlement accounts Savings Domestic retail banking 58% Wholesale banking and international retail banking 37% Asset management & investment 5% Increase in time deposits contributed to growth in amounts due to customers The strong growth in the amounts due to customers demonstrates that Rabobank Group is considered a safe haven in these turbulent times. In 2008, the amounts due to customers increased by 10% to EUR (276.6) billion. Savings, i.e. the funds entrusted by private individuals, are the major category within the amounts due to customers and increased by 13% to EUR (101.2) billion. Besides savings, current accounts likewise contributed to the growth in the amounts due to customers. Breakdown of savings in billions of euros Other Roparco Fixed-time deposits Savings accounts Telesavings Internet savings Growth in savings mainly at local Rabobanks Of all the savings, 89% is entrusted to the local Rabobanks. The higher interest rate for time deposits caused many private individuals to opt for this savings product. As a result, the volume of the fixed-term deposits increased by 66% to EUR 43.1 (25.9) billion. At Roparco, Robeco s savings bank, the volume of savings increased by 10% to 5.4 (4.9) EUR billion. The sale of Alex resulted in a EUR 0.6 billion decrease in savings. Thanks to the large number of new internet savings clients, the savings volume for the foreign internet banks in Australia, Belgium, Ireland and New Zealand rose by 30% to EUR 6.6 (5.1) billion. 24 Rabobank Group Annual Report 2008

26 Equity in billions of euros Other minority interests Hybrid capital Rabobank Member Certificates Retained earnings and other reserves Capital requirements in billions of euros at year-end 2008 Other Operational and business risk Interest rate and market risk Credit and transfer risk Economic capital Basel II Basel I Equity As a result of retained earnings, the issue of Capital Securities and the increase in minority interests, equity was 7% higher, at EUR 33.5 (31.4) billion. Rabobank Group issued hybrid capital in the form of Capital Securities in Pounds Sterling, Israeli shekels, US dollars and Swiss francs. The consolidation of Bank BGZ contributed to the increase in minority interests. At year-end, 60% of equity consisted of retained earnings and other reserves, 19% of Rabobank Member Certificates, 10% of hybrid capital and 11% of other minority interests. External capital requirement Since the implementation of the Basel II regulations, Rabobank Group calculates the external capital requirement for credit risk for virtually its entire loan portfolio on the basis of the advanced internal rating approach endorsed by the Dutch Central Bank. For a few minor portfolios, the roll-out of this approach is still ongoing and for these, the standard approach is used. For operational risk, the calculation is performed using an approved internal model. At year-end 2008, the external capital requirement was EUR 19.0 (21.3) billion, 91% of which is associated with credit and transfer risk. In addition, 7% is held for operational risk and 2% for market risk. The introduction of Basel II was an important factor in the lower external capital requirement. The low risk profile of the loan portfolio, combined with the available collateral, was the main cause. Economic capital as an internal capital requirement Economic capital RAROC (in billions of euros) Dec Dec-07 Domestic retail banking 17.7% 17.3% Wholesale banking and international retail banking 0.5% 6.9% Asset management and investment Leasing 22.3% 24.2% Real estate Other activities Total 12.5% 14.4% Apart from its external capital requirement, Rabobank Group calculates an internal capital requirement based on its economic capital framework. This framework is used for a more complete insight in all the risks and to enable better balancing of risk and return. Within the economic capital, the bank, as befits its triple A-status, presupposes a higher level of confidence (99.99%) than is required for Basel II (99.90%). Economic capital by Group entity at year-end 2008 Domestic retail banking 39% Wholesale banking and international retail banking 28% Real estate 7% Leasing 5% Asset management and investment 3% Other activities 18% Economic capital by risk type at year-end 2008 Credit and transfer risk 57% Operational and business risk 17% Interest rate and market risk 16% Other risks 10% 25 Report of the Executive Board

27 Furthermore, an internal capital requirement is established for a broader range of risks. Besides credit risk, operational risk and market risk in the trading books, Rabobank Group also holds economic capital for all other identified, material risks. Mainly as a result of the growth in lending, economic capital increased to EUR 22.3 (20.5) billion at year-end This internal capital requirement is far lower than the available qualifying capital of EUR 30.9 (29.2) billion. This sizeable buffer underlines Rabobank Group s financial solidity. At 57% of total economic capital, credit and transfer risk is the most dominant risk type. Interest rate and market risk account for 16%, and the non-financial risks (operational and business risks) for 17%. The remaining 10% are distributed over the other risk types. Financial results Results (in millions of euros) Change Interest 8,517 6,771 26% Fees and commission 2,889 2,857 1% Other income 246 1,394-82% Total income 11,652 11,022 6% Staff costs 4,290 4,400-3% Other administrative expenses 2,796 2,779 1% Depreciation and amortisation % Operating expenses 7,611 7,663-1% Gross result 4,041 3,359 20% Value adjustments 1, Operating profit before taxation 2,852 3,093-8% Taxation % Net profit 2,754 2,696 2% Impairment losses (in basis points) 31 8 Ratios Efficiency ratio 65.3% 69.5% Return on equity 9.7% 10.2% RAROC 12.5% 14.4% Balance sheet (in billions of euros) 31-Dec Dec-07 Total assets % Private sector loan portfolio % Due to customers % Capital requirements (in billions of euros) Capital requirement % Economic capital % Capital ratios BIS ratio 13.0% 10.9% Tier I ratio 12.7% 10.7% Number of employees (in FTEs) 60,568 54,737 11% Income up 6% In the year under review, total income increased by 6% to EUR 11,652 (11,022) million, with the rise in income for the local Rabobanks and the asset management activities as contributors. Mainly due to Rabobank International s higher interest income, this result increased by 26% to EUR 8,517 (6,771) million. Rabobank International s interest income was higher as a result of growth in lending and higher margins. 26 Rabobank Group Annual Report 2008

28 In domestic retail banking, the increased competition in the savings market depressed the margin on the amounts due to customers. Total commission income was 1% higher, at EUR 2,889 (2,857) million. Other income fell by 82% to EUR 246 (1,394) million. The continuing turbulence in the financial markets depressed Rabobank International s trading results. On balance, the fair value changes of assets and liabilities had a limited impact on earnings. Rabo Real Estate Group s project results were also lower. Income from the Eureko participation was negative. The sale of Alex and the consolidation of Bank BGZ made positive contributions to earnings. In 2007, other income benefited from revenues from the sale of activities at Sarasin. Operating expenses down 1% Total operating expenses were 1% lower, at EUR 7,611 (7,663) million, in Partly as a result of a reduction of the bonuses, staff costs were 3% lower, at EUR 4,290 (4,400) million. From 2008, Bank BGZ employees are included in Rabobank Group s staff count. As a result, staff numbers at Rabobank Group increased by 11% to 60,568 (54,737) FTEs. Staff numbers at the local Rabobanks and Robeco declined. Other administrative expenses were 1% higher, at EUR 2,796 (2,779) million. Depreciation charges were 8% higher, at EUR 525 (484) million, partly because of higher depreciations of proprietary software and increased amortisation of intangible assets. Impairment losses at 31 basis points Mainly as a result of the increase in the item value adjustments at Rabobank International, this item rose to EUR 1,189 (266) million in the year under review. This corresponds to 31 basis points of average lending and is higher than the long-term average of 21 basis points. Income tax at 3% Income tax recognised in 2008 amounted to EUR 98 (397) million, which is equivalent to an effective tax rate of 3.4% (12.8%). The results from equity investments such as those in the Gilde funds and the equity investments in Rabo Private Equity, which are exempt from taxation, contributed to the lower effective tax rate. Net profit up 2% Thanks in part to the performance in domestic retail banking, Rabobank Group realised a net profit of EUR 2,754 (2,696) million. After deduction of minority interests and payments on Rabobank Member Certificates, Capital Securities and Trust Preferred Securities III to VI, the sum remaining was EUR 2,089 (1,971) million. RAROC RAROC is the acronym that stands for Risk Adjusted Return On Capital, i.e. the risk-weighted return on capital. RAROC supports the decision-making process by enabling a consistent assessment of expected returns against risks present. In addition, RAROC is used for pricing on a transactional level as well as in the loan authorisation process. In 2008, Rabobank Group realised a RAROC after tax of 12.5% (14.4%)⁹. 9) The RAROC has been calculated by relating net profit to average economic capital for the year. 27 Report of the Executive Board

29 Domestic retail banking k Group s 8 anking 59% Share in Rabobank Group s net profit for 2008 in % Domestic retail banking 59% Strong performance in turbulent market conditions Private loan portfolio up 10% to EUR billion - Mortgages market share increased to 30% - SME market share increased to 39% - Food & agri market share stable at 84% Amounts due to customers increased by 16% to EUR billion - Savings market share increased to 43% Net profit up 13% to EUR 1.6 billion - Efficiency ratio improved by 1.7 percentage points to 63.2% - Impairment losses at 8 basis points and below long-term average - RAROC 17.7% Strategy of Rabobank Group All-finance market leadership in the Netherlands Global food & agri bank Contribution to Group strategy - To strengthen our market leadership in all-finance market sections - To strengthen our position in large cities - Implementation of Rabobank 2010 programme - To maintain food & agri market leadership in the Netherlands Despite the great dynamics in the financial sector in 2008, the domestic retail banking business - the local Rabobanks, Obvion and Bizner showed a strong performance. A stable market party, Rabobank welcomed many new clients. Services were expanded further. Driven by corporate lending, the loan portfolio grew by 10% to EUR billion. The SME market share increased to 39%. Rabobank Group strengthened its position as the market leader in a contracting mortgages market with a market share of 30%. Rabobank s stability gave rise to a large inflow of funds, boosting its market share in the savings market from 41% to 43%. Our primary focus on customer value was rewarded, as it was a year ago, by high customer satisfaction among both private individuals, private-banking clients and corporate clients. The Rabobank 2010 programme, which focuses on improvements in customer service through differentiated distribution channels, was optimised further and was continued energetically. Net profit from domestic retail banking was 13% higher, at EUR 1.6 billion. Because income growth outstripped operating expenses, the efficiency ratio improved by 1.7 percentage points to 63.2%. 28 Rabobank Group Annual Report 2008

30 Strategy The adjustment of the Strategic Framework confirms that Rabobank pursues market leadership in the Netherlands as an all-finance service provider. This market leadership strategy also includes roles for mortgage provider Obvion as well as for Bizner, the corporate Internet bank. By increasing its focus on the corporate market, Rabobank aims to be the largest and most important corporate bank. In addition, it has expressed its ambitions for growth in the market for private banking. As a result of a stronger focus on sound balance sheet ratios, the local Rabobanks will be financing a large proportion of their growth in lending from amounts due to customers. The implementation of the Rabobank 2010 programme is another important element in the adjusted strategy. Rabobank 2010 programme to the next level Rabobank wishes to be available to its clients 24 hours a day, 7 days a week. Our virtual era makes innovation and improvement in customer service possible at lower costs. To achieve this, Rabobank developed its Rabobank 2010 programme. Process optimisation is an important element of the programme. Core aspects are tight control of throughput and processing times and the right-in-one principle. In 2007, a pilot was held at five local Rabobanks together with Rabobank Nederland, and the programme was tested further at nine pilot banks in It is now available to other local Rabobanks and meanwhile the programme has been launched by fourteen banks. Strengthened market leadership in the Netherlands The financial crisis and government interventions caused great changes in the Dutch banking landscape in Due in part to its stability, Rabobank Group succeeded in expanding its leading market positions in a number of areas including the savings market, which showed a 6% growth as a result of the negative mood on the stock exchange. Despite the increased competition, Rabobank Group s share of the savings market, including Roparco, rose by 2 percentage points to 43%. The local Rabobanks saw a significant inflow of new clients and savings. Although the total Dutch mortgages market showed a 15% decline in 2008, Rabobank s market share in domestic retail banking increased to 30% (28%). Due in part to the success of the new Rabo Opbouw- Hypotheek, the market share of the local Rabobanks increased to 23.6% (22.4%). Although Obvion s market share declined during the final months of 2008, its market share for the year was 0.7 percentage points higher, at 6.0%. Rabobank was the market leader in all SME sectors and its share of the total SME market increased to 39% (38%). In the market for start-ups, its market share increased to 39% (38%). In the agricultural sector, Rabobank remained the clear market leader, with a market share of 84% (84%). The strategy of recent years to focus on young and larger agricultural enterprises resulted in larger market shares among these enterprises in Rabobank has traditionally had a strong position in the non-urban areas. However, the policy for growth in large cities, which was introduced in 2007, has resulted in an improved market position in urban areas, with the market share in the SME sector growing to 29% (27%). Market shares in % Mortgages Savings SME 29 Report of the Executive Board

31 Customer satisfaction again higher Delivering customer value is a central value to Rabobank as a cooperative bank. High-quality services must result in satisfied clients and this is what Rabobank again achieved in A survey by Blauw Research shows that satisfaction with Rabobank is highest among private clients, with an average score of 7.7 (7.5). This number 1 position is due to high scores for reliability, expertise, reputation and sympathy. A survey by MarketResponse ranks Rabobank among the three most customer-friendly enterprises in the Netherlands. In its report, the jury praises Rabobank for its reliability, availability and openness, the expertise and customer-friendliness of its staff and the transparency of its website. Internet users, through both onlineawards.nl and websitevanhetjaar.nl, voted as the best and most popular financial site of Customer satisfaction among private-banking clients was rated by a score of 7.6 (7.5). The reasons that were stated, were high reliability and services that had been improved on several points according to clients. In a survey by the business periodical Incompany, Rabobank again had a very high score for customer satisfaction, with Rabobank Private Banking in a stable second place. The higher-than-average customer satisfaction with Rabobank among SME clients is a clear improvement on Reasons include expertise, faultless handling of banking transactions and ease of use. According to Incompany, Rabobank continued to be the most favoured business partner in Market researchers from the Management Team business magazine arrived at a similar conclusion. Bank saving successfully introduced On 1 January 2008, Bank Savings Act ( Wet Banksparen ) came into force in the Netherlands. This Act grants favourable tax conditions to consumers saving via a bank account for a home or a pension. Rabobank was one of the first banks to introduce new products in this context: the RaboOpbouwHypotheek and the Rabo ToekomstRekening. Transparency and favourable rates have contributed to the success of these products. Partly as a result of this, the RaboOpbouwHypotheek is a new and attractive alternative for existing mortgage types. The Rabo Springplankhypotheek, which was introduced in 2008, won silver at the Mortgage product of the Year contest. Collaboration with municipal councils and housing corporations makes it easier for starters in the housing market to buy a house. Nearer to the client through multichannel services Clients increasingly use virtual channels such as the Internet and the telephone for banking services. In the autumn of 2008, Rabobank passed the milestone of 3 million active Internet clients. Rabobank invests enthusiastically in furthering the development of Internet banking. Customer service through virtual channels is an important element in the Rabobank 2010 programme. Increasingly, local Rabobanks use to provide their clients with services and information from a virtual, yet near-by environment. A prominent link on the website has brought the information from local Rabobanks considerably closer to clients. This has caused the number of visitor hits on local web pages to double. In addition, the ease of use of has been improved. In 2008, Rabo Mobiel launched the new Rabo SMS Betalen service. The mobile purse makes it possible to transfer and receive money via SMS. Using a simple process, clients can transfer amounts up to EUR 150 to each other via their cell phones, regardless of which banks or telecom providers are involved. Early in 2009, consumers voted Rabo SMS Betalen Product of the Year for 2009 in the Services category. Besides via the Internet and by telephone, Rabobank can also be accessed through the TV remote control. Rabobank was the first bank in the Netherlands to offer TV banking via innovative platforms such as Windows Media Center and Wii. Growing numbers of households can access the Rabo TV site via the set top-box supplied by their cable television provider. Since the end of 2008, Tele2 also features this interactive TV channel with Rabobank information. Rabobank is conducting a number of experiments around cell-phone video calls to see how this new phenomenon could be utilised properly and in a way that respects the client s privacy, from the banking hall, the offices or via the website. Down-to-earth private banking Rabobank offers private banking along cooperative lines by being near to the client, showing engagement and emanating confidence. This approach, combined with dynamic market conditions, resulted in a significant increase in both client numbers and amounts due to customers in The Private banking met beide benen op the grond asset campaign ( Down-to-earth private banking ) was launched with the aim of strengthening Rabobank s positioning as a stable private bank. The campaign shows that Rabobank is always ready for its clients and provides them with sound asset advice. The Private Banking formula, which is available to clients worth at least EUR 80,000, was improved further with the introduction of customer contact strategies. With this formula, every client receives the attention he needs. 30 Rabobank Group Annual Report 2008

32 Lending by sector in billions of euros Food & agri TIS Private individuals InternetLoyaalSparen, which is a savings product for clients with savings in excess of EUR 20,000, was offered more actively. Clients wishing to use their capital for the realisation of their societal aspirations, can avail themselves of the services of the Rabo CharityDesk, the centre of expertise for charity gifts within Rabobank Private Banking. Tailored services and knowledge products for the food & agri sector The food & agri sector has traditionally been an important customer base to Rabobank. Local Rabobanks intend to give agricultural entrepreneurs the best possible service, with tailored financial services and knowledge products. In 2008, several new services were developed to help clients and account managers develop entrepreneurship. An example is the introduction of the Dairy farming Tailor-made programme, that helps entrepreneurs make the right strategic choices and account managers to operate more professionally as strategic discussion partners. The programme includes seminars and strategic sessions of account managers and small groups of dairy farmers. By way of analogue, the sequel to the programme De Wereld van Jip ( Jip s World ) was presented for the horticultural and fruit farming sectors. Rabobank paid a great deal of attention to its visibility in the agricultural world through presentations, free publicity, advertising campaigns, sponsoring and attendance at fairs. Various Rabobank studies on themes including the ornamental plant trade, poultry farming, care farms and pig farming, were an important source of knowledge for account managers and their clients. Increase in SME clients; successful services and campaigns In 2008, Rabobank showed a strong performance in the market for the small and medium-sized enterprises sector. The dynamic market conditions resulted in an increase in both client numbers and amounts due to customers. The Rabo WelkomService was developed especially for new corporate clients. This service offers an orderly and simple switchover path, with personal account managers overseeing the entire process for the client. As a result of the Financial MOT campaign entitled Haal privé meer voordeel uit je zaak ( Greater personal benefits from your business ), the number of entrepreneur in private clients grew significantly. In order to give corporate clients a quick overview of their financial performance against that of industry peers, Uw Cijfers en Trends was introduced. This tool is an extension of the familiar Rabobank Figures and Trends, which has been presenting up-to-date industry knowledge for more than 30 years. In 2008, a few local Rabobanks began a pilot for a start-ups community on the Internet. On this dedicated website, start-ups can get advice and exchange knowledge, experience and contacts quickly. Rabobank boosted its international corporate image with its Internationaal zakendoen campaign. At year-end 2008, 15,000 (7,500) clients used the services of Bizner, the Internet bank for entrepreneurs that had been established in In the year under review, Bizner introduced time deposits with a fully flexible term and a news portal with network options where, entrepreneurs can inform, inspire and advise each other. Loan portfolio growth from strong increase in corporate loans In 2008, the domestic retail banking business achieved 10% growth of the private loan portfolio. Total lending amounted to EUR (244.1) billion, of which 69% was to private individuals, 21% to the trade, industry and services sector and 10% to the food & agri sector. Loans to private individuals, virtually all of which are mortgages, increased by 7% to EUR (172.1) billion, although growth was lower than in 2007 due to the cooling mortgages market. Lending in 2008 was driven by corporate financing. The increase in the number of clients in the small and medium-sized enterprises sector, combined with higher demand, caused lending to the trade, industry and services sector (TIS) to grow by 21% to EUR 55.7 (46.1) billion. Lending to the food & agri sector was 9% higher, at EUR 28.1 (25.8) billion, with the primary agricultural sector accounting for the greater part. These loans increased by 9% to EUR 23.5 (21.6) billion, with the fruit and vegetables sector and the dairy and animal protein sectors as the main contributors. 31 Report of the Executive Board

33 Amounts due to customers 180 in billions of euros Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2008 Strong increase in amounts due to customers A large inflow of new clients and assets in the year under review resulted in strong growth of the amounts due to customers, by 16% to EUR (150.8) billion. The growth was mainly in time deposits for both private individuals and businesses. The increase in the amounts due to customers enabled the local Rabobanks to finance their growth in lending completely on their own in Financial results Results (in millions of euros) Change Interest 5,005 4,504 11% Fees and commission 1,354 1,379-2% Other income % Total income 6,401 5,908 8% Staff costs 2,264 2,072 9% Other administrative expenses 1,639 1,618 1% Depreciation and amortisation % Operating expenses 4,044 3,835 5% Gross result 2,357 2,073 14% Value adjustments % Operating profit before taxation 2,158 1,928 12% Taxation % Net profit 1,617 1,433 13% Impairment losses (in basis points) 8 6 Ratios Efficiency ratio 63.2% 64.9% RAROC 17.7% 17.3% Balance sheet (in billions of euros) 31-Dec Dec-07 Total assets % Private sector loan portfolio % Due to customers % Capital requirements (in billions of euros) Capital requirement % Economic capital % Number of employees (in FTEs) 28,953 29,304-1% 32 Rabobank Group Annual Report 2008

34 Income up 8% In 2008, total income was 8% higher, at EUR 6,401 (5,908) million, mainly due to growth in interest income. The rise in lending and the amounts due to customers resulted in an 11% increase in interest income, to EUR 5,005 (4,504) million. The margins on lending were higher because of higher risk costs and higher funding costs, whereas the margins on amounts due to customers were depressed by stronger competition in the savings market. Securities commission income was lower as a result of the adverse stock market conditions. Commission income from insurances was likewise lower than in Commission income from treasury services and payment services was higher. Total commission income for 2008 showed a net decrease of 2%, to EUR 1,354 (1,379) million. Operating expenses up 5% Total operating expenses were 5% higher in the year under review, at EUR 4,044 (3,835) million. Staff costs were 9% higher, at EUR 2,264 (2,072) million, as a result of higher cost of contractors, salary increases and higher social insurance contributions. Staffing level in the domestic retail banking business declined by 1% to 28,953 (29,304) FTEs. Other administrative expenses were 1% higher, at EUR 1,639 (1,618) million. Impairment losses at 8 basis points The item value adjustments increased by 37% in 2008 to EUR 199 (145) million. Due to the worsened economic conditions, the loan losses were higher, particularly in the corporate loan portfolio. As a result, the impairment losses were 8 (6) basis points of average lending, against the long-term average of 11 basis points. Capital requirement and RAROC In the calculation of capital requirement under Basel II, the risks associated with loans to private individuals and corporate loans are estimated using the bank s own risk models and taking account of collateral. In 2008, the capital requirement was reduced by 48% to EUR 6.4 (12.2) billion, mainly because of the implementation of the new rules for solvency, reflecting Rabobank s low risk profile. The economic capital, i.e. the internal capital requirement, amounted to EUR 8.7 (8.9) billion. In 2008, domestic retail banking achieved a Risk Adjusted Return On Capital (RAROC) of 17.7% (17.3%). Outlook 2009 is likely to be a year of challenges. In its adjusted Strategic Framework, Rabobank Group has reaffirmed its ambition to be an all-finance service provider and to pursue market leadership in all market segments in the Netherlands. This ambition will be defined further in 2009, with additional investments for growth in the corporate market, the market for private banking and the big cities. The collaboration with Eureko in the area of insurance products will be intensified. Many local Rabobanks are to participate in the Rabobank 2010 programme. In order to ensure sound balance sheet ratios, growth in lending must for the greater part be financed from growth in the amounts due to customers. The stronger competition in the savings market will continue to depress the margins on amounts due to customers. With its cooperative roots, Rabobank traditionally focuses on long-term relationships with clients. Even in more difficult times, clients must still have access to financial means. For 2009, Rabobank expects growth in lending to be lower because businesses are likely to invest less due to the economic downturn and because the demand for mortgages will fall as the housing market cools down. Margins on lending are expected to improve because higher costs of risk and funding will be charged on. For the long term, it is vital to maintain profitable. For that reason, cost management will be even tighter in Report of the Executive Board

35 Wholesale banking and international retail banking k Group s 8 g and il banking 1% Share in Rabobank Group s net profit for 2008 in % Wholesale banking and international retail banking 1% Net profit down due to financial crisis Private loan portfolio up 11% to EUR billion Savings at the Direct Banking activities up 30% to EUR 6.6 billion Net profit down 92% to EUR 27 million - Efficiency ratio 0.7 percentage points higher, at 85.5% - Impairment losses at 93 basis points; higher than the long-term average - RAROC 0.5% Strategy of Rabobank Group All-finance market leadership in the Netherlands Global food & agri bank Contribution to Group strategy - Serving the top end of the corporate market in the Netherlands - Support to internationally active Dutch clients - Product supplier through local Rabobanks - Providing risk-bearing capital - Broaden the product range and make knowledge available to food & agri clients - Expansion of retail banking network in important food & agri regions - Further development of sustainable energy and clean technology as product specialisations Partly due to the increase in lending in the international retail banking business, the loan portfolio increased by 11% in 2008, to EUR billion. The phasing-out of activities in the financial markets resulted in a lower increase of total assets. Savings at the Direct Banking activities were 30% higher, at EUR 6.6 billion. The volume of international retail banking activities increased because we increased our stake in the Polish Bank BGZ to a 59% majority interest. The financial crisis caused wholesale banking and international retail banking s net profit decreased from EUR 334 million to EUR 27 million. Particularly, results from Global Financial Markets and the impairment losses suffered negative effects. Income from the international retail banking activities were 34% higher, at EUR 864 million. Strategy Rabobank aims to be the pre-eminent global food & agri bank, with a focus on renewable energy and clean technology. Rabobank International intends to address this further and to broaden and deepen its product range for the food & agri market. Examples include the recent collaboration agreement with Rothschild in the area of mergers and acquisitions advice to the food & agri sector. 34 Rabobank Group Annual Report 2008

36 Global Financial Markets will focus on client-related activities and liquidity management. Other activities will be phased out and its services will be tailored more to core clients. Rabobank International intends to strengthen the international retail banking activities further, while giving priority to existing major agricultural focus areas in Australia, Brazil, California and Poland. Renewable energy and clean technology will receive greater attention through project finance and venture capital. Turbulent market In 2008, the financial crisis went global and began to affect the real economy. This had a negative effect, particularly on the results from the Global Financial Markets business entity and on the impairment losses. Credit exposure related activities, especially, came under pressure, but the money market and the fixed-income securities units showed strong results. The margins were higher because of a higher risk premium charges. Regular lending, saw an increase in the number of clients with payment difficulties as well, particularly in the Irish market. Global food & agri bank As a leading food & agri bank, Rabobank Group aims for a strong presence in the world s key agricultural countries. For growth in food & agri, Rabobank International focuses on broadening its product range and on making its knowledge available to food & agri clients around the world. Other focus areas are expansion of its retail banking activities in traditional agricultural countries such as the United States and Australia, and emerging countries with a fast-growing food & agri sector, such as Poland and Brazil. Rabobank Group has bundled its food & agri knowledge in Food & Agri business Research and Advisory (FAR). This department operates from the Netherlands, the Americas, Asia and Australia. FAR supports transactions in various stages, gives loan proposal valuations, contributes to merger and acquisition proposals and generates ideas for new products. In 2008, its publications included reports on the New Zealand wine market and the milk market in Brazil. For optimum service to the food & agri clients, the deployment of product specialisations will be intensified. Expansion of international retail banking As a result of organic growth, the launch of new activities as well as acquisitions, the international retail banking activities have grown significantly over the past years. Rabobank International has retail banks in the regions Europe, the Americas, Australia and New Zealand, and Asia. Early in 2008, Rabobank International increased its 46% stake in the Polish Bank BGZ to a majority interest of 59%. This bank employs more than 5,000 staff and serves its Polish clients from approximately 250 branch offices. As a result of this majority interest, Bank BGZ s position as a retail bank for private individuals, the small and medium-sized enterprises sector and the food & agri clients can be strengthened further. Together with Rabobank Polska, Bank BGZ can now work on the further strengthening of its market position as one of the most important and largest players in the Polish food & agri sector. Its network will be greatly expanded in coming years. The Polish state holds a minority interest in Bank BGZ and was planning to sell its shares on the stock exchange in mid It has postponed this in view of market conditions. Traditionally, the Irish ACCBank has always had close links with rural communities. Its network comprises around 40 branch offices. In addition, ACCBank operates in the Irish market for real estate finance. Developments in the Irish market call for a review of both the nature and the volume of these activities. An important first requirement is to optimise the management of existing exposure, in close consultation with clients. In the Americas region, Rabobank International serves its predominantly agricultural client base from the United States, Brazil and Chile. In California, Rabobank International performs retail banking activities from more than 90 branch offices. The integration of the retail banks that had been acquired earlier demanded a great deal of effort. In addition, agricultural clients in the United States are served from a centre of expertise in St. Louis. The retail banking activities in Brazil were expanded further in Rabobank International now has more than 10 branch offices in Brazil, that focus mainly on the food & agri sector. With 10 branch offices, its retail banking activities in Chile are still in the initial phase after the acquisition of HNS Banco in The retail banking activities in Australia and New Zealand are focused mainly the food & agri sector. Rabobank has a market share of around 20% in the Australian agri business. Besides loans to the agricultural sector, the activities include banking services to middle segment enterprises with a business 35 Report of the Executive Board

37 affinity to the food & agri sector and offering complex financial products and services to large cooperatives and enterprises in the food & agri industry. In Asia, a great deal of effort was spent on the integration of the Indonesian Hagabank and Bank Hagakita in Both banks have extensive networks with around 120 branches in Bali, Java and South Sumatra. Strong performance by Rabobank s foreign Internet banks The Direct Banking activities in Belgium, Australia, Ireland and New Zealand delivered a strong performance despite the turbulence in the market. In these uncertain times, many Belgian savings clients decided to open an account at Rabobank. Client numbers grew also in Ireland, Australia and New Zealand, albeit on a more limited scale. At year-end 2008, 293,000 (197,000) clients availed themselves of the services provided by the four foreign Internet banks. As a result of these activities, savings increased by 30% to EUR 6.6 (5.1) billion. Corporate banking: services to internationally active clients expanded In the Netherlands, Rabobank International serves large enterprises through Corporate Banking, while supporting the local Rabobanks in their services to the corporate market. In order to improve its services to internationally active Dutch SME clients, a project was started with the aim of expanding the services and making them more easily accessible. This involves collaboration with third parties. For example, Rabobank International started partnerships with Deutsche Bank and with the Raiffeisen Zentralbank, in Austria, in Deutsche Bank fulfils the role of processor in cash management and has opened its network to internationally active Rabobank clients. Raiffeisen Zentralbank is to ensure improved facilitation of the total international service provision by local Rabobanks in Central and Eastern European countries. Services to the internationally active Dutch SME clients has since shown strong growth that is expected to continue in coming years. Abroad, the primary focus of the Corporate Banking activities is on the food & agri sector. In addition, Rabobank International has invested in specific knowledge in the area of Trade & Commodity Finance. Its Trade & Commodity Finance department has a global reach and serves clients that operate the market for agricultural products and, on a limited scale, other commodities as well. This department also offers a large number of export finance products. This resulted in substantial growth of these activities in Professional products Global Financial Markets operates in the international financial markets. Besides customer-focused activities, this business entity handles the trade in money market products for the day-to-day management of the liquidity position, the credit risk and the market risk of Rabobank Group and its clients. Besides currency and money market products, bonds and energy products, Global Financial Markets offers capital market solutions by securitising or restructuring specific risks or cash flows of enterprises or financial institutions. Leveraged Finance is involved in financing acquisitions by private equity companies. On a global level, it is a major player in the agricultural market but it operates in other sectors as well. Its portfolio grew, although the number of transactions declined in the second half of 2008 as a result of the financial crisis. Structured Finance offers client-tailored products aimed at both the asset and liability sides of the balance sheet. The Renewable Energy & Infrastructure Finance department operates in the sustainable sectors wind, solar, biofuels and biomass. Participations Under the Rabo Participaties and Rabo Capital labels, Rabobank Group s investment unit Rabo Private Equity focuses on medium-sized Dutch enterprises. Its Rabo Ventures label is focused on young enterprises operating in the area of clean technology. Rabo Participaties focuses on growing enterprises in the middle segment, contributing amounts between EUR 2 million and EUR 10 million per enterprise. In 2008, acquisitions by Rabo Participaties included a participating interest in Oskomera Group, a Dutch company that supplies and installs complex façade and steel structure projects and also specialises in solar power systems. Rabo Capital acquires interests in larger enterprises, investing between EUR 20 million and EUR 50 million per transaction. In 2008, it acquires an equity interest in Iddink, a leading Dutch distributor of school books, with offices in Ede, the Netherlands. Rabo Ventures is a venture capital fund with international operations that supplies risk-bearing capital to fast-growing enterprises in the clean technology sector. Clean technology is the collective term for 36 Rabobank Group Annual Report 2008

38 Lending by region at year-end 2008 America 37% Europe excluding the Netherlands 31% Netherlands 16% Australia and New Zealand 12% Asia 4% Lending by sector in billions of euros Food & agri TIS Private individuals innovative environmental and sustainable energy technologies. Acquisitions by Rabo Ventures included an interest in the Dutch company Emergya Wind Technologies, the Econcern sustainable-energy company and Xunlight Corporation, in the United States. In addition, Rabobank participates in independent private-equity enterprises such as Langholm and in a number of Gilde funds. Growth in retail portfolio contributes to loan portfolio increase In the year under review, the private sector loan portfolio increased by 11% to EUR (90.5) billion. This growth is partly from international retail banking. The appreciation of the US dollar was a contributor, but this was offset by the depreciation of the Australian dollar and the Pound Sterling. The loan portfolio to private individuals increased by 43% to EUR 5.5 (3.8) billion. Due in part to the consolidation of Bank BGZ, loans to the food & agri sector were 22% higher, at EUR 34.4 (28.1) billion, representing 34% of the private loan portfolio. Loans to the trade, industry and services sector (TIS) increased by 4% to EUR 60.8 (58.5) billion. At year-end 2008, 25% (24%) of the loan portfolio was from international retail banking. The volume of this portfolio increased by 15% to EUR 24.9 (21.6) billion. In Australia and New Zealand, the volume of retail loans was 5% lower, at EUR 8.4 (8.8) billion, as a result of the depreciation of these currencies by 17% and 21%, respectively. In Europe, the volume of loans was 32% higher, at EUR 8.5 (6.5) billion, mainly as a result of the consolidation of Bank BGZ. At ACCBank, in Ireland, the loan portfolio decreased by 5% to EUR 6.2 (6.5) billion. The volume of the American retail portfolio increased by 27% to EUR 7.6 (6.0) billion. Financial results Income unchanged Total income was virtually stable in 2008, at EUR 1,997 (1,989) million. Although some units within Global Financial Markets performed well in the turbulent financial markets, income from this business entity decreased by EUR 413 million to EUR -145 (268) million. The item other income, which largely includes income from Global Financial Markets, fell by EUR 1,288 million to EUR -1,463 (-175) million. Leveraged Finance was likewise affected by the turbulence, albeit to a lesser degree, and its income was 1% lower. Structured Finance saw a 37% rise in income. Commission income was 8% lower, at EUR 304 (332) million, partly as a result of lower commission income from securities brokerage. The increase in spreads, the growth in lending in the international retail banking business, and the increased activities in Corporate Banking all contributed to the 72% rise in interest income, to EUR 3,156 (1,832) million. Income from Corporate Banking was 15% higher. Of total income, 43% (32%) is from international retail banking. Here, income increased by 34% to EUR 864 (646) million, partly as a result of the consolidation of Bank BGZ. As a result of worsened economic conditions in Ireland, ACCBank s income was lower. The retail banks in Australia and New Zealand performed well. Operating expenses unchanged In the year under review, total operating expenses were virtually unchanged from 2007, at EUR 1,708 (1,715) million. Almost all of the growth in staff numbers is due to the consolidation of Bank BGZ. The number of staff rose by 53% to 15,223 (9,957) FTEs. Partly as a result of a reduction of the bonuses however, staff costs increased by only 2%, to EUR 909 (890) million. The decrease in non-banking charges as a result of the sale of a few equity investments contributed to the 7% decrease in other 37 Report of the Executive Board

39 administrative expenses, to EUR 715 (772) million. Depreciation and amortisation charges were 58% higher, at EUR 84 (53) million, partly because of higher depreciations of proprietary software and increased amortisation of intangible assets. Impairment losses at 93 basis points Although Rabobank International was not directly affected by the failure of certain American banks in 2008, these events do reflect the unfavourable macroeconomic conditions. The Irish real estate sector was hit hard in The financing provided by Rabobank International to this sector had a major influence on impairment losses. The item value adjustments rose by EUR 770 million to EUR 786 (16) million. This corresponds to 93 basis points of average lending, which is higher than the long-term average of 47 basis points. Capital requirement and RAROC In the calculation of the capital requirement under Basel II, the risks of Rabobank International are weighted with greater precision. Due to the implementation of new solvability regulations and due to the increase of the loan portfolio and the effects of the financial crisis, the capital requirement increased by 41%, to EUR 8.6 (6.1) billion in the year under review. The required economic capital, i.e. the internal capital requirement, amounted to EUR 6.2 (4.7) billion at year-end Rabobank International achieved a Risk Adjusted Return On Capital (RAROC) of 0.5% (6.9%). Results (in millions of euros) Change Interest 3,156 1,832 72% Fees and commission % Other income -1, Total income 1,997 1,989 0% Staff costs % Other administrative expenses % Depreciation and amortisation % Operating expenses 1,708 1,715 0% Gross result % Value adjustments Operating profit before taxation Taxation Net profit % Impairment losses (in basis points) 93 2 Ratios Efficiency ratio 85.5% 86.2% RAROC 0.5% 6.9% Balance sheet (in billions of euros) 31-Dec Dec-07 Total assets % Private sector loan portfolio % Capital requirements (in billions of euros) Capital requirement % Economic capital % Number of employees (in FTEs) 15,223 9,957 53% Mid-State Bank & Trust, an American bank, is consolidated in Rabobank International s results since May As a result of the expansion of the interest in Bank BGZ from 46% to 59%, this bank is consolidated from April Rabobank Group Annual Report 2008

40 Outlook In 2009, food & agri will form the sound basis for international growth. Rabobank International will focus even more on its core clients, while emphasizing efficiency improvements and cost reductions. Growth of the loan portfolio will require sufficient inflow of amounts due to customers. Rabobank International will expand its retail banking activities further, focusing on Australia, Brazil, California and Poland. Bank BGZ will open a large number of new branch offices in Poland. Global Financial Markets will decline in volume, with stronger focus on Rabobank Group s core clients as well as on liquidity management. Corporate Banking will grow selectively in the Netherlands and the United States. Services to food & agri clients will be broadened. The Telecom Media & Internet activities will be wound down, with the exception of a few specific clients in Europe, including the Netherlands. Both Trade & Commodity Finance and Renewable Energy & Infrastructure Finance will grow further. Rabobank International will invest more in private equity. Rabobank International, together with Bouwfonds REIM, will establish new agricultural real estate funds through Rabo FARM. Rabo FARM supports our international food & agri ambitions by means of strategic purchases of arable land for, or together with, its clients. 39 Report of the Executive Board

41 Asset management and investment k Group s nt 16% Share in Rabobank Group s net profit for 2008 in % Asset management and investment 16% Higher profit; assets under management down due to adverse stock market conditions nevertheless Assets under management and held in custody for clients down 21% to EUR 184 billion - Cash flow EUR 13 billion - Loss on investments EUR 59 billion Number of orders handled in the Netherlands up 5% to 4.7 million - Net profit up 21% to EUR 438 million - Impairment losses amounted to EUR 42 million Strategy of Rabobank Group All-finance market leadership in the Netherlands Global food & agri bank Contribution to Group strategy - Offering, through various distribution channels, broad access to investment funds and asset management services to clients of every kind - Robeco operates in the Dutch savings market - Offering products in the areas of sustainability and clean technology The turbulence in the stock exchanges in 2008 also affected Robeco, Sarasin and Schretlen & Co. The fall in share prices caused a 21% decrease in assets under management and held in custody, to EUR 184 billion. The total asset inflow was EUR 13 billion. The gain from the sale of Alex and the strong investment performance on alternatives investments at Robeco boosted net profit from asset management activities by 21% to EUR 438 million. Robeco wound down its fixed-income business in the United States and strengthened both its presence in Asia and its distribution activities in the Middle East. Sarasin achieved a record inflow of assets, received several awards for its outstanding investment performance and expanded its activities in Europe and the Middle East further. Strategy Asset managers Robeco, Sarasin and Schretlen & Co offer high-quality services to investors of every kind. The range of innovative products and services will be broadened and deepened further. Both the distribution network and the institutional sales and asset management activities will be expanded on a selective basis. At the same time, Rabobank Group aims to strengthen its position in the market for high net-worth individuals and institutional investors and consolidate its positions in the Netherlands and abroad. 40 Rabobank Group Annual Report 2008

42 Asset management services to clients of every kind In the Netherlands, Rabobank Group offers, through several channels, a broad range of investment products and services to both private and institutional investors. Robeco offers many investment products and Robeco Direct, through its Younique concept, offers tailored asset advice and management to private individuals. Rabo Direct Beleggen accommodates active, independent investors. Rabobank Private Banking focuses on private individuals with assets of EUR 80,000 or higher. Schretlen & Co accommodates high net-worth private individuals and medium-sized institutional investors with assets of EUR 500,000 or more. The large institutional investors can turn to Robeco Institutional Asset Management and to Sarasin. Internationally, Rabobank Group likewise provides for many investors needs through Robeco and Sarasin. Robeco s services expanded In 2008, Robeco expanded its fiduciary-management services to pension funds further. The basis of Robeco s fiduciary-management proposition is Corestone, an existing multi-manager selection specialist in Switzerland that operates independently. This enables Robeco to offer an independent selection of the best asset managers to pension funds and to provide a link between their assets and their pension liabilities. Robeco has drawn up a separate Greater China strategy for China, Hong Kong, Taiwan and Singapore, positioning Hong Kong as a gateway to Asia, where the Asia-Pacific oriented equity funds are managed. In 2008, it opened a branch office in Singapore. The inflow of assets into Canara Robeco Asset Management, the joint venture with the Indian Canara Bank that was launched in 2007, gained momentum. Some bright spots in a negative investment year for Robeco clients In 2008, the value of all equity investments plunged by double-digit percentages. There was some comfort in the fact that the 54%¹⁰ drop in Robeco-managed equity portfolios was less than the benchmark. With a return of -39.3%, the Robeco flagship fund lagged behind the benchmark return of -37.2%. Investments in Emerging Markets lost more than 50% of their value. Robeco Emerging Markets Equities dropped by 52.1%, slightly more than the benchmark. Key funds that outperformed the benchmark included Robeco Hollands Bezit, which dropped by 47.5% versus 50.3% for the AEX index including dividends, and Robeco Chinese Equities, at -46.5% versus -49.1%. With its flagship funds Harbor International and Harbor Capital Appreciation, Robeco s subsidiary Harbor Capital Advisors outperformed the benchmark by 2.1% and 2.8%, respectively. Early 2008 the managers of the Harbor International Fund earned one of the Morningstar s US Fund Manager of the Year Awards. Also the asset managers of the Harbor Bond Fund earned this award. Although a large majority of fixed-income funds realised positive returns, only 31% outperformed the benchmark. Rorento s return was -0.6%, against a benchmark of 4.9%. The biggest redeeming factor was Robeco Lux-o-rente, whose absolute return of 17.2% represented a 6.2% outperformance of the benchmark. In alternatives, Sage International achieved a -21.4% absolute return in US dollar terms. Transtrend delivered very strong results, with a 29.4% absolute return in US dollar terms for the Diversified Trend Program - Enhanced Risk USD. Robeco Multi Market Bonds likewise showed positive double-digit returns for New growth initiatives at Sarasin In the year under review, Sarasin expanded its presence in its Swiss home market as well as in other European countries and the Middle East. Together, Sarasin and AIG Private Bank founded a new bank, branded bank zweiplus, for private clients with assets worth up to approximately EUR 300,000. Sarasin holds a 57.5% interest in this new bank. At year-end, bank zweiplus managed assets worth around EUR 3.9 billion on behalf of more then 250,000 clients. Sarasin strengthened its position in Germany by obtaining a full banking licence and opening a new German head office in Frankfurt. It also entered the Spanish market providing its private banking services out of Madrid and La Coruña and opened a branch in Ireland through its London subsidiary. In the Middle East, Sarasin obtained licences for banking operations in both Qatar and Bahrain, and a licence for advisory services in Oman. 10) Percentages based on weighted assets; with the exception of alternatives, performance figures include asset management fees. 41 Report of the Executive Board

43 Sarasin awarded for investment performance In 2008, Sarasin was presented with several awards for its outstanding investment performance. Based on the overall performance of its global range of investment funds, it was awarded the title of Switzerland s best asset manager by the EDHEC Business School, in France, and Euro Performance. In the Elite Report - the top asset managers, published by the German financial newspaper Handelsblatt, Sarasin was named one of the best private banks in German-speaking countries for the sixth consecutive year. At the annual Banker Middle East Awards ceremony, in Dubai, Bank Sarasin-Alpen was awarded the title of Best Private Bank in the Middle East for the second time in a row. Schretlen & Co Schretlen & Co s operations were affected by the negative mood on the stock exchanges. Some clients went so far as to give up investing altogether. The number of clients declined by 2% to 5,978 (6,091). While customer satisfaction remained high, it fell short of its 2008 level. In a survey held by the business periodical Incompany, clients rated Schretlen & Co s services with a score of 7.0 (7.3). Although less satisfied with the price/quality balance and transparency, clients were highly satisfied with Schretlen & Co s expertise. Decrease in assets under management and held in custody due to adverse stock market conditions In 2008 the adverse stock market conditions caused a 21% decline in assets managed and held in custody for clients to EUR 184 (232) billion. Robeco now manages EUR (145.8) billion in assets, Sarasin EUR 46.9 (50.2) billion and Schretlen & Co EUR 6.8 Assets under management and held in custody for clients at year-end 2008 (8.4) billion. Share indexes worldwide dropped by double-digit percentages, with the AEX index 52% lower, the Equity 36% S&P 500 index in the US 38% lower and the Fixed income 33% Japanese NIKKEI 225 index 42% lower. These price Mixed 10% falls resulted in a EUR -59 billion return on Money market 8% investments. The appreciation of the US dollar and Alternatives 7% the Swiss franc had a positive impact on assets of Real estate 4% EUR 7 billion. Other 2% The total inflow of assets of EUR 13 billion was mainly realised by Sarasin, whose clients contributed EUR 9.7 billion. The inflow of assets from clients of AIG Private Bank into the new bank zweiplus joint enterprise resulted in a cash flow of EUR 1.3 billion. At Robeco the huge inflow of assets at Harbor Capital Advisors and Transtrend resulted in a positive cash flow. However a few of Robeco s traditional investment funds, such as Robeco Lux-o-rente and Robeco Flex-o-rente, showed an outflow of assets because more clients in the Netherlands chose to invest in time deposits. Early in 2008, Robeco decided to sell the fixed-income activities of Robeco Investment Management in the United States (RIM FI USA) to Morgan Stanley Investment Management and Lehman Brothers. In addition, Rabobank Group sold the online broker Alex. As a result of these disposals, assets under management and held in custody were EUR 7 billion lower. Changes in assets managed and held in custody for clients in billions of euros Cashflow Investment results Exchange results Sale of Alex Sale of RIM FI USA Other Rabobank Group Annual Report 2008

44 More securities orders handled in the Netherlands due to adverse stock market conditions The unfavourable stock market conditions also affected the number of securities orders. In the Netherlands, Rabobank Group handled 4.7 million orders for securities and in-house funds, compared with 4.5 million in 2007, excluding the 3.7 million orders Alex handled. The number of orders handled by the local Rabobanks decreased by 14%. For Rabobank Group, the total number of orders increased by 5%, thanks to the substantial higher transaction volume at Robeco. Especially in the last months of 2008 there were a lot of trading activities. Financial results Results (in millions of euros) Change Interest % Fees and commission 1,084 1,089 0% Other income % Total income 1,618 1,479 9% Staff costs % Other administrative expenses % Depreciation and amortisation % Operating expenses 1, % Gross result % Value adjustments 42 1 Operating profit before taxation % Taxation % Net profit % Number of orders in the Netherlands (in millions) % 31-Dec Dec-07 Assets under management and held in custody (in billions of euros) % Number of employees (in FTEs) 3,620 3,468 4% Transtrend has contributed in full to Rabobank Group s results since March, Income up 9% The gain from the sale of Alex and the Transtrend Diversified Trend Program s strong investment performance were the main drivers for the 9% rise in total income, to EUR 1,618 (1,479) million, in Mainly due to the increase of interest income at Robeco, interest income was 76% higher, at EUR 144 (82) million. The decrease in assets under management had a negative impact on the asset management fees. This decrease was however offset by the Transtrend Diversified Trend Program s strong investment results. Since Alex has ceased to be consolidated as from 2008, income from securities brokerage decreased sharply. In net terms, commission income was virtually unchanged at EUR 1,084 (1,089) million. Other income was 27% higher, at EUR 390 (308) million, due to the gain from the sale of Alex. In 2007, the main drivers of other income were gains from Sarasin s disposal of its Luxembourg activities and income from its brokerage business. Operating expenses up 2% Total operating expenses increased by 2% in 2008, to EUR 1,013 (991) million, due to the expansion of Sarasin s activities. The sale of Alex and staff redundancies at Robeco caused a decrease in staff numbers. Due, however, to the expansion of Sarasin s activities, the total staffing level rose by 4% to 3,620 (3,468) FTEs. Staff costs were 4% lower, at EUR 559 (581) million, as a result of a reorganisation at Robeco and decreased bonuses. Other administrative expenses rose by 10% to EUR 352 (320) million, as a result of the expansion of activities at Sarasin. Due in part to higher depreciation on intangible assets, depreciation and amortisation charges were 13% higher, at EUR 102 (90) million. 43 Report of the Executive Board

45 Impairment losses EUR 42 million The turbulence in the financial markets resulted at Sarasin in a few write-offs on financial institutions. As a result, the item value adjustments increased by EUR 41 million to EUR 42 (1) million. Outlook The decrease in assets under management in 2008 is expected to have a negative impact on the development of asset management fees in It is anticipated that Robeco s efforts towards more cost-efficient operations will entail further staff reductions. To Robeco, a strong investment performance remains a key element. It intends to reach more clients by expanding its distribution network. In addition, Robeco aims to attract new clients by developing innovative investment products and services. Robeco believes that sustainable and responsible investments will gain importance and for that reason, it will expand its services in this area even further. Also, it will selectively expand its Asian presence. Sarasin will continue the development of its growth initiatives. It will expand its position in its present markets and will start activities in the Netherlands and selected Central European markets, as a result of which a larger proportion of its income should come from countries outside Switzerland. Schretlen & Co intends to grow its customer base by anticipating even better on the wishes of high net-worth clients. It will intensify and improve its collaboration with the local Rabobanks further, while increasing its efforts focused on non-rabobank clients. 44 Rabobank Group Annual Report 2008

46 Leasing 8 k Group s 9% Satisfactory growth in loan portfolio Loan portfolio up 13% to EUR 23.3 billion - Portfolio share of food & agri grows to 20% Net profit unchanged at EUR 235 million - Efficiency ratio improved by 1.0 percentage point to 58.7% - Impairment losses at 64 basis points; below long-term average - RAROC 22.3% Share in Rabobank Group s net profit for 2008 in % Leasing 9% Strategy of Rabobank Group All-finance market leadership in the Netherlands Global food & agri bank Contribution to Group strategy - To support Rabobank with lease and factoring products - To grow market share in consumer credits - To monitor and coach food & agri related producers, vendors and distributors of capital goods - To grow portfolio share of food & agri Lease subsidiary De Lage Landen faced changed market conditions in 2008 that forced it to be more selective in its acceptance of new financing applications. Despite this, the loan portfolio increased by 13% to EUR 23.3 billion. The number of lease cars in the portfolio rose by 6% to 211,000. In the Netherlands, De Lage Landen was voted the most customer-focused provider of business finance. Internationally, De Lage Landen won recognition through the Vendor Lessor of the Year Award. Higher margins on new contracts reflected scarcity of funding and higher risks. At EUR 235 million, net profit remains virtually unchanged compared to Strategy De Lage Landen offers finance solutions world-wide for producers and distributors of capital assets. De Lage Landen remains alert to opportunities for upscaling Athlon Car Lease, its international car leasing business. De Lage Landen serves Rabobank clients with a broad package of lease and factoring products. Rabobank Group s position in the Dutch market for consumer credits will be strengthened. Rising risk prices and a more selective acceptance policy The unrest in the financial markets affected all players in the lease market. In 2008, lower capital availability caused the price of financing to go up. De Lage Landen on-charged the higher cost of funding and the higher price of risk as part of its margins on new contracts. Portfolio growth levelled, 45 Report of the Executive Board

47 due to a more stringent acceptance policy. Athlon Car Lease saw a rise in the number of car lease contracts but its second-hand car sales were slow. Good risk management is traditionally one of De Lage Landen s spearheads and this pays off when economic conditions get worse. Where possible, De Lage Landen will tighten its risk management even further. Customer-focused organisation Clients are satisfied with De Lage Landen s services. The desired high customer satisfaction was recognised in 2008 when Leasing Life Asset Finance, the leading international magazine for asset finance, presented De Lage Landen with the Vendor Lessor of the Year Award. According to a survey by Incompany, De Lage Landen was the most customer-focused business finance provider in the Netherlands. Clients rated De Lage Landen with a score of 7.2 (6.8), with particularly high scores for the items knowledge, service and result. A survey by Heliview showed a slight decline in the general satisfaction among car lease clients with Athlon Car Lease, with a score of 7.2 (7.5). Stronger position in Europe; further development of Athlon Car Lease In its expansion abroad, De Lage Landen follows its internationally operating clients - and it also follows Rabobank. The position in Europe was expanded further, particularly in the Central and Eastern European region. In Hungary, Siemens Leasing and Siemens Finance were acquired in The Budapest branch has since been operating as the regional head office for Central and Eastern Europe. From there, both the car leasing activities and the vendor-finance activities in the region will be developed further. The year 2008 also saw the start of the sale of vendor-finance products in Portugal. In addition, the activities in Russia were boosted by the expansion of the joint venture, named Cargobull Finance, with trailer manufacturer Schmitz Cargobull. In the Netherlands, the integration of Athlon Car Lease and Translease was finalised. Their merged activities will continue under the Athlon Car Lease brand, which is the second player in the Dutch car lease market. Since 2008, Athlon Car Lease also operates in Portugal. Increased collaboration between De Lage Landen and Rabobank International The collaboration with Rabobank International was strengthened further. The collaboration agreement with the Polish Bank BGZ, which had been signed in 2007, resulted in positive developments in Together with this bank, De Lage Landen set up lease company BGZ Leasing, which serves clients of Bank BGZ and the Dutch clients of Rabobank. In the United States, De Lage Landen and Rabobank International collaborate in transaction structuring. In Belgium, the UK and Germany, De Lage Landen offers lease and factoring products to Dutch clients of local Rabobanks, while Rabobank International takes care of the payment transactions involved. In combination with the specific financing solutions offered by Vendor Finance to food & agri clients, the collaboration with Rabobank International contributed to the increase in the portfolio share of food & agri. Specialist in consumer credits and factoring De Lage Landen is the specialist in consumer credits and factoring products within Rabobank Group. In the Netherlands, Consumer Finance grants consumer credits through the local Rabobanks and through the Freo label, an Internet solution that enables clients to take out loans online. De Lage Landen works closely with the local Rabobanks in the sale of personal loans, continuous credit and student loans. In addition, De Lage Landen supports Rabobank Group with its Factoring unit. Using this unit s expertise, Rabobank offers factoring products related to working-capital financing to the small and medium-sized enterprises sector and the corporate market. With its expertise, De Lage Landen supports the local Rabobanks in business acquisitions and in financing fast-growing enterprises or trading companies with seasonal peaks by advance financing of their debtor portfolios. Factoring showed strong growth, with an increased number of clients and a broader range of products and services. Increase in food & agri contributes to loan portfolio growth De Lage Landen s loan portfolio increased by 13% in 2008, to EUR 23.3 (20.7) billion. Around 2 percentage points of growth was due to the appreciation of the US dollar. The 16% growth of the food & agri portfolio increased the food & agri share of the total loan portfolio by 1% percentage point, to 20%. The number of lease cars in the portfolio increased by 6% to 211,000 (199,000¹¹). The car lease portfolio increased by 6%, to EUR 2.8 (2.7) billion. The consumer loan portfolio was stable, at EUR 0.9 (0.9) billion. 11) The number of lease contracts at year-end 2007 has been restated. These numbers no longer include fuel contracts. 46 Rabobank Group Annual Report 2008

48 Loan portfolio in billions of euros Other Consumer finance Transportation Car leasing Technology finance Health care Construction & industrial Financial services Office equipment Food & agri Loan portfolio by region at year-end 2008 Europe 59% America 38% Asia/Pacific 3% Financial results Results (in millions of euros) Change Interest % Fees and commission % Other income % Total income 1, % Staff costs % Other administrative expenses % Depreciation and amortisation % Operating expenses % Gross result % Value adjustments % Operating profit before taxation % Taxation % Net profit % Impairment losses (in basis points) Ratios Efficiency ratio 58.7% 59.7% RAROC 22.3% 24.2% Balance sheet (in billions of euros) 31-Dec Dec-07 Loan portfolio % Capital requirements (in billions of euros) Capital requirement % Economic capital % Number of employees (in FTEs) 4,667 4,411 6% Income up 2% Total income increased by 2% to EUR 1,015 (995) million in Although the margin on new contracts improved, the margin for the portfolio as a whole was lower. Interest income rose by 2% to EUR 530 (518) million as a result of growth of the loan portfolio. Commission income was 17% higher, at EUR 61 (52) million, due to higher brokerage commission income. The greater part of income from car leasing activities is recognised under other income. Other income remains virtually stable, at EUR 424 (425) million. 47 Report of the Executive Board

49 Operating expenses unchanged Total operating expenses were EUR 596 (594) million, virtually unchanged from Increased activities resulted in a 6% rise in staff numbers, to 4,667 (4,411) FTEs. This contributed to the 2% rise in staff costs to EUR 377 (369) million. Other administrative expenses decreased by 3% to EUR 188 (193) million, mainly as a result of lower marketing and automation costs. Impairment losses at 64 basis points The growth in the loan portfolio and the worsened economic situation caused an 18% increase in the item value adjustments in 2008, to EUR 118 (100) million. In terms of basis points of the average loan portfolio, the impairment losses were 64 (61) basis points. The impairment losses exceed the level of 2007 and are lower than the long-term average of 66 basis points. Capital requirement and RAROC Unlike Basel I, Basel II prescribes that the underlying value of lease objects be taken into account in the calculation of the capital requirement. As a result, the capital requirement decreased by 35% to EUR 1.1 (1.7) billion in The required economic capital, i.e. the internal capital requirement, amounted to EUR 1.0 (1.1) billion. De Lage Landen achieved a Risk Adjusted Return On Capital (RAROC) of 22.3% (24.2%). Outlook Despite the present uncertain conditions, De Lage Landen expects to increase its lease portfolio further in The scarcity of funds and the price of risk will continue to rise. Expectations are that this will be reflected in higher margins on new contracts. The deteriorating economic conditions could result in a rise in impairment losses. With less price competition, the present market conditions may benefit Vendor Finance. A more selective acceptance policy and more stringent risk monitoring should result in an improvement of Vendor Finance s performance. In the Dutch market, the various units within De Lage Landen will increase their acting together at the customer interface. In addition, De Lage Landen aims to extend its collaboration with Rabobank. Consumer Finance will pay special attention to the distribution of loans through Rabobank. Finally, De Lage Landen believes it can meet the growth in the demand for factoring products. Athlon Car Lease is looking into opportunities for upscaling in Europe. 48 Rabobank Group Annual Report 2008

50 Real estate 8 k Group s 3% Growth in loan portfolio and assets under management; fewer houses sold Number of houses sold 34% lower, at 8,746 Loan portfolio up 22% to EUR 16.5 billion Assets under management in real estate up 35% to EUR 6.8 billion Net profit Rabo Real Estate Group down 65% to EUR 86 million - Impairment losses: nil Share in Rabobank Group s net profit for 2008 in % Real estate 3% Strategy of Rabobank Group All-finance market leadership in the Netherlands Global food & agri bank Contribution to Group strategy - To maintain and strengthen market leadership in owner-occupied houses and commercial real estate - To increase sales of Rabobank mortgages for new housing projects - To maintain market leadership in real estate financing - To increase knowledge of real estate - To offer differentiated real estate related funds to Rabobank clients - To set up and expand agri related funds, together with Rabobank International Rabo Real Estate Group faced worsened market conditions in Owner-occupied houses became less affordable and consumer confidence in the housing market decreased. This had a negative effect on the number of owner-occupied houses sold. In 2008, Bouwfonds Property Development sold 8,746 owner-occupied houses, compared with 13,173 in At FGH Bank, the loan portfolio increased by 22% to EUR 16.5 billion and at Bouwfonds REIM, assets under management were up 35%, at EUR 6.8 billion. In all, the generally deteriorated conditions resulted in a 65% decrease in net profit for Rabo Real Estate Group, to EUR 86 million. Strategy Rabo Real Estate Group aims to operate in each part of the real estate chain in the Netherlands, be it developing, finance or investing. Its target is to maintain and strengthen its leading position in the Dutch market for owner-occupied houses and commercial real estate. In addition, Rabo Real Estate Group intends to maintain and, where possible, expand its solid position in the Dutch real estate finance market. Within Rabobank Group, Rabo Real Estate Group is the centre of expertise on real estate investments. Leveraging Rabobank s distribution power and growing its knowledge of real estate 49 Report of the Executive Board

51 management will contribute to growth in assets under management. The development of owneroccupied houses and of real estate development, as well as real estate finance and investment will be defined further in selected countries. Changed market conditions in real estate The effects of the deteriorating economic outlook also manifested itself in the real estate market. As a result of the crisis, consumers were cautious. This created a mismatch between supply and demand and the number of new houses for sale increased. In addition, owner-occupied houses in the Netherlands became less affordable, partly as a result of higher mortgage interest rates. For the development activities, this resulted in a decline in the number of owner-occupied houses sold and, to a lesser extent, pressure on margins. In France, economic conditions likewise caused deterioration of the housing market. For the financing activities, the uncertainty in the real estate market resulted in a decline in both the number and the volume of transactions. FGH Bank nevertheless succeeded in maintaining its leading position in the Dutch real estate financing market. Because of the higher price of risk, FGH Bank s interest margin on new financing improved. Furthermore, there was a lower market demand for traditional real estate investment products, and this depressed results for Bouwfonds REIM. New brand policy The real estate division reviewed its brand policy in The label Rabo Bouwfonds was changed into Rabo Real Estate Group and, for the foreign markets, into Rabo Real Estate Group. To improve services to the various customer groups, the Development division was split up into Bouwfonds Property Development and MAB Development. Bouwfonds Property Development develops integral housing areas and smallscale multifunctional projects. As a developer of commercial real estate, MAB Development focuses on the development of shops, offices, hotels and large-scale multifunctional projects. Through FGH Bank, the Finance division serves professional real estate clients including investors, traders, project developers, construction companies and real estate funds. Besides financing, FGH Bank, through its subsidiary FGH Vastgoed Expertise, also offers real estate advisory services. The Asset management division structures, places and manages predominantly non-listed real estate funds and real estate related financial products. Bouwfonds REIM offers services to private and institutional investors. Expanded collaboration with Rabobank In 2008, Rabo Real Estate Group further intensified its collaboration with other Rabobank Group entities, working even more closely with the local Rabobanks in the sale of new housing projects. This is very important for growth of Rabobank s market share in mortgages in large cities. It also built on the Eigen Steen real estate project, which was started in Through this project, Rabo Real Estate Group relieves the local Rabobanks from all their real estate activities. For the purpose of development projects for new bank office buildings, a large number of agreements were made with local Rabobanks. In addition, a number of initiatives together with Rabobank were launched through the Asset management division, including the establishment of investment funds with an agri related character. After the integration of the three employment packages, Rabo Real Estate Group achieved a single Collective Labour Agreement (CLA) for all employees of Rabo Real Estate Group in The new CLA comprises an employment package that fits its ambition to be an attractive real estate employer in the Netherlands and includes the introduction of a new, green lease arrangement and study agreements on teleworking. In 2008, official reports were filed against a number of suspects, including former employees, in connection with a real estate fraud (the so-called Klim-Op affair). In 2008, the existing codes of conduct of the various divisions, both national and international, were harmonised into a single, uniform code of conduct within Rabo Real Estate Group. Fewer houses sold, particularly in the Netherlands The number of owner-occupied houses sold by Bouwfonds Property Development declined due to a fall of sales, particularly in the Netherlands and to a lesser extent in France as well. In 2008, 8,746 (13,173) owner-occupied houses were sold, of which 68% was in the Netherlands. 50 Rabobank Group Annual Report 2008

52 Number of houses sold in 2008 by country The Netherlands 68% France 23% Germany 7% Other 2% MAB Development completed 76,778 (223,782) m² of commercial real estate. Due to the change in market conditions, fewer real estate construction projects were taken on in At year-end 2008, MAB Development had 536,993 (570,970) m² of commercial real estate under construction. Loan portfolio 18 in billions of euros Loan portfolio growth in the first months of 2008 FGH Bank s new granted loans amounted to EUR 4.8 billion in the year under review. The gross loan portfolio increased by 22% to EUR 16.5 (13.5) billion. This growth was realised mainly in the first months of The net loan portfolio, after syndications, increased by 17% to EUR 14.6 (12.5) billion. Repayments amounted to EUR 2.2 billion. Investment financing makes up 76% of the portfolio Growth in assets managed due to acquisitions Assets under management in real estate by Bouwfonds REIM increased by 35% in 2008, to EUR 6.8 (5.1) billion. The increase was partly due to the acquisition of cable company CAIW s network, in order to strengthen the Rabo Bouwfonds Dutch Communication Infrastructure Fund, and the acquisition, by IEF Capital, of a shops portfolio from Unibail-Rodamco. The acquisition of a real estate related loan portfolio was another contributor to this portfolio growth. Financial results Income down 31% In 2008, total income fell by 31% to EUR 459 (670) million. Interest income was 9% lower, at EUR 78 (86) million, despite higher interest income at FGH Bank as a result of portfolio growth. Commission income increased by 74% to EUR 33 (19) million, thanks to higher asset management commission income at Bouwfonds REIM. The decline in the number of owner-occupied houses sold depressed other income. Other income was 38% lower, at EUR 348 (565) million, due to lower project results. Operating expenses up 3% Total operating expenses were 3% higher in 2008, at EUR 363 (352) million. Staff numbers rose by 3% to 1,743 (1,700) FTEs. As a result, staff costs increased by 1% to EUR 220 (217) million. Other administrative expenses were 7% higher, at EUR 131 (122) million, due in part to higher costs of both automation and advice. 51 Report of the Executive Board

53 Results (in millions of euros) Change Interest % Fees and commission % Other income % Total income % Staff costs % Other administrative expenses % Depreciation and amortisation % Operating expenses % Gross result % Value adjustments - 2 Operating profit before taxation % Taxation % Profit for the year Rabo Real Estate Group¹² % Minority interest Net profit Rabo Real Estate Group¹² % Other results % Net profit Real estate % Number of houses sold 8,746 13,173-34% Other information (in billions of euros) 31-Dec Dec-07 Loan portfolio % Assets under management % Number of employees (in FTEs) 1,743 1,700 3% Outlook Due to the deteriorating market for real estate, Rabo Real Estate Group expects 2009 to be a difficult year. The market uncertainty, both at home and abroad, will continue, with growth of the loan portfolio and the assets under management expected to level out. The organisation does not rule out the possibility of more official reports being filed in the future in connection with the Klim-Op affair. Where possible, Rabo Real Estate Group will claim financial damages. Unfortunately, that will not be possible for the moral damage that has been done to our business, our staff and the real estate sector. Rabo Real Estate Group expects that 2009 will be another year full of challenges, knowing that changing market conditions offer opportunities for vigorous and innovative operations. Rabo Real Estate Group intends to distinguish itself further in the areas of services, expertise and sustainable innovations in 2009 and will work hard towards its ambition of achieving a prominent position for all its activities in the Netherlands. In addition, selective activities will be launched in a number of European countries, particularly France and Germany. Rabo Real Estate Group will intensify its collaboration with other Rabobank Group divisions. For example, Bouwfonds Property Development will work even more closely with the local Rabobanks in mortgage selling. Bouwfonds REIM likewise, will intensify its collaboration with the local Rabobanks in the distribution of real estate funds. Bouwfonds REIM, together with Rabobank International, will establish agricultural real estate funds around the world through Rabo FARM. In addition, Bouwfonds REIM intends to develop more alternative real estate as well as products of a debt-related nature. 12) The items Result Rabo Real Estate Group and Net profit Rabo Real Estate Group correspond with the results as published by Rabo Real Estate Group. The item Net profit Real Estate division is net of amortisation and financing charges and the effects of the harmonisation of accounting principles due to the acquisition of parts of Bouwfonds. 52 Rabobank Group Annual Report 2008

54 Insurance urance 08 11% 89% Number of non-life and health insurance policies up; fewer life insurance policies sold Sales of Alles in één Polis insurance policies up 2% to 1,297,000 Sales of Bedrijven Compact Polis insurance policies up 5% to 195,000 Sales of ZorgActief Polis health insurance policies up 24% to 150,000 Total insurance commission earned by local Rabobanks down 6%, at EUR 354 million Breakdown of insurance commission in 2008 in % Life 11% Non-life 89% Strategy of Rabobank Group All-finance market leadership in the Netherlands Global food & agri bank Contribution to Group strategy - To strengthen our market leadership by offering non-life, health and life insurance policies from Interpolis through local Rabobanks - To maintain insurance market leadership in the Dutch food & agri sector through market leader Interpolis - To align Eureko s international expansion with existing Rabobank operations The local Rabobanks sell non-life, health and life insurance policies, most of which are supplied by Interpolis. Thanks in part to the constructive collaboration with Eureko, the number of Alles in één, Bedrijven Compact and ZorgActief insurance policies sold increased further. Total insurance commission earned fell by 6% to EUR 354 million as fewer life insurance policies were sold. Non-life insurance commission was up 5%, to EUR 314 million saw the launch of the new Glashelder advertising campaign with Helder Moment as the motto, through which Rabobank and Interpolis aim to make clients consider more carefully the things they should and should not insure. The new insurance solutions InterpolisZekerVanJeZaak for small businesses enjoyed a successful launch. Early in 2009, Rabobank contributed EUR 400 million to the strengthening of Eureko s capital, thus bringing Eureko back to its desired solvency level. Strategy Providing insurance is an important element in Rabobank Group s all-finance strategy in the Netherlands. That ambition is underpinned by Rabobank s 39% interest in the Eureko insurance company. In the Netherlands, Eureko has leading positions in all insurance market sections. The strategy for the virtually saturated Dutch market is to achieve growth by offering new and innovative, demand-driven products and services. Eureko operates several distribution channels and labels, with Interpolis specifically positioned for the banking channel. The local Rabobanks sell mostly Interpolis-branded non-life, health 53 Report of the Executive Board

55 and life insurance policies to both private and corporate clients. Interpolis is Rabobank s biggest supplier and the two enterprises collaborate closely on product and service innovation. The collaboration with Eureko continues to be a strategic pillar in the adjusted Strategic Framework. Rabobank largest Dutch insurance agent, high customer satisfaction at Interpolis In the Netherlands, the local Rabobanks are the largest insurance agent. At least one in five private Rabobank clients has insurance cover from Interpolis, and one in four among corporate clients. In 2008, Interpolis launched a new Glashelder advertising campaign with Helder Moment as the motto. Focusing on prevention, the campaign supports Interpolis and Rabobank s aim to identify risks together with their clients, after which clients may take deliberate decisions as to what they wish to insure. This also prevents duplicate insurance. In addition, Interpolis wishes to distinguish itself in the event of a claim by truly solving the problem rather than just reimbursing the loss. The local Rabobanks and Interpolis aim for high customer satisfaction. To ensure high-quality and swift client service, the systems of local Rabobanks and Interpolis have been interlinked. Interpolis has been awarded high ratings for customer satisfaction, particularly for its speedy and accurate claims processing. In addition, it was presented with the Customer Contact Award 2008 from the Customer Contact Magazine in recognition of its customer contacts organisation. Private clients In spite of fierce competition in the non-life insurance market, the number of Alles in één insurance policies sold by local Rabobanks increased by 2% in 2008, to reach 1,297,000 (1,272,000). The number of clients holding three or more sections in this policy increased from 52.6% to 54.4%. The number of motor and legal expenses insurance policies, as part of the Alles in één Polis policy, was up from 2007, whereas the demand for multi-trip travel insurance was lower. The Partner & Kind verzekeringen insurance policies, which were introduced in 2007 as part of the Alles in één Polis policy, showed some growth. Non-life insurance policies are increasingly taken out through direct channels, such as telephone and the Internet. Client demand for investment-based insurance fell in 2008 as the debate on fee transparency of these products raged and the stock exchange sentiment dropped. The fall in the number of life insurance policies sold was also due to the launch of bank savings products by local Rabobanks. The number of clients holding Interpolis ZorgActief Polis health insurance policy rose by 24%, to 150,000 (121,000), due in part to the fact that Rabobank members enjoy a premium discount. Another contributor was the introduction, in late 2008, of the StudentenZorgverzekering health insurance, a competitively priced policy that offers supplementary cover for students. Corporate clients Competition in the insurance market for the small and medium-sized enterprises segment was exceptionally fierce. Nevertheless, the number of Bedrijven Compact Polis policies sold by the local Rabobanks increased by 5%, to 195,000 (185,000). As part of the Rabo OndernemersPakket (Rabo Entrepreneur Package), business start-ups are granted a premium discount on Interpolis most important insurance policies. This prompted more new businesses to purchase insurance products. A new insurance solution for small businesses was launched in 2008, named Interpolis ZekerVanJeZaak. This package offers quick and comprehensive cover for all business risks, while clients receive their policies in digital format. Entrepreneurs can gather information about risks and insurance products through either a face-to-face advice meeting or via the Internet, Using online advice modules, calculations and scans, they can generate a quick and clear overview of their business risks. For example, the RisicoScan Verzekeren (Insurance Risk Scan) identifies the most frequent risks for 75 branches of industry and suggests measures that entrepreneurs can take to cover these. Outlook The Dutch insurance market is a mature market, and opportunities for growth are relatively limited. There is strong price competition in the non-life insurance market. Sales and services through direct channels, i.e. telephone and the Internet, are expected to grow even further. The life insurance market will remain under pressure because of the discussion on transparency and the availability of bank saving as an alternative. In its advice activities, Rabobank intends to focus more on bank saving products and will cease to offer life insurance products if comparable banking product are available. Rabobank plans to intensify its collaboration with Eureko in the area of insurance. Rabobank and Interpolis focus on offering innovative and transparent, high-quality products in order to maintain, and potentially strengthen, their market position. 54 Rabobank Group Annual Report 2008

56 Risk management Extremely strong financial position Ample liquidity position EUR 20 billion raised in long-term funding Impairment of distressed assets amounts to EUR 570 million Impact of EUR 653 million on net profit due to impairments of indirect exposure to monoline insurers The financial crisis has brought home once more that risk management is a core banking competency. Rabobank Group pursues a prudent risk policy that entails a moderate risk profile. As a result, Rabobank Group was well able to withstand even the turbulent conditions in 2008 and maintain its capital ratios at a high level. After obtaining permission from the Dutch Central Bank, Rabobank Group has been using the most advanced calculation methods since 1 January 2008 for the capital requirement under Basel II for credit, market and operational risks. Risk management organisation Risk management is performed at various levels within Rabobank Group. At the highest level, the Executive Board determines the risk strategy, policy principles and limits, under the supervision of the Supervisory Board and is advised by the Balance Sheet and Risk Management Committee Rabobank Group (BRMC-RG) as well as the Credit Policy Committee Rabobank Group. The Supervisory Board regularly reviews the risk exposure of Rabobank Group s activities and portfolio. The CFO is responsible for the implementation of Rabobank Group s risk policy. Within Rabobank Group, two directorates share the accountability for its risk policy. Group Risk Management is responsible for the policy regarding interest rate, market, liquidity, currency and operational risk, as well as for the credit risk policy at portfolio level. Credit Risk Management is responsible for the policy for accepting new clients in terms of credit risk at the individual customer level. Within the Group entities, risk management is the responsibility of independent risk control departments. Principles of risk management The primary objective of risk management is the protection of Rabobank Group s financial strength. Rabobank Group controls risks in order to limit the impact of potential adverse events, both on its capital and on its financial results. The risk appetite must be proportional to the available capital. An economic capital framework has been developed to quantify this. To manage all the different risks, an extensive system of limits and controls has been put in place within Rabobank Group. Risk management is based on the following principles: 55 Report of the Executive Board

57 - Protecting the Group s reputation: reputation is essential for the proper performance of a banker s profession and needs to be diligently preserved. - Risk transparency: for a good insight into Rabobank Group s risks, identification of its positions is vital. Risks must always be considered as accurately as possible to enable sound commercial decisions to be made. - Management responsibility: Rabobank Group s business entities are individually responsible for their results as well as for the risks associated with their operations. A balance must be found between risk and return, while of course duly observing the relevant risk limits. - Independent risk control: this is the structured process of identifying, measuring, monitoring and reporting risks. In order to ensure integrity, the risk control departments operate independently of the commercial activities. Implications of financial turbulence General In the first half of 2008 the financial crisis continued unabated, followed by a sharp deterioration in the second half of the year. Virtually all sectors of the financial market were affected, as was the broader economy. For the AEX, for instance, 2008 was the worst year on record and the prospects for economies worldwide are cause for great concern. Nationally and internationally, governments intervened in the financial sector by means of nationalisations, capital injections and the provision of all kinds of guarantees. The financial crisis not only affects the real economy: its consequences also impact on the market prices of various financial assets. Even when the creditworthiness of certain assets is not in doubt, there are significant adverse effects on prices due to the overall market sentiment and because in many markets sellers often still outnumber buyers. Some financial assets, to a value of EUR 12.0 billion, in fact no longer have an active market, and this has resulted in adjustments to their accounting treatment. Since all financial assets have to be recognised at fair value, this has impacted directly on the carrying amounts of these assets. At year-end 2008, the total negative revaluation of the portfolio of available-for-sale financial assets with debt instruments amounted to EUR 407 million after tax and was recognised directly in equity. At Rabobank International, the Global Financial Market activities resulted in a mixed performance. Some activities suffered losses while others had a very successful year. Partly due to the continuing financial crisis and the associated forecasts, some changes were implemented at Global Financial Markets in the first half of 2008, resulting in the reduction of non-customer related activities in particular. In the year under review, adjustment proposals were also put forward within Rabobank Group to update its Strategic Framework. Asset Backed Commercial Paper conduits In the first quarter of 2008, two Asset Backed Commercial Paper (ABCP) structures i.e. collateralised investment vehicles were phased out, in part following the introduction of the new Basel II regulation that became applicable to Rabobank Group as of 1 January As a consequence, the ABCP outstanding as of the end of 2008 decreased to EUR 17.5 (23.0) billion, mainly for funding own originated loans and customer loans and receivables. Since the introduction of IFRS these structures have been included in the consolidated group balance sheet, and they are also part of the bank s liquidity risk management. In the fourth quarter, limited use was made of the Commercial Paper Funding Facility launched by the US Federal Reserve to support the commercial paper market. 56 Rabobank Group Annual Report 2008

58 Type Programme Launched Amount outstanding (in EUR billion) 31-Dec-08 Underlying portfolio Solvency management Atlantis Own originated loans Neptune Client facilitation Erasmus Predominantly customer Nieuw Amsterdam loans and receivables AAA and AA Asset Backed Securities arbitrage Tempo Total 17.5 Securities As early as in the first quarter of 2008, due to the scarcity of funding opportunities for Structured Investment Vehicles i.e. off-balance sheet investment vehicles the remaining SIV Tango assets managed by Rabobank were taken on the balance sheet. This put an end to the active existence of this SIV. Following its inclusion on the balance sheet, the size of this portfolio shrunk as a result of currency effects and selling to EUR 3.8 billion as at the end of Otherwise, Rabobank no longer has any investments in SIVs. Structured credit An important element of the bank s liquidity risk management is to maintain a large portfolio of liquid and/or central bank eligible assets that can be used, if necessary, to generate liquidity very quickly. Rabobank Group s trade and investment portfolios have a limited exposure to more structured investments. This structured credit exposure amounts to EUR 9 billion, by far the largest part of which is AAA-rated. Due to the further deterioration of the US housing market, some related investments, Residential Mortgage Backed Securities (RMBSs) and Collateralised Debt Obligations (CDOs) have been impaired and the resulting loss charged to profit. For the whole of 2008 this involved an amount of EUR 418 million after tax. For a liquidity facility granted by the bank that was partly secured by subprime related assets, an additional provision was formed amounting to EUR 152 million after tax. Structured credit exposure at year-end 2008 in billions of euros Non-subprime RBMS 4.3 CDO/CLO and other corporate exposures 2.5 Commercial real estate 1.3 Other ABS 0.9 ABS CDO 0.3 US subprime 0.2 Structured credit exposure rating distribution at year-end 2008 AAA 90% AA 5% A 1% Below A 4% Monoline insurers In a number of cases, monoline insurers are the counterparty to credit default swaps that hedge the credit risk of certain investments. In most cases, solvency objectives are the main reason for the existence of these hedges rather than the credit quality of these investments. The ongoing deterioration of the US mortgage market further undermined the creditworthiness of these monoline insurers in 2008 as well, which adversely affected the rating of these institutions. Counterparty risk relating to these monoline insurers arises because the value of the credit default swaps with these counterparties increases, due to the fair value of the underlying investments decreasing, or because other insured investments can lead to payment claims against these insurers. The table below gives an overview of this. Value adjustments amounting to EUR 245 million after tax were already recognised in the first half of the year. In the second half, additional value adjustments amounting to EUR 148 million were recognised via profit and loss. On top of that a generic provision is formed of EUR 260 million after tax. The remaining counterparty risk resulting from this as at the end of 2008 amounts to EUR 1,729 million. 57 Report of the Executive Board

59 Counterparty risk Value adjustments Counterparty risk after Principal before value charged to profit value adjustments In EUR million Monoline insurer rating 31-Dec-08 adjustments 31-Dec-08 (before taxes) Dec-08 US RMBS-related AAA / AA A and lower 2,051 1, Non-US RMBS-related AAA / AA 3, A and lower 2, Total 7,705 2, ,129 Generic value adjustments Total value adjustments 1,004 1,729 After tax 653 Based on the positions at year-end 2008 as reflected in the table, a further downgrade to CCC of the A or lower rated monoline insurers would have an impact on net profit of EUR 355 million, and the defaulting of CCC rated monoline insurers would have an impact of EUR 64 million. The generic provision formed is sufficient to counterbalance most of this potential impact. As regards the exposures mentioned, an actual exposure to a monoline insurer would arise only in the event of the investments actually defaulting and a claim having to be filed with the monoline insurers under the insurance they issued. Actual losses would be incurred only if both the investment and the monoline insurer concerned were to default. Leveraged finance The Rabobank International leveraged finance portfolio amounted to EUR 3.4 (3.2) billion at year-end It is a diversified portfolio consisting of a large number of relatively small positions, notably in Dutch and other West European businesses. The primary focus of the leveraged finance activities is on Rabobank clients and the food & agri sector. Credit risk Credit policy Credit risk is defined as the risk that a counterparty will be unable to meet its financial or other contractual obligations. Rabobank Group has a robust framework of policies and processes in place designed to measure, manage and mitigate credit risks. Rabobank Group pursues a prudent policy for accepting new clients. As a result, the credit loan portfolio has a relatively low risk profile. Approval of larger credit applications is decided on by committees. A structure consisting of various committee levels has been established, with the amount of the total exposure including the requested financing determining the applicable committee level. The Executive Board itself decides on the largest financing applications. For corporate loans, a key concept in Rabobank Group s policy for accepting new clients is the know your customer principle, meaning that loans are granted only to corporate clients whose management, including its integrity and expertise, is known and considered acceptable by Rabobank Group. In addition, the Rabobank Group is thoroughly familiar with the industry in which a client operates and can adequately assess its clients financial performance. Sustainability in business also means sustainable financing; corporate social responsibility guidelines accordingly apply to the lending process as well. Rabobank Group has three policy credit committees (PCCs): the Rabobank Group PCC and the PCCs Wholesale and Retail. The Group policy as established by the Rabobank Group PCC constitutes the framework for all Group entities. Within this framework, the Group entities define and operate their own credit policies. In this context, the Retail PCC is responsible for domestic retail banking and the Wholesale PCC for wholesale banking and international retail banking. In the Rabobank Group PCC, which is chaired by the CFO, the Executive Board is represented by three members. The CFO also chairs the Wholesale and Retail PCCs. 58 Rabobank Group Annual Report 2008

60 Credit risk and Basel II EAD (Exposure at Default), PD (Probability of Default) and LGD (Loss Given Default) are important Basel II parameters which are increasingly being used in the context of credit risk, and it is partly on these parameters that Rabobank Group determines the economic capital and the Risk Adjusted Return On Capital (RAROC). A significant advantage of economic capital is a streamlined and efficient approval process. These use Basel II parameters and RAROC support credit analysts and credit committees in making well-considered decisions. Every entity of Rabobank Group has determined a RAROC target at customer level. Next to credit quality, this is an important factor in taking decisions on specific credit applications. The EAD is defined as the bank s expected exposure to the client in the case of a default. As of the end of 2008, the EAD of Rabobank Group s credit portfolio amounted to EUR 515 (465) billion. The EAD includes the future usage of unused credit lines. In its financing approval process, Rabobank Group uses the Rabobank Risk Rating, which reflects the counterparty s PD over a one-year period. The counterparties have been assigned to one of the 25 rating classes, including four default ratings. Last categories are being used if the customer defaults, varying from payment arrears of ninety days to bankruptcy. The EAD-weighted average PD of Rabobank Group s private sector loan portfolio amounted to 1.46% (1.55%) at year-end The weighted average PD of Rabobank Group s total loan portfolio was 1.30% (1.39%). This lower PD is not only the result of a change in the PD of debtors, but also of policy changes and the implementation of new models. It should be noted that the PD only reflects the extent to which the bank expects that clients can meet their contractual obligations. The PD says nothing about the potential loss, because in many cases Rabobank Group has obtained additional collateral. This is reflected in the LGD, which also takes restructuring perspectives into consideration. LGD is defined as the best estimate of the loss in case the debtor is in default, and is expressed as a percentage of EAD. At year-end 2008, LGD percentage of Rabobank Group s total portfolio was 21.6% (21.4%). Provisions for loan losses 31-Dec Dec-07 In millions of euros Impaired loans Allowances Impaired loans Allowances Domestic retail banking 2,831 1,398 1,935 1,303 Wholesale banking and international retail banking 3,182 1,536 1, Leasing Other Rabobank Group 6,573 3,299 3,470 2,355 Once a loan has been granted, ongoing credit management takes place assessing new information, both financial and non-financial. The bank monitors if the client meets all its obligations and to what extend it can be expected that the client will continue to do so. If this is not the case, credit management will be intensified, with a higher monitoring frequency and stricter monitoring of all conditions agreed upon. Guidance is provided by a special unit within Rabobank Group, particularly in case of larger and more complex loans granted to companies of which continuity is in danger. If it is probable that the debtor is unable to fulfil all its contractual obligations, this is a matter of impairment and an allowance is made which is charged to income. The allowance for loan losses contains three components: - The specific allowance which is determined on an individual basis for impaired loans of significant amounts. The amount of this allowance is equal to the exposure to the customer deducted by the present value of future cash inflows. - The collective allowance is determined for impaired loans which individually are not significant, notably loans to private individuals and small businesses. The allowance is set at the portfolio level, using Basel II parameters. - Finally the general allowance for loans which are actually impaired as at the balance sheet date, but not yet identified as such (IBNR: Incurred But Not Reported). In this instance, too, Basel II parameters are used to determine the amount of the allowance. 59 Report of the Executive Board

61 The loans for which an allowance has been taken are impaired loans and amounted to EUR 6,573 (3,470) million at year-end The allowance for bad debts amounted to EUR 3,299 (2,355) million at year-end 2008, corresponding to a 50% (68%) coverage. It is to be noted that Rabobank Group takes allowances at an early stage and applies the one-obligor principle, meaning that the exposure of all counterparties belonging to the same group is taken into account. In addition, the full exposure vis-à-vis the client is regarded as impaired, even if full coverage is available for part of it in the form of collateral. Impaired loans as a percentage of private-sector lending amounted to 1.6% (1.0%) as at the end of Country risk Risk in non-oecd countries (in millions of euros) 31-Dec-08 In Latin In Asia/ In % of balance Regions In Europe In Africa America Pacific Total sheet total Economic country risk (excluding derivatives)¹³ 1, ,872 8,300 18, % Risk mitigating components: - local currency exposure ,894 2,313 6,366 - third party coverage of country risk ,258 1,626 3,376 - deduction for transactions with lower risk , ,990 Net country risk before provisions ,541 3,700 7, % In % of total provisions Total provisions for economic country risk % With respect to country risk a distinction is made between transfer risk and collective debtor risk. Transfer risk relates to the possibility of foreign governments placing restrictions on funds transfers from debtors in that country to creditors abroad. Collective debtor risk relates to the situation in which a large number of debtors in a country cannot meet their commitments for the same reason (e.g. war, political and social unrest, natural disasters, but also government policy that does not succeed in creating macro-economic and financial stability). Rabobank Group uses a country limit system to manage transfer risk and collective debtor risk. After careful review, relevant countries are given an internal country risk rating, after which transfer limits and general limits are established. Transfer limits are determined according to the net transfer risk, which is defined as total loans granted, less loans granted in local currency, less guarantees and other collateral obtained to cover transfer risk, and less a reduced weighting of specific products. The limits are allocated to the offices, which are themselves responsible for day-to-day monitoring of the loans granted by them and for reporting on this to Group Risk Management. At Rabobank Group level, the country risk outstanding, including additional capital requirement and provision for country risks, is reported every quarter to the Balance Sheet and Risk Management Committee Rabobank Group (BRMC-RG) and the Country Limit Committee. The calculation of the additional capital requirement and the provision for country risk is made in accordance with internal guidelines, and concerns countries with a high transfer risk. At 31 December 2008, the net transfer risk before provisions for non-oecd countries was 1.2% (1.2%) of total assets. Interest rate risk Interest rate risk means that the Rabobank Group s financial result and/or economic value given its balance sheet structure may decrease as a result of unfavourable developments in the money and capital markets. Rabobank Group s activities create an interest rate exposure. This interest rate risk results mainly from mismatches between maturities of loans granted and funds raised. If interest rates 13) Total assets, plus guarantees issued and unused committed credit facilities. 60 Rabobank Group Annual Report 2008

62 increase, the rate for certain liabilities, such as deposits, will be adjusted immediately, whereas the interest rate for the greater part of the assets cannot be adjusted until later. Many assets, such as mortgages, have longer fixed-interest periods and the interest rates for these loans cannot be adjusted until the next interest rate reset date. In addition, client behaviour affects the interest rate exposure. For example, clients may repay their loans prematurely or withdraw their savings earlier than expected. Any resulting interest rate exposure can be addressed by means of hedge transactions. The extent and timing of hedging depend, inter alia, on the Rabobank Group s interest rate vision and the expected balance sheet movements. In the management, control and limitation of interest rate risk, Rabobank Group uses three indicators for potential loss resulting from changes in interest rates. These are: Basis Point Value (BPV), Equity at Risk (EatR) and Income at Risk (IatR). BPV is the absolute loss of market value of equity at a parallel, 1 basis point rise of the entire yield curve. In the year under review, the BPV never exceeded EUR 25 million. The EatR indicates the percentage by which the market value of equity will decrease if the yield curve shows a parallel increase by 1 percentage point. In the year under review, EatR never exceeded 8%. The EatR is an indication of the sensitivity to interest rate fluctuations of the market value of equity. The IatR is the maximum loss of interest income over the next 12 months, within a defined confidence interval, as a result of an interest rate increase in the money and the capital markets. In the year under review, IatR never exceeded EUR 150 million. In 2008, the maximum values of these indicators remained well under the limits set. Further, economic capital is calculated and maintained for interest rate risk purposes. Each month, Rabobank Group performs complementary scenario analyses to assess the impact of changes in customer behaviour and the economic environment. Liquidity risk and funding Liquidity risk based on three pillars Liquidity risk is the risk that the Rabobank Group is unable to meet all of its payment or repayment obligations, as well as the risk that it is unable to fund increases in assets either at reasonable prices or at all. This could happen if clients or other professional counterparties suddenly withdraw more funds than expected, which cannot be met by the Rabobank Group s cash resources or by selling or pledging assets or by borrowing funds from third parties. Since the start of the financial crisis in the summer of 2007, liquidity risk has been a prominent factor in the financial markets and one of the biggest risks for banks. Owing to the lack of confidence, markets were unable to operate properly. Banks collapsed and central banks and governments had to intervene, sometimes through nationalisation, to prevent further problems. Retaining the confidence of both professional market parties and private clients proved to be crucial. For Rabobank Group liquidity risk has always been an important risk type. Accordingly, our policy is to match the maturity of the funding with that of the loans. Long-term lending is funded by means of stable retail funding, amounts due to customers, and long-term professional market funding. The three pillars Rabobank Group relies on to manage this risk proved their usefulness in Not at any time did the turbulence in the financial markets lead to liquidity problems for Rabobank Group. The first pillar sets strict limits to the maximum outgoing cash flows of our wholesale banking business. This prevents excessive dependence on the professional market. To this end, the bank measures and reports on a daily basis which incoming and outgoing cash flows are to be expected over the next thirty days. In addition, limits have been set for such outgoing cash flows, for each currency and location. In order to be prepared for possible crises, detailed contingency plans have been drawn up. Via the second pillar, a large buffer of readily marketable securities is being held. If necessary, these assets can be used for borrowings from central banks, in repo transactions or direct sellings in the market, as a way of generating liquidity. In 2008, various central banks eased the acceptance criteria of collateral. Over the past years, part of Rabobank Group s mortgages portfolio has been securitised (internally), making it eligible for refinancing with the central bank and thus serving as an extra liquidity buffer. Since this concerns internal securitisations for liquidity purposes only, they are not reflected in the economic balance sheet, but they do add to the available liquidity buffer. Via the third pillar, liquidity risk is limited by Rabobank Group s prudent funding policy, which is to meet the funding requirements of the Group entities at an acceptable cost. In this context, diversification of funding sources and currencies, flexibility of the funding instruments used and active investor relations play an important role. This prevents Rabobank Group s overdependence from a single source of funding. 61 Report of the Executive Board

63 Long-term funding by currency in 2008 Liquidity risk management Several methods have been developed to measure and manage liquidity risk. Methods used include the CA/CL method (Core Assets/Core Liabilities). This analysis is based on the cash flow schedule of all assets and liabilities. Using various time periods, a quantification is made of the assets, unused facilities and liabilities that will probably still be or appear on the balance sheet after assumed and closely defined stress scenarios have occurred. These remaining assets and liabilities are referred to as core assets and core liabilities, respectively, and their interrelationship is the liquidity ratio. Given the highly conservative weightings used, a ratio below 1.2 is considered adequate. In 2008, this was again the case for the scenarios used. The Dutch supervisory authority also provides extensive guidelines for measuring and reporting the liquidity position of Rabobank Group. Its liquidity position measured according to these guidelines is more than adequate, with the available liquidity exceeding the requirement by 20% on average. Rating and funding For years now, Rabobank Group has enjoyed the highest rating by prominent rating agencies, including Moody s and Standard & Poor s, and these were reaffirmed late in Thanks to its high rating, Rabobank Group has access to the money and capital market US dollar 37% Euro 35% Japanese yen 8% Australian dollar 6% Swiss franc 4% Pound sterling 3% Other 7% even in difficult circumstances. In 2008, more than EUR 20 billion in long-term funding was raised in the international financial markets. The need for long-term funding from the capital market was mitigated by the large inflow of savings in the retail banking business. The dynamics on the financial markets also ensured a large inflow of short-term funds from the larger and more professional counterparties, and Rabobank Group s triple A rating played a major role in this. While the raising of long-term funding is centralised within Rabobank Group, an internal system of transfer pricing ensures that costs are borne by the users. Informing investors and capital providers Rabobank also attaches great importance to good and transparent communications with institutional investors and other professional financiers. The Investor Relations department informs this target group about developments at Rabobank Group via a dedicated website and an electronic newsletter. Further, this department is responsible for supplying and explaining all relevant information requested by investors. In addition, institutional investors and other professional financiers are informed through presentations about the financial developments at Rabobank Group. Since the onset of the financial crisis, efforts in this field have been intensified because, more than ever before, investors want to be convinced of Rabobank s low-risk profile. Market risk Market risk relates to changes in the value of the trading portfolio as a result of price movements in the market. Value changes relate, inter alia, to interest rates, equities, credit spreads, currencies and certain commodities. Within Rabobank Group, Rabobank International and Robeco in particular are exposed to this risk. Therefore, specific market risk management departments are in place within these Group entities that calculate and report market risk exposure on a daily basis. An appropriate system of limits has been developed to control this risk. At a consolidated level, the exposure is measured by the Value at Risk. This measure, based on historic market developments for one year, indicates the maximum loss that Rabobank Group can suffer subject to a certain confidence level and under normal market conditions. In order to weigh the risks of abnormal market conditions as well, the effects of certain extreme events - event risk - are calculated. To this end, both actual scenarios, e.g. the stock market crash of 1987, and hypothetical scenarios, e.g. an assumed steep decline of all interest rates, are analysed. Sensitivity analyses are also used. Limits have been set for these event risks, which, if exceeded, warrant management action. 62 Rabobank Group Annual Report 2008

64 In 2008, the Value at Risk fluctuated between EUR 31 million and EUR 58 million, with an average of EUR 39 million. This means that, at a confidence level of 97.5% and under normal circumstances, expected losses on any one day amounted to a maximum of EUR 58 million. Under this calculation method, the amount of the Value at Risk is derived from both historical market trends and the positions taken. Although positions were reduced, the extreme conditions on financial markets in the latter half of 2008 resulted in a substantial rise in the Value at Risk. Value at Risk 70 in millions of euros in Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The Value at Risk can be broken down into a number of components, of which credit spreads and interest rates are the most important. Particularly the positions sensitive to changes in credit spreads have shown negative value trends since the onset of the financial crisis. Since opposite positions of different books offset each other to a certain degree, this results in a diversification benefit that reduces the total risk. At 31 December 2008, the consolidated Value at Risk was EUR 45.1 million. Breakdown of Value at Risk (in millions of euros) 31-Dec-08 Credit spread 33.8 Currency 0.6 Equities 1.9 Interest rate 27.8 Diversification Total 45.1 Operational risk Operational risk affects all organisations. In recent years it has become ever clearer that operational risks can lead to large losses, such as in the case of Société Générale and the Madoff case in Rabobank Group has decided to place the responsibility for operational risk management for the entire Rabobank Group with Group Risk Management, which sets the policies and the frameworks for all the entities within the Rabobank Group. The responsibility for managing specific operational risks rests with the senior management of the individual Group entities, for the risks differ considerably per entity and the risks should be controlled as close to the source as possible. Group Risk Management ensures that the frameworks are adhered to and that for the Rabobank Group as a whole the control mechanisms are transparent and easy to understand. A model - which meets the requirements of the Advanced Measurement Approach and has been endorsed by the Dutch Central Bank - is used to determine solvency requirements regarding operational risks. This model takes account of realised losses as well as the potential consequences of specific scenarios. Rabobank Group follows a conservative approach in this respect. Further, the calculation of the solvency requirement takes account of risk control quality. Currency risk Currency risk is the risk of changes in income or in equity as a result of currency exchange movements. In currency risk management, a distinction is made between positions in trading books and in banking books. In the trading books, currency risk is part of market risk and is controlled using Value at Risk limits, in common with other market risks. In the banking books, there is only the translation risk on non-euro net investments in foreign entities and issues of hybrid capital instruments not denominated in euro. 63 Report of the Executive Board

65 To monitor and control the translation risk, Rabobank Group uses an interrelated dual-track approach to protect its capital position. The strategy is to hedge the non-euro net investments in foreign entities on the one hand, and to immunise the capital ratios against the effects of exchange rate movements on the other. The latter is done via the components of the qualifying capital that do not form part of the reserves, in particular Trust Preferred Securities, which are part of Tier I capital. These were issued a few years ago, and in such a way as to ensure that the currency composition of the qualifying capital corresponded with that of the risk-weighted assets. This natural hedge was realised by issuing the Trust Preferred Securities in US dollars (USD 3,250 million), Australian dollars (AUD 500 million) and pounds sterling (GBP 350 million). 64 Rabobank Group Annual Report 2008

66 Responsible banking for a sustainable future One of the cornerstones of the Rabobank Group Strategic Framework is a highquality policy for corporate social responsibility. Within this scope, Rabobank continued to develop their CSR policy and activities in Rabobank s efforts included cascading social responsibility and sustainability through their financial services offering. Four central themes were defined for the CSR activities of the Rabobank Group that come with specific performance indicators. Making clear CSR choices, defining themes and all such related matters bolster Rabobank s stability and boost their cooperative profile. High-quality CSR policy is a strategic choice Pursuing a high-quality CSR policy is an explicit strategic choice for the Rabobank. The Rabobank aspires to be among the Top 3 of sustainable banks globally. The Rabobank has fleshed out their policy based on four central themes, which are aimed at farther-reaching integration of CSR into their day-to-day financial services provision. The Rabobank takes a proactive approach to issues that affect their CSR performance. The Rabobank seek dialogue with their stakeholders on matters impacting the Rabobank or issues that they can influence. This is one of the unique selling points of the Rabobank. Focus on four central CSR themes Rabobank Group defined four central themes in 2008 in order to give further body to the strategic choice for a high-quality CSR policy: introducing sustainability to food & agri chains, encouraging new production methods and renewable energy sources, promoting economic participation and diversity, and fostering social cohesion and solidarity. These themes are a logical progression from Rabobank s roots in society and are in keeping with our core values of integrity, respect, professionalism and sustainability, which lie at the base of the Rabobank Group Code of Conduct. The themes have also been linked up to key social trends and market developments. The trends that Rabobank has identified, partly based on talks with stakeholders, include: commodity shortages, climate change, food security, a higher standard of living, ageing and urbanisation, and increased pressure from special-interest groups. Market developments that affect CSR policy are confidence in the financial sector, oversight, transparency of services, duty of care, the 24-hour economy, and independent, assertive and critical clients. Introducing sustainability to food & agri chains Rabobank Group aims to introduce sustainability to food & agri chains by applying the five Food & Agribusiness Principles: adequate and safe food production, sustainable use of natural resources, a responsible society where public welfare is key, ethical treatment of animals, and awareness among consumers and citizens. Encouraging new production methods and renewable energy sources Rabobank Group seeks to innovate production methods and develop and use renewable energy sources, thereby placing less of a burden on the natural resources of future generations. As we run Rabobank Group as a responsible business, we also want our own business processes to fall into line with this. All core activities should be marked by this theme, which is also at the innovative heart of all financial services that we provide to our clients. Examples are found in the areas of cleantech, sustainable building, sustainable mobility, and socially responsible investment and asset management. 65 Report of the Executive Board

67 Promoting economic participation and diversity Rabobank Group wants to create equal opportunities and economic participation for all people. This central theme is rooted in Rabobank s cooperative history. We promote participation and diversity, for instance by developing financial services for specific target groups, such as young people, the elderly or people with disabilities. Fostering social cohesion and solidarity Rabobank Group means to foster a good life and good business. The local Rabobanks annually distribute cooperative dividend to civil-society groups and projects. Rabobank also actively runs social funds such as the Rabobank Foundation and the Share4More employee fund. Rabobank Development undertakes commercial banking activities globally in areas where there are relatively few banks. Employees are encouraged to harness their knowledge and skills by volunteering for Rabo Development or the Rabobank Foundation. The group entities individually also promote community investment. Integrating CSR into financial services Integrating CSR into our everyday financial services offering is another pillar supporting our high-quality CSR policy. The various developments at group entities illustrate our further commitment. Rabo Real Estate Group has drafted a CSR Charter to help the divisions shape their CSR policy. Obvion has explicitly embedded CSR in its core values and a new mission statement. In line with the UN Principles for Responsible Investment, Robeco adopted a draft ambition statement to the effect that CSR principles should be progressively implemented in its investment process. Fleshing out these principles is the most important aspect of the sustainability targets for 2009 and Sarasin and Schretlen & Co also placed more focus on CSR ambitions in their targets for the next few years. De Lage Landen bolstered its CSR management structure. Focus on key performance indicators Rabobank Group adopted one or more key performance indicators for each central theme in This not only helps to steer progress on the themes, but also to measure their integration into the core processes as well as the results of our CSR efforts. The indicators comprise only part of the broad CSR field and show Rabobank Group s focus on issues that matter. The performance indicators will be fleshed out in 2009 and linked up with targets that will need to be achieved with effect from Introducing sustainability to food & agri chains - Decision-making by the Rabobank Group Credit Policy Committee on policies pursued in the food & agri sector. - Application of food & agri sector policy to asset management. Encouraging new production methods and renewable energy sources - Extent of sustainable loans in billions of euros and as a percentage of total lending. - Extent of sustainably managed assets in billions of euros and as a percentage of total managed assets. - Carbon footprint in tonnes of carbon emissions per FTE. Promoting economic participation and diversity - Microfinance in millions of euros in countries other than the Netherlands (Rabobank Foundation and Rabo Development portfolios) and as a percentage of total funding outside the Netherlands. - Microfinance in billions of euros for SME start-ups and first-time home buyers, as well as guarantee facilities for businesses in the Netherlands, and as a percentage of total funding in the Netherlands. Fostering social cohesion and solidarity - Number of employees involved in, and number of hours spent, volunteering and working on initiatives developed by both the Rabobank Foundation and Rabobank Development. - Cooperative dividend and donations contributed by Rabobank Group overall in millions of euros. Result - Global CSR rating. 66 Rabobank Group Annual Report 2008

68 Key CSR results in 2008 We achieved a lot in 2008 in the way of further embedding CSR into our core business processes. Bolstering chain sustainability via Food & Agribusiness Principles In 2008 we took the initiative to define Food & Agribusiness Principles, which illustrate how Rabobank Group goes about its business in the international food & agri market. The Principles address such issues as adequate and safe food production, sustainable use of natural resources, a responsible society where public welfare is key, ethical treatment of animals, and awareness among consumers and citizens. The principles are a natural progression from Rabobank s deep commitment to clients operating in agriculture, horticulture and cattle-farming. In 2008 we found ourselves faced with a global need for stepping up all sustainability efforts in food & agri chains because commodity prices soared due to growth in consumer spending and demand for biofuels. Increasing sustainability of production chains through responsible lending Rabobank has defined policies for several CSR-sensitive sectors, which help us take a socially responsible approach to the potential impact of our funding. These sector policies will be discussed in internal sessions, after which we will hold an external consultation round with different stakeholders, such as clients, NGOs and academics. Stakeholder dialogue for sustainable production In 2008 Rabobank actively participated in sector-wide international roundtables, including the Round Table on Responsible Soy, the Round Table on Sustainable Palm Oil, the Better Cotton Initiative, the Better Sugar Initiative and the Round Table on Sustainable Biofuels. On both Rabobank s and the stakeholders initiative, talks involving a range of CSR issues were also held with key players. Ideas on the new palm oil policy were exchanged, for instance, with academics from all over the world, Friends of the Earth, Oxfam Novib and the Worldwide Fund for Nature. Ethics Committee The Ethics Committee celebrated its tenth anniversary in This advisory body, which is led by the Chairman of the Executive Board, offers its opinion on moral dilemmas to all echelons of Rabobank Group. Over the past decade, the Committee has applied ethical criteria to more than 150 business cases. In 2008 the Committee ruled on 14 real-life situations. Discussions focused on whether or not we should fund a provider of short-term loans and a private forestry company that offers investments in robinia plantations. In addition, we discussed the welfare of sheep on long-distance transports to halal slaughterhouses. Engagement in asset management and investment Rabobank Group wants to make businesses more sustainable by seeking dialogue and discussing CSR proposals in shareholders meetings or backing such proposals. Robeco represents several parties via the Robeco Engagement Service, for instance, which allows it to truly exercise influence. Robeco voted at 1,792 shareholders meetings and talked with 86 enterprises about their sustainability and corporate governance policies in Rabobank Private Banking is working on improving the transparency of CSR information on investment products in asset management. Renewable energy Rabobank developed a plethora of initiatives in the field of renewable energy in 2008, one of which was the investment by Rabo Ventures in Econcern, a European renewable energy group. Another was the co-financing of the Princess Amalia Wind Farm in the North Sea. Rabobank Nederland is closely involved in initiatives for applying geothermal heat in greenhouse horticulture, and Rabobank Westland contributed EUR 10 million to various renewable energy projects. Rabo Groen Bank and Rabobank Oost-Achterhoek provided financial backing to Haagwinden, the largest onshore wind farm in the Netherlands. Rabo Groen Bank saw its lending portfolio grow to more than EUR 3.4 billion in 2008, most of which was attributable to renewable energy. Athlon Car Lease introduced sustainable mobility programmes and strengthened its ties with Netherlands Railways in terms of the Railways Business Card. Sarasin, Robeco and Rabobank International published several studies on renewable energy and climate impact. In addition, Rabobank wrote a report on water shortages and investments in efficient water usage in agriculture, which was presented at the annual Duisenberg lecture during meetings of the International Monetary Fund and the World Bank. 67 Report of the Executive Board

69 Code of Conduct and integrity In 2008 we assimilated the Rabobank Group Code of Conduct, which sets out the cohesion between, and justification of, our CSR activities, into several HR instruments, such as performance management, the standard job profile and the leadership profile. Rabo Real Estate Group integrated the existing codes of conduct of the group entities into a single harmonised code in This new code, which describes three integrity principles, will be cascaded through the organisation in These principles are: preventing (the semblance of) conflicts of interest, avoiding (the semblance of any form of) fraud, corruption and bribery, and being discreet and tactful when handling confidential information. Growing employee commitment to CSR Worldwide, Rabobank employees are committed to the communities in which they live and work. Employees of our local Rabobanks spent approximately 75,000 hours volunteering, Rabobank International employees 11,382 hours and employees of other group entities 4,872 hours. The number of local Rabobanks that encourage their employees to volunteer increased by 14 percentage points in 2008, rising to 61 percent. In addition, 25 of our local Rabobanks offered the services of 1,700 employees in total, who spent more than 10,000 hours volunteering in 2008 within the context of the nation-wide Make a Difference Day (MADD), a volunteering initiative Rabobank has supported since Economic participation and diversity A bank for all people, Rabobank wants its financial services to be accessible for everyone. In developing countries, Rabo Development and the Rabobank Foundation contribute to the development of the banking sector and to establishing savings and loans cooperatives. Rabo Development helps rural banks active in developing countries to transform themselves into professional, modern financial institutions. It forms alliances with partner banks, taking a strategic minority interest, and helps them develop along the lines of Rabobank in the Netherlands. As the focus is on long-term development, short-term profitability is of minor importance. The partner banks differ from other banks as their market is specifically rural areas. Partner banks remain independent and benefit from Rabobank s capital, expertise, products, network and management abilities. To this end, Rabo Development makes use of the knowledge and experience of staff from all parts of the organisation. Experts in the areas of credit management, risk management, product development, distribution, ICT and HR are frequently sent on assignments. In total more than 250 people were sent on assignments in The strategic alliances enable a large section of the population to access financial services provided by the partner banks, and at the same time reinforce Rabobank s global position in the food & agri sector. Currently there are six partner banks. In 2008, Rabo Development acquired minority interests in Banco Regional in Paraguay and Banque Populaire du Rwanda. In earlier years, Rabobank Group had acquired interests in the National Microfinance Bank, in Tanzania, Zambia National Commercial Bank, United Rural Cooperative Bank of Hangzhou, in China, and Banco Terra, in Mozambique. But access to financial services is not a given for everyone, not even in the Netherlands, for instance for those who have physical disabilities or a lack of skills. Rabobank also wants to be there for these groups. That is why we place particular focus on first-time home buyers, for instance, and on other vulnerable groups on the housing market. Rabo Real Estate Group has developed facilities to make home ownership possible and affordable for first-time buyers. Rabobank also provides broader access to loans by offering a range of products based on state guarantees and guarantees provided by Stichting Garantiefonds Rabobanken, our own guarantee fund. Access to savings products and payment services for vulnerable client groups has been improved, for instance by introducing the Random Reader Comfort, which allows the elderly, people with a visual impairment and the motorically challenged to make use of our online banking services. In addition, 750 cash dispensers were equipped with a speech function for visually impaired and low-literacy users. Besides this, people aged 60 and over were introduced via training sessions to Rabo Mobiel, the talking e-purse and online banking. Through the Thuisadministratieproject (home accounting project), Rabobank assists people who are prevented by circumstances to keep their records in good order. In 2008 local Rabobanks and Robeco co-organised courses to teach young people and school-going children to become financially literate and not rack up too many debts. De Lage Landen and Obvion published leaflets educating consumers about the various aspects of consumer loans and mortgages. 68 Rabobank Group Annual Report 2008

70 Funds bolster cohesion and solidarity At Rabobank, we feed some of our profits back to society in the form of cooperative dividend. Our cooperative dividend amounted to EUR 41.5 million in total in Of this amount, EUR 20.4 million was distributed by the cooperative funds of the local Rabobanks, EUR 17 million by the Rabobank Foundation, EUR 3.7 million by the Project Fund and EUR 122,500 by the Herman Wijffels Innovation Award; our employees contributed the remaining EUR 308,450 via the Share4More Fund. Rabobank Group s CSR strategy CSR in society: trends and issues - Sustainable conduct as the standard for financial services - Scarcity of natural resources, which contributes to financial and social instability - Environmental degradation caused by pollution and climate change - Increasing need for more sustainable production - Strong growth in renewable energy resources - Companies devoting more attention to all their stakeholders CSR as part of our business: mission and core values - Rabobank Group aims to serve the economic interests of its members and clients - It does so on the basis of its four core values, which are respect, integrity, professionalism and sustainability - It wishes to contribute to the sustainable development of society in economic, social and ecological terms CSR results Rabobank Group strategy for Integration of CSR into financial products and services, and real estate - Sustainable innovations in food & agribusiness, SME and large businesses - Microfinance in developing countries - Sustainable own business operations regarding HR and the environment - Employees committed to CSR - Donations and sponsorship as social dividend - High CSR ratings - Cooperative identity - Market leader in all-finance services in the Netherlands - Global food & agri bank - High credit rating - High-quality CSR policy Four central CSR themes for Introducing sustainability to food & agri chains - New production methods and renewable energy - Economic participation and diversity - Social cohesion and solidarity High quality CSR policy - Focus on four central CSR themes - Integrating CSR into core business and business operations - Internal and external debates and dialogue about issues and cases - Integrating Annual Sustainability Report and Financial Annual Report 69 Report of the Executive Board

71 The Rabobank Foundation supports vulnerable and underprivileged groups in Dutch society as well as being active in 25 developing countries. The Project Fund contributes to innovative, sustainable projects with economic and social relevance, and the Herman Wijffels Innovation Award stresses the value that we place on innovation and sustainability. The Share4More employee fund helps to improve the position of women, children and disabled persons in developing countries. The national funds are more and more looking to align their foreign activities to the commercial operations undertaken by Rabobank Development and Rabobank International. Rabobank Nederland, Rabobank International and the other Group entities spent EUR 3.8 million on community investment in Rabo Real Estate Group offers facilities, expertise and human resources on a not-for-profit basis via Fondsenbeheer Nederland with the aim of promoting a sustainable society. The independent social investment funds it supports, which are linked to social property and the quality of the environment, are active in the areas of listed buildings (Nationaal Restauratiefonds), nature conservation (Nationaal Groenfonds), public housing (Stimuleringsfonds Volkshuisvesting Nederland) and industrial heritage (Nationale Maatschappij tot Behoud, Ontwikkeling en Exploitatie van Industrieel Erfgoed). 70 Rabobank Group Annual Report 2008

72 Why employees are key to our success We set great store by human capital. Without the right people, we are unable to achieve our strategic goals. Since people are key to our success, Rabobank invests a great deal in its employees, not just in terms of their conditions of employment, but also by providing training, opportunities for growth, health care and helping employees strike a good work/life balance. Our workforce is aging, and in a changing and innovative environment such as Rabobank s, it is vital that our employees are versatile and always have relevant skills. This will continue to be the case as Rabobank moves forward into the future and work becomes less time and place dependent in order to cater for the wishes of our clients. Rabobank also attaches great value to talent development, diversity and raising awareness of CSR among its employees. Our HR policy proved its worth again in 2008 Rabobank has a high level of staff satisfaction, and is ranked highly in employer league tables. New style of working Within Rabobank, work will no longer be time and place dependent. Employees will be able to decide for themselves, more than ever before, how and when they will do their work. This new style of working is based on trust, responsibility for one s own actions, and flexibility, together with a good work/life balance. This ties in with Rabobank s performance management system, which incorporates targets, appropriate training, assessment and remuneration. The new style of working is being introduced in two programmes: Rabo Unplugged and Rabobank Rabobank 2010 calls for new competencies and skills Rabobank 2010 calls for a new style of working and cooperation, and places great emphasis on flexibility, enterprise and the need to focus on results. It also means changes in the work that employees do, calling for new competencies and skills. We provide intensive training and support to help them prepare for this. Rabo Unplugged: fewer rules, greater responsibilities At Rabobank Nederland, the new style of working is being introduced under the Rabo Unplugged programme. The guiding principle behind Rabo Unplugged is that individual employees should be bound by fewer rules and have greater responsibilities. Employees can work at the office and elsewhere, and are not tied to normal office hours. A uniform style of working and standardised tools have been introduced to facilitate teamwork. Employees are able to make choices when performing their work, and have a responsibility to ensure they take adequate steps to relax. Managers evaluate staff on the basis of their results, not on the basis of their presence. This means that trust and giving employees sufficient scope to be enterprising are vital aspects of the management style. In October 2008, 500 employees of Rabobank Nederland moved to a new location and started a pilot project in which they work in accordance with the principles of Rabo Unplugged. The experience gained from this pilot project is being used in the final concept for the new head office in Utrecht. Diversity to stimulate enterprise Rabobank Group s HR policy celebrates differences in people. Diversity encourages enterprise, and teams made up of people from varied backgrounds promote quality and creativity. In 2008, 20% of the students who took up work placements at Rabobank came from a multicultural background. As we would like to increase this number to 25%, one of the focuses of the HR policy for 2009 is to recruit and develop 71 Report of the Executive Board

73 talented staff from multicultural backgrounds. In addition, with effect from 2009 senior executives of Rabobank Group will be set targets aimed at promoting cultural diversity. Women in senior positions During 2008 Rabobank Group participated actively in a number of initiatives designed to encourage and support the social debate on how to increase the number of women in senior positions. In 2008 women accounted for over 10% of our senior management (senior staff and executive staff). Our aim for 2009 is to achieve 15%. As women accounted for just over 7% of the executive management of our organisation, we failed to reach our target for the year Rabobank proves a popular employer Rabobank was the highest scoring financial services provider in the 2008 Intermediair Image Survey. The Rabobank is the favourite employer among female graduates and women entering the job market. The survey also revealed that the ability to work from home was highly valued as a fringe benefit. With its Rabo Unplugged and Rabobank 2010 programmes, Rabobank offers a proper response to this need. Group-wide talent development The Management and Talent Development Department tracks down talented staff within the group, trains them for senior management positions and develops results-oriented programmes for current senior managers. The talent development programmes and management programmes help Rabobank promote talented people to more senior or broader managerial positions within Rabobank Group. Careers advisers help individual employees obtain a clear picture of their ambitions, competencies and possibilities. In 2008, 244 (254) employees of Rabobank Nederland received career advice. They used the opportunity to take a close look at their talents and decide on the direction in which they want their career to develop. The Rabobank TOPtalent development programme, developed by local Rabobanks for professionals and managers, emphasises how bringing in leading talent from outside the organisation and promoting talented employees within the organisation can create synergy. This programme, which also uses the group-wide leadership profile, serves as a breeding ground for more onerous managerial positions within Rabobank Group. Continuing education and accreditation of prior learning Continuing education is a requirement in an increasing number of positions in order to maintain expertise and proper performance. It is also crucial to ensuring people remain employable. Rabobank Opleidingen developed a training guide in 2008 that employees can use to identify courses that are appropriate for their competence level and position. Much of the range of courses on offer for local Rabobanks is presented in the form of learning plans for each core position. These plans ensure employees have the necessary expertise and comply with applicable laws and regulations, such as the Dutch Financial Supervision Act (Wft). According to initial figures published on accreditation of prior learning, Rabobank is at the forefront when it comes to encouraging employees to obtain accreditation for work experience (EVC). Accreditation enables employees to obtain a level 4-MBO certificate of secondary vocational education. In 2008, over 1,000 employees of local Rabobanks and Rabobank Nederland applied for accreditation. Research has shown that accreditation can help organisations hold on to experienced employees. In addition, it promotes mobility on the labour market. Rabobank works towards permanent employability Our employees work in a constantly changing and highly innovative environment. They need to grow, both professionally and personally, if they are to remain permanently employable and Rabobank s strategic goals are to be met. The Rabobank therefore invests a great deal in this area. Putting integrated health management into practice Good health and employability are key to a dynamic career. Rabobank tries to help employees who have become fully or partially incapacitated to return to work as soon as possible by providing them with support during their absence from work and with reintegration. Both managers and employees are satisfied with the level of support provided during absences¹⁴. 72 Rabobank Group Annual Report 2008

74 Integrated health management was put into practice in The emphasis of this programme is on vitality. In connection with this, the Rabobank Nederland canteen provides staff with free fruit, and a logo is used to indicate healthy food choices. Occupational Health and Safety Service takes action to prevent absenteeism The rate of absenteeism in 2008 was the same as in 2007 (3.8%). In 2008 the direct costs of absenteeism (continued payment of salary during illness) amounted to approximately EUR 140 (144) million. The Service launched a number of campaigns in 2008 in order to prevent absenteeism from increasing any further. It paid attention to the mismatch between job requirements and the burden on employees. The new Absenteeism in Balance workshop addresses how absenteeism can be avoided by learning to identify various risk factors at an early stage and to take timely action, if necessary. The percentage of employees at an increased risk of absenteeism due to illness relating to pressure of work was 9% in Employees satisfied with Rabobank Rabobank conducts employee satisfaction surveys¹⁵ on a regular basis. In 2008 more than 43% of employees participated in the survey. The outcome of the survey is combined with surveys from 40 other major Dutch companies as part of a benchmark. Rabobank s employee satisfaction score of 86% (85%) is better than the average score achieved by the other companies included in the benchmark (73%). Employee satisfaction is also high within the various Group entities Assessment and remuneration of senior management In 2008 the remuneration of the members and former members of the Executive Board amounted to EUR 9.0 million. Remuneration of the Executive Board (in millions of euros) Salaries Pension charges Performance-related pay Other emoluments Total In view of the financial crisis and the social debate that has arisen as a result, the Supervisory Board will investigate in 2009 whether Rabobank s remuneration policy for executive management needs to change. 14) The survey covered Rabobank Nederland and Schretlen & Co. 15) According to a study conducted at Rabobank Nederland and at the local Rabobanks. 73 Report of the Executive Board

75 The members of the cooperative In 2008, member involvement and influence at local Rabobanks were intensified further. The number of Member Councils rose from 104 to 112. The Dichterbij member magazine received a Customer Media Award in the Most innovating category. The cooperative dividend gained added substance and depth. Rabobank s contribution to over a thousand initiatives enabled people to strengthen their economic, social and cultural environment. In the year under review, new opportunities were sought to bring effective influence within reach of a larger group of members. The deployment of interactive virtual instruments is showing promise. A number of local Rabobanks opened special websites for interaction with their members. The importance of engaged members To a cooperative organisation, the exercise of influence and control by engaged members is important for continued delivery of customer value. Membership lends an extra dimension to customer relations. Members are loyal clients who, in practice, account for a higher-than-average number of products and services. Rabobank is bringing in more members and aims to raise engagement among its members. In 2008, membership of the 153 (174) local Rabobanks grew by 69,000 to more than 1.7 million. This means that an average local Rabobank now has around 11,000 members, who all have a say in the Bank s direction or its distribution policy and services. The members of many local Rabobanks help decide which social projects should be supported. Member benefit system Members not only have influence and control, they can also share knowledge and extend their networks at workshops and seminars. In addition, they can invest in Rabobank Member Certificates and get a higher interest rate on the Rabo LevensloopSparen life-span leave savings account. Four times a year, members receive the Dichterbij magazine, which contains financial background articles, local information and special offers. In addition, more and more local Rabobanks are developing initiatives under which members get discounts from enterprises in the local bank s operating area. The member benefit system is gradually being expanded. Local Member Councils At year-end 2008, 100 (88) local Rabobanks had the Executive model, which has an obligatory Member Council. In addition, there were 12 (16) local Rabobanks that had the Partnership model and that had also implemented a Member Council. A Member Council consist of 30 to 50 members and typically discusses such themes as the Bank s direction, distribution policy and services. It acts as an important discussion partner for the Board in developing the Bank s strategic policy. Also, a Member Council formally adopts the financial statements of its local Rabobank and appoints the members of the supervisory board. Member Councils are involved in the selection of local projects that are eligible for cooperative dividend. The year 2008 saw the launch of a national speed date, where members from councils from all over the country were introduced to each other. The goal of these meetings is to exchange knowledge and experience and to get a picture of special aspects of the cooperative and of Rabobank Nederland s activities. Divided over three meetings during the year under review, ten Member Councils got to know each other and exchanged knowledge in this way. 74 Rabobank Group Annual Report 2008

76 Supervisory boards at local Rabobanks The growing size and increasing complexity of local Rabobanks are making ever-higher demands on individual supervisory board members. Increasingly, the supervisory boards comprise members having wide and in-depth experience who together make up an optimum mix of complementing competencies. This improves the checks and balances within the local Rabobanks and ensures a proper balance between professional bankers and professionals from other disciplines. Using interactive, knowledgebuilding programmes, Rabobank Nederland works to continually inspire and enthuse the more than 900 supervisory board members in order to optimise their performance. It does the same for the elected Board members and appointed directors at local Rabobanks. In 2008, more than 1,000 of them attended an induction programme or a knowledge-building workshop. Dichterbij member magazine and member websites Since mid-2008, local Rabobanks themselves may largely determine the contents of the Dichterbij member magazine, thus giving it their own, local hallmark. Through this magazine, local Rabobanks inform their members and help give shape to their brand values near-by and committed. Although the magazine has a local character, it reflects one Rabobank. Its concept combines general financial information with background information on clients, members, the local community and their bank. Special offers for members announced in the magazine are increasingly sustainable in nature. In 2008, Dichterbij received a Customer Media Award in the 'Most innovative' category. According to the jury, the member magazine is well-made and engages closely with its target audience. Besides the Dichterbij magazine, a growing number of local Rabobanks use an interactive member website for their interaction with members. Site components include a poll, a document archive, special offers for members, news items and a weblog, where Member Council members can blog with each other. The member site is a showcase for the local membership policy. Rabobank s cooperative dividend At year-end 2008, 95% of the local Rabobanks had a cooperative-dividend fund, often combined with regional sustainability funds. On a national level, self-help, self-organisation and innovative entrepreneurship are encouraged through the Rabobank Foundation, the Projects fund and the Herman Wijffels Innovation award. Rabobank uses the cooperative dividend concept as a generic term for its engagement and contribution to social activities. It comprises all the money and efforts invested in the improvement of the economic, social and cultural environment, including sustainability initiatives. Local Rabobanks distribute cooperative dividend in the form of money and/or voluntary work by the Bank s employees or access to meeting rooms, copying machines, means of communication and the like. 75 Report of the Executive Board

77 Sponsoring Rabobank is the largest sponsor in the Netherlands, with sports and culture as its main focus. Sports and culture sponsoring enable Rabobank to increase its social commitment and its brand recognition at the same time. Cycling, field hockey and equestrian sports are the spearheads of Rabobank s central sports sponsoring policy. Its collaboration with NOC*NSF emphasises the role Rabobank plays in sports. The Bank s cultural sponsoring policy is practiced in its sponsorship of the Van Gogh Museum. In 2008, support was given to the GoChina! exposition. On a local level, the local Rabobanks support many athletes, sports organisations and cultural events. The right combination Although commercial considerations obviously play an important part in Rabobank s sponsoring relationships, community focus has always been its guiding principle. Rabobank opts for lasting and structural collaboration with mutual benefit. It is of vital importance that sponsoring projects align with our brand values: committed, near-by and a leader. In addition, market leadership and corporate social responsibility are concepts that must be reflected in the various sponsoring projects. The theme for the year 2008 was China, with nearly half a million people visiting the popular GoChina! exhibition and the participation by many Rabo athletes in the Olympics in Beijing. The local Rabobanks too, responded with various marketing and communication activities. Cycling Rabobank invests in cycling. Its ambitions, as set out in the Rabo Cycling Plan, are embodied in Rabo ProTeam, Rabo Continental Team and Rabo Cyclo-Cross Team, together totalling around fifty cyclists, and in its structural contribution to community sport. The Rabobank is the main sponsor of the Royal Dutch Race Cycling Union (KNWU) and supports the Dutch Tour Cycling Union (NTFU). Local Rabobanks sponsor numerous cycling activities in their regions and support events for young people and talents. Rabobank is one of the driving forces behind the touring version of the Amstel Gold Race, Go Biking Tour, Rabo Dikke Banden ( fat tyre ) races and several cycling clinics. The professional Rabo cycling team took a new course in Rabobank has always championed a clean cycling sport and is making every effort to achieve that, both in its own cycling team and in other ones. Field hockey During the twelve years of Rabobank s main sponsorship of the Royal Dutch Hockey Association (KNHB), hockey has seen tremendous growth. In 2008, successes were celebrated, both internationally and nationally. Both national teams participated in the Beijing Olympics, with the ladies team winning the gold medal. On a local level, too, a lot happened in field hockey in No fewer than 190 hockey clubs have sponsor relationships with a local Rabobank. Such relationships are of great value and, on a local level, are practical translations of the Rabobank s commitment to local field hockey communities. The Rabobank Hockey Bonus enables clubs to finance their artificial turf or their pavilions at competitive rates at their local Rabobank. Numerous clinics are organised for young people, with international players coaching. Equestrian sports Based on its commitment to the agricultural sector, Rabobank has historical ties with equestrian sports. In 2002, it became the main sponsor of the Royal Dutch Equestrian Sports Federation (KNHS) and in 2008, this contract was renewed to the end of The Rabobank s sponsoring of equestrian sports covers 76 Rabobank Group Annual Report 2008

78 the range from top-level sport to community sport. Through the Rabo Talentenplan, talents spotted at an early stage receive structural and professional coaching. Dressage champion Anky van Grunsven is its ambassador. For the local Rabobanks, an action package has been developed to stimulate horse-riding among young people. The annual activities around Indoor Brabant, CHIO Rotterdam and Jumping Amsterdam focus on the needs of local Rabobanks in the area of relationship marketing. NOC*NSF In order to strengthen its position as the pre-eminent provider of banking services to Dutch athletes, Rabobank has been an Official Supplier of NOC*NSF since June With its suppliership, Rabobank shares its skills and experience in sponsoring, communication, banking and assisting sports unions and top athletes. On the journey to the Beijing Olympics in 2008, Rabobank, as Holland s largest sports sponsor, developed initiatives to take Dutch sports to a higher level. With its Rabobank Topsport desk, Rabobank is the financial coach of Holland s top athletes. A number of top athletes are offered the option to work for Rabobank during their active careers. 1% FairShare and museum bus The 1% FairShare covenant was signed by Rabobank in Signatory enterprises commit themselves to spend 1% of their sports sponsorship budgets on sports for the handicapped. Rabobank, whose sponsorship includes the Special Olympics, has been meeting this commitment for many years. In 2008, the (S)Cool on Wheels project was included in its support activities. This involves local clinics to raise school children s awareness of wheelchair exercising and sports activities. As part of their cultural sponsoring, the local Rabobanks enable school children to make educational school trips, on a converted American school bus, to the Van Gogh Museum, in Amsterdam. One of the targets of the collaboration with the Van Gogh Museum is to get more people interested in museums in general. The Gogh Museum Friday Nights are an additional contributing factor in this effort. Summer of sports The Rabobank-sponsored sports again did very well in 2008, culminating in the Beijing Olympics. Rabobank expressed its engagement in the 'Rabobank Sponsor of Dreams' TV commercial. The Rabobank s own internet video channel showed intensive reports on the Rabobank athletes performance. In 2008, 2.3 million items were viewed on this site. The climax was the Rabo fans day, the Olympic after-party on 30 August 2008 at the Olympic stadium. All top athletes who had won Olympic medals were honoured on the big podium. Thousands of young clients aged 8-15 were able to meet their sports heroes. Anky van Grunsven repeated her reining show, children could do a sprint against cyclist Theo Bos and join hockey clinics with Fatima Moreira de Melo. In addition, there were childrens press conferences where their idols answered their questions. GoChina! In 2008, Rabobank was the presenting partner of the GoChina! manifestation at the Groninger Museum and the Drents Museum. The objective was to introduce as many people as possible to Chinese culture and to give an impulse to spending in the northern region. In an eight-month period, nearly half a million people came to see the five exhibitions about the multi-faceted ancient Chinese culture and about avant-garde and present-day Chinese art. On the Rabo GoChina Culture Bus, thousands of primary school children attended a special educational programme that was held in both museums. As a presenting partner, Rabobank once again demonstrated its culture sponsoring mission: Rabobank brings culture nearer to everyone. 77 Report of the Executive Board

79 Control aspects Corporate governance In recent years, the corporate governance of organisations has been in the centre of public interest. Rabobank Group, too, has continued to pay a great deal of attention to its corporate governance. To many, the governance of one of the oldest cooperatives in the Netherlands is not as well known as that of a listed enterprise. However, Rabobank Group uses a unique system of checks and balances at all its levels that make up corporate governance that, in many respects, is even stricter than in listed enterprises. For example, a unique element is our Central Delegates Assembly, Rabobank Nederland s parliament, which meets four times a year and where the influence of the members, i.e. the local Rabobanks, is made to be heard in virtually all strategic decisions. Given its firm roots in Dutch society and its prominence in the international capital markets, Rabobank Nederland s corporate governance is broadly consistent with the Dutch Corporate Governance Code, the so-called Tabaksblat code. Rabobank Nederland endorses the principles of this code, even though the Bank falls outside the code s scope, since it is based on cooperative principles and not listed at the stock exchange. Rabobank Nederland has taken note of the Tabaksblat code as amended by the Corporate Governance Code Monitoring Committee. In 2009, it will review the consequences of these amendments for Rabobank Nederland. Cross-guarantee system within Rabobank Group Rabobank Group consists of the local Rabobanks, their central organisation Rabobank Nederland and its subsidiaries and other affiliated entities. Through their mutual financial association, various legal entities within Rabobank Group together make up a single organisation. An internal liability relationship exists between these legal entities, as referred to in Section 3:111 of the Dutch Financial Supervision Act (Wft). This relationship is formalised in an internal cross-guarantee system, which stipulates that if a participating institution has insufficient funds to meet its obligations towards its creditors, the other participants must supplement that institution s funds in order to enable it to fulfil those obligations. Executive Board The Executive Board of Rabobank Nederland is responsible for the management of Rabobank Nederland and its affiliated entities. This includes responsibility for the achievement of the objectives of Rabobank Group as a whole, its strategic policy, its results, the synergy within Rabobank Group, compliance with all relevant laws and regulations, the management of business risks and the financing of Rabobank Group. 78 Rabobank Group Annual Report 2008

80 The Executive Board reports on all these aspects to the Supervisory Board, the Central Delegates Assembly and the General Meeting of Rabobank Nederland, which is formed by the members, i.e. the local Rabobanks. The management of Rabobank Group is based in part on the interrelationship between risk, return and capital. The Financial Supervision Act and the subordinate legislation based thereon, as well as regulations imposed by the supervisory authorities i.e. the Dutch Central Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM) have formulated standards for financial institutions. The supervision on the Bank s solvency and stability i.e. prudential supervision is performed by DNB, while the AFM has the supervision of the Bank s conduct. Obviously, these regulations form the framework for the organisation and control of Rabobank Group s activities. The members of the Executive Board are appointed by the Supervisory Board for a four-year period, but their contracts of employment are for an indefinite period. Reappointments likewise are for a period of four years. Members may be dismissed and suspended by the Supervisory Board. The Supervisory Board determines the remuneration of the members of the Executive Board and reports on this to the Committee on Confidential Matters of the Central Delegates Assembly. The principles of the remuneration policy for the Executive Board, as recommended by the Supervisory Board, are established by the Central Delegates Assembly. Finally, the Supervisory Board periodically assesses and follows up on the Executive Board s performance. Supervisory Board The Supervisory Board supervises the policy pursued by the Executive Board and the general conduct of affairs of Rabobank Nederland and its affiliated entities. As part of this task, the achievement of the Group s objectives, the strategy, business risks, the design and operation of the internal risk management and control systems, the financial reporting process and compliance with laws and regulations are discussed at length and tested regularly. In addition, the Supervisory Board has an advisory role in respect of the Executive Board. In the performance of their duties, the members of the Supervisory Board act in the interests of all stakeholders of Rabobank Nederland and its affiliated entities. Certain key Executive Board decisions are subject to Supervisory Board approval. Examples include decisions on strategic collaboration with third parties, major investments and acquisitions, as well as the annual adoption of policy plans and the budget. The members of the Supervisory Board are appointed by the General Meeting on the recommendation of the Supervisory Board. Among other factors, the independence of the individual members is an important consideration in this respect. The Committee on Confidential Matters of the Central Delegates Assembly determines the remuneration of the members of the Supervisory Board and has a say in the profile of the members of the Supervisory Board. The Supervisory Board annually assesses its own performance, in terms of the collective body s performance and that of its individual members. Initiatives are developed regularly aimed at keeping the members of the Supervisory Board up-to-date on developments in the institutional and legal environment in which the Bank operates and on risk management systems. Member influence An important precondition for good corporate governance at Rabobank Nederland is an open culture with clear accountability for the management and supervision. Without transparency, Rabobank Nederland cannot render account to the local Rabobanks on its management and supervision, nor can this be assessed. The local Rabobanks are members of the Rabobank Nederland cooperative. This membership entails rights and obligations. The influence and control of the local Rabobanks are manifested through their representation in two bodies: the Central Delegates Assembly and the General Meeting. Based on the recommendations from an internal committee, the financial relationship between Rabobank Nederland and the local Rabobanks was altered in This has led to an adjustment of Rabobank Nederland s dividend policy. Other consequences included a redefinition of voting rights of the local Rabobanks. The local Rabobanks can now vote according to a new formula at the General Meeting and through indirect representation at the Central Delegates Assembly. Besides members, the local Rabobanks are also Rabobank Nederland s shareholders. 79 Control aspects

81 Central Delegates Assembly The local Rabobanks are organised geographically in twelve Regional Delegates Assemblies, each with a Board of six. Together, the Boards of the Regional Delegates Assemblies form the Central Delegates Assembly (CKV). Through the representation of the local management and supervisory bodies in the Regional Delegates Assemblies, the members of the local Rabobanks are represented in the CKV, which meets in Utrecht four times a year. The CKV s powers include the adoption of rules that all local Rabobanks must comply with and of the Strategic Framework. The outcome directly influences Rabobank Group s policy. The CKV also approves the budget for Rabobank Nederland s activities on behalf of the local Rabobanks. The CKV has in-depth discussions, which are held not only as part of the CKV s specific duties and powers, but also with the aim of encouraging commitment in the local Rabobanks and consensus between the local Rabobanks and Rabobank Nederland. Consequently, the manner in which Rabobank Nederland accounts for its policy to its members is more extensive than the account rendered by a typical listed public limited company to its shareholders. Because of the special relationship between Rabobank Nederland and its members, the CKV enjoys very high attendance. In order to operate effectively, the CKV has appointed three committees from among its members, which are charged with special duties. The Committee on Confidential Matters advises on appointments to the Supervisory Board, sets the Supervisory Board s remuneration and assesses the Supervisory Board s application of the remuneration policy. The Coordinating Committee draws up the agenda of the Central Delegates Assembly and subjects items for the agenda to formality compliance tests. The Emergency Affairs Committee advises the Executive Board on behalf of the CKV in urgent and confidential cases concerning major investments or divestments. General Meeting The General Meeting is the body through which all local Rabobanks, as members of Rabobank Nederland, can exercise direct control. The General Meeting deals with important issues, such as the adoption of the financial statements, approval and endorsement of management and supervision, amendments to the Articles of Association, and the appointment of members of the Supervisory Board. The Central Delegates Assembly issues advice prior to the General Meeting on all the items on the agenda. This procedure ensures that, prior to the General Meeting, these subjects have been discussed in detail on a local, regional and central level. Because of the special relationship between Rabobank Nederland and its members, the General Meeting enjoys almost full attendance. Employee influence The Group Works Council of Member Banks (GOR AB) is an employee representative body that represents the interests of staff members at the local Rabobanks on issues that concern the social policy of all local Rabobanks. The GOR AB does not affect the position of Rabobank Nederland s Works Council or the Works Councils of the local Rabobanks. These Works Councils act in full as employee representative bodies within the meaning of the Dutch Works Councils Act. Corporate governance at the local Rabobanks Only banks that have a cooperative structure and whose Articles of Association have been approved by Rabobank Nederland can be members of Rabobank Nederland. In turn, the local Rabobanks have members as well, who are local clients. The local Rabobanks have strictly defined rights and obligations towards Rabobank Nederland and each other. Pursuant to the prudential supervision part of the Financial Supervision Act and under Rabobank Nederland s Articles of Association and the Articles of Association of the local Rabobanks, Rabobank Nederland supervises the local Rabobanks on the control and the integrity of their operations, solvency and liquidity. In addition, under the conduct supervision part of the Financial Supervision Act, Rabobank Nederland has been appointed by the Dutch Finance Ministry as the holder of a collective license that also includes the local Rabobanks. Thus, the supervision of conduct by the AFM is exercised through Rabobank Nederland. Management and supervision of the local Rabobanks Two governance models are possible for the local Rabobanks: a Partnership model and an Executive model. The operation of both models will be reviewed in Since both governance models provide assurance of effective member influence and control, the governance of the local Rabobanks is carried out both adequately and professionally, and in a way that befits their cooperative character. The members of all the local Rabobanks have important powers, for instance to adopt the financial statements, to 80 Rabobank Group Annual Report 2008

82 amend the Articles of Association, to appoint members of the Supervisory Board and to approve and endorse management and supervision. In addition, account is rendered to the members in respect of the Bank s management and supervision. Partnership model In the Partnership model, the Board of each local Rabobank consists of persons elected by the members from their ranks, plus a managing director who is appointed by the Supervisory Board. The managing director is primarily concerned with the day-to-day management of the Bank s operations. The Supervisory Board supervises the Board. In addition, there is a General Meeting. An increasing number of banks using the Partnership model have established a Member Council as well. The Member Council is a delegation of all members elected by the members from their ranks. The Member Council assumes the bulk of the powers of the General Meeting and promotes and structures member control and engagement. Executive model In the Executive model, each local Rabobank has a Board of Directors comprising several persons appointed by the Supervisory Board, which operates under the supervision of the Supervisory Board. In this model, no Board members are elected by the members from their ranks, as is the case in the Partnership model. Local Rabobanks using the Executive Model must institute a Member Council in order to firmly and permanently embed member influence and control in the structure. The General Meeting continues to exist, but decides only on major issues that impact the local Rabobank s continued existence. Controls over financial reporting Rabobank Group constantly seeks to improve its corporate governance and overall internal controls, for example, by endorsing the principles of the Dutch Corporate Governance Code (Tabaksblat Code). Rabobank Group seeks an open culture and transparent accountability in respect of policies and supervision, and to remain in line with the leading risk management practices in the world. The market demands heightened awareness of world-wide best practices in governance and control, and Rabobank Group proudly embraces ethical business practices, transparency and accountability in its operations. In this spirit, Rabobank Group voluntarily assessed the internal controls over financial reporting in a manner similar to what US-registered companies have done pursuant to Sarbanes-Oxley 404, even though Rabobank Group is not a registrant with the United States Securities and Exchange Commission and, thus, is not subject to the Sarbanes-Oxley Act or related regulations and oversight. Rabobank Group believes that the review of its internal controls over financial reporting has increased the effectiveness of those controls, including our ability to identify and to remediate any deficiencies at an earlier stage. This results in greater transparency for all stakeholders of the quality of Rabobank Group s financial reporting process. As a result of our review, Rabobank Group has identified areas in which specific business processes may be improved, simplified and standardised. Internal controls Rabobank Group has established and maintains a comprehensive system of internal controls designed to ensure that transactions are executed as authorised, financial reporting is accurate and reliable, and assets are safeguarded. Rabobank Group has implemented a process whereby finance and business executives throughout the Group assess and attest to the accuracy of financial information as well as the adequacy and effectiveness of internal control over financial reporting. Rabobank Group has adopted policies and procedures that: - pertain to the maintenance of records that in reasonable detail accurately and fairly reflect transactions and dispositions of assets; - provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and that receipts and expenditures are made only in accordance with authorisations of management; - provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of assets that could have a material effect on the financial statements. The internal control framework for the organisation and control of Rabobank Group s activities is based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As set out in the report included in the financial statements, the Executive Board concluded that 81 Control aspects

83 the internal risk management and control systems are adequate and effective and provide reasonable assurance that Rabobank Group s financial statements are consistent, in all material respects, with the principles established by COSO. Statement on true view The Executive Board of Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank Nederland) hereby states that, to the best of its knowledge: - the financial statements give a true and fair view of the assets, liabilities, financial position and profit of Rabobank Nederland and the companies included in the consolidation; - the management report gives a true and fair view of the state of affairs as at the balance sheet date and of the course of affairs during the financial year of Rabobank Nederland and its subsidiaries and other affiliated entities the information of which is included in its financial statements, together with a description of the principal risks the issuer faces. Bert Heemskerk, Chairman Piet Moerland, member Bert Bruggink, CFO Sipko Schat, member Piet van Schijndel, member Risk management The management of Rabobank Group is based on its strategic principles and, by extension, on the interrelationship between risk, return and capital. Both the DNB and the Bank itself have formulated standards concerning Rabobank s organisation and control. Rabobank s organisation and control are subject to the Dutch Financial Supervision Act, including subordinate legislation based thereon, and regulations imposed by both the DNB and the AFM as supervisory authorities. These legal requirements and supervisors regulations form Rabobank Group s framework for the organisation and control of its activities. Corporate governance information on the Internet Rabobank Nederland provides information on its corporate governance, including a full statement of its deviations from the Tabaksblat code, on 82 Rabobank Group Annual Report 2008

84 Report of the Supervisory Board of Rabobank Nederland In 2008, Rabobank turned in a strong performance under difficult conditions. Worldwide, the economic turbulence did not leave a single financial institution unaffected, although Rabobank proved to be less vulnerable than many listed banks. Rabobank demonstrated once again that, thanks to its sound cooperative structure characterised by strict checks and balances, it can promote stability and security among its members and clients. This was reflected in high customer and employee satisfaction. Proposal to the General Meeting In compliance with the relevant provisions of the Articles of Association of Rabobank Nederland, the Supervisory Board has reviewed the annual report and the financial statements for This review included a discussion with the external auditors Ernst & Young Accountants LLP, and the Supervisory Board took note of the auditor s report of Ernst & Young Accountants LLP to the financial statements for Based on its findings, the Supervisory Board proposes that the General Meeting of Rabobank Nederland adopt the financial statements for Corporate governance Corporate governance at Rabobank Nederland is discussed in a separate section of this annual report. The three pillars of this governance are decisive management, effective member influence and strong and independent supervision. The Supervisory Board endorses the contents of that section. Activities of the Supervisory Board The Supervisory Board of Rabobank Nederland supervises the policy of the Executive Board, the general conduct of affairs at Rabobank Nederland and its affiliated entities as well as compliance with laws and regulations. The Supervisory Board is responsible for the appointment, dismissal and remuneration of the members of the Executive Board of Rabobank Nederland. In addition, the Supervisory Board advises the Executive Board. Information on the composition of the Supervisory Board and the Committees from the Supervisory Board is included elsewhere in this annual report. Appointments and reappointments On 19 June 2008, the General Meeting of Rabobank Nederland resolved to reappoint Mr Bijvoet, Mr Eisma and Mr Overmars to the Supervisory Board for a period not exceeding four years. Mr De Boon, who was also eligible for re-appointment in 2008, decided not to stand for re-election. The Supervisory Board is grateful for his contribution to the Board s performance over the past years. Independence and expertise It is important that the Supervisory Board can perform its duties independently. Any semblance of a conflict of interests must be avoided. Equally important are its expertise and broad experience, the criteria for which have been defined in the profile for the Supervisory Board, which was amended in In both appointments and reappointments of members of the Supervisory Board, these aspects are considered in depth. 83 Control aspects

85 Keeping informed of developments The Chairman of the Supervisory Board has close contacts with the Chairman of the Executive Board and holds monthly meetings with the internal auditor and the Group Compliance Officer. In addition, the Chairman of the Supervisory Board, the Chairman of the Audit & Compliance Committee, the external auditor and the internal auditor meet at least four times a year. During the year under review, the members of the Supervisory Board regularly attended, as observers, meetings of Rabobank Nederland s Works Council, as well as the Regional and Central Delegates Assembly. This enables the Supervisory Board to keep up to date with the interests of Rabobank Nederland s major stakeholders. As part of their periodic learning, the members of the Supervisory Board gained information on credit policy and credit risk management. Meetings The Supervisory Board met six times in Not one member was repeatedly absent from those meetings. The Supervisory Board has five committees. The Audit & Compliance Committee met eleven times, the Cooperative Issues Committee met three times, the Appointment Committee and the Remuneration Committee each met four times and the Appeals Committee did not meet in Committees of the Supervisory Board Audit & Compliance Committee Duties The Audit & Compliance Committee performs preparatory work for the Supervisory Board s decision-making on the supervision of the management of, inter alia, financial issues, ICT and compliance-related activities. Members M. Minderhoud, Chairman L.J.M. Berndsen, permanent member L. Koopmans, permanent member B. Bijvoet A.W. Veenman C.P. Veerman A.J.A.M. Vermeer Cooperative Issues Committee Duties The Cooperative Issues Committee performs preparatory work for the Supervisory Board s decision-making on intended policies of the Executive Board concerning the cooperative policy and structural dimension of the local Rabobanks and Rabobank Nederland and concerning corporate social responsibility. Members A.J.A.M. Vermeer, Chairman L. Koopmans, permanent member M.J.M. Tielen, permanent member S.E. Eisma L.O. Fresco P.F.M. Overmars H.C. Scheffer A.H.C.M. Walravens Appointment Committee Duties The Appointment Committee performs preparatory work for the Supervisory Board s decision-making on the composition of and (re)appointments to the Supervisory Board and the Executive Board. Members L. Koopmans, Chairman L.O. Fresco H.C. Scheffer A.W. Veenman A.J.A.M. Vermeer A.H.C.M. Walravens 84 Rabobank Group Annual Report 2008

86 Remuneration Committee Duties The Remuneration Committee performs preparatory work for the Supervisory Board s decision-making on the remuneration of the members of the Executive Board. Members A.H.C.M. Walravens, Chairman L.O. Fresco L. Koopmans H.C. Scheffer A.W. Veenman A.J.A.M. Vermeer Appeals Committee Duties The Appeals Committee acts as an advisory appellate body in disputes between local Rabobanks or between one or more local Rabobanks and Rabobank Nederland. Members S.E. Eisma, Chairman M.J.M. Tielen P.F.M. Overmars The Supervisory Board s own performance The Supervisory Board continually reviews its own performance. Periodically, it also considers the performance of its individual members. Based on this review, improvements in the Supervisory Board s performance are implemented as and when necessary. Important matters reviewed include members attendance at Supervisory Board meetings and their contributions in those meetings, the extent to which the Supervisory Board complies with its desired profile, its composition and its required competencies. As and when necessary, the range of competencies represented is extended by means of new appointments. The Audit & Compliance Committee likewise reviewed its composition and effectiveness in 2008 and introduced several improvements in its working methods. Performance of supervisory role In 2008, the Supervisory Board again assessed the performance of the Executive Board and its individual members. The Supervisory Board supervised the general conduct of affairs at Rabobank Nederland and its affiliated entities. The Supervisory Board also regularly served as a sounding board to the Executive Board. Regular subjects of discussion are the annual and the interim figures, the strategy, corporate social responsibility, ICT and the risks associated with the Group s activities. The latter include the Executive Board s assessment of the design and operation of the internal risk management and control systems and any significant changes therein. Other subjects of discussion included the compliance organisation s operation within Rabobank Group, potential acquisitions and divestment proposals. In the year under review, the Committees from the Supervisory Board performed their roles actively and alertly, thus making an important qualitative contribution to the execution of the Supervisory Board s terms of reference in its supervisory role. Subjects receiving special attention in 2008 Financial Statements 2007, Interim Report 2008 and budget for 2009 The Supervisory Board extensively discussed Rabobank Group Annual Report 2007, including the report of the Executive Board, the accompanying auditor s report, the annual accounts and the proposed appropriation of available profit. In addition, the management letter, including the management response, was discussed in detail and in the presence of both the internal auditor and the external auditor. The Audit & Compliance Committee did intensive preparatory work to facilitate the review of Financial Statements Also, the Supervisory Board extensively discussed Rabobank Group Interim Report With due regard to the regulations relating to Basel II, the Supervisory Board and the Executive Board discussed the desired solvency level and the policy required to sustain this. In accordance with the Articles of Association, the budget for 2009 was discussed and approved by the Supervisory Board. Again, the Audit & Compliance Committee provided important input for this purpose. 85 Control aspects

87 Financial crisis Rabobank Group operated in a turbulent environment in The mortgage crisis in the United States escalated into a global financial crisis. The financial markets showed a reaction of unprecedented shock. All over the world, the policies of banks and other financial institutions were challenged. Both the national and the international banking landscapes changed rapidly. The effects are making themselves felt in the real economy as well. The financial crisis created a test for the Supervisory Board s supervision and its effectiveness in Following preparatory work by the Audit & Compliance Committee, the Supervisory Board closely monitored developments. During the first half of the year, the Audit & Compliance Committee was very closely involved in monitoring Rabobank Group s position. This included regular and intensive discussions with the Executive Board. In this context, frequent attention was paid to the situation in the financial markets in general, the solvency and liquidity development at Rabobank Group, the effects on the profit and loss account, the operation of the control and management mechanisms, concentration risk and systemic risk. The Supervisory Board made a thorough analysis of the situation and concluded that the Executive Board has gained learnings from the events and that the new insights have meanwhile been embedded in the organisation. Examples include the limitations to Rabobank International s use of the balance sheet and the linking of staff bonuses in some business units to longer result periods. Local Rabobanks The Supervisory Board is pleased to find that the local Rabobanks made further progress with the Rabobank 2010 programme in Under this programme, which is now available to all local Rabobanks, customer service is improved further by means of process optimisation. The terms of reference of the internal Governance Models Review Committee were discussed extensively in Supervisory Board meetings. The review focuses on the performance of the Executive model and the Partnership model at local Rabobanks in terms of governance issues - such as collegiate management, roles and responsibilities of the local Supervisory Boards and the link between local and central governance - and on the Member Councils performance. The emphasis will be on best practices and potential scope for improvement of the governance models. Portfolio reshuffle in the Executive Board On 19 June 2008, the General Meeting took formal leave of Executive Board member Mr Ten Cate, who retired on 1 July The Supervisory Board is grateful to Mr Ten Cate for his constructive contribution to the Executive Board s performance and praises him for his pioneering role in the area of sustainability and particularly for the expansion of services to corporate clients. After careful consideration, the Executive Board and the Supervisory Board decided not to appoint a successor for Mr Ten Cate as yet, but to reshuffle the portfolios within the Executive Board. Starting 1 July 2008, Mr Heemskerk was appointed Chairman of the Managing Board of Rabobank International. The portfolio changes for the other members of the Executive Board were relatively limited. Special Credit Management was added to Mr Bruggink s responsibility area, while Mr Moerland was made accountable for CSR issues. There were no changes in the portfolios of Mr Schat and Mr Van Schijndel. The Supervisory Board closely considered how to provide for the chairmanship and the composition of the Executive Board in mid-2009, when Mr Heemskerk will reach the retirement age. Early in 2009, the Supervisory Board s decision was announced that Mr Moerland will hold the position of Chairman of the Executive Board following Mr Heemskerk s retirement. The Supervisory Board has yet to decide on Mr Moerland s succession and any further portfolio allocations. Strategic developments The future growth of Rabobank Group s activities was once more reviewed against the backdrop of the greatly changed market conditions. In 2008, a Group-wide study team including representatives from local Rabobanks, subsidiaries, Rabobank International and Rabobank Nederland gave considerable thought to an adjustment of the Strategic Framework. This, and the financial consequences of the options proposed, was discussed at length during the Supervisory Board meetings. The Supervisory Board concluded that the adjusted Strategic Framework offers excellent opportunities to guarantee a strong market position, both nationally and internationally, for Rabobank in the years to come. The Supervisory Board also reviewed the activities of Rabo Development. Having completed the acquisition of a 40% share in Banco Regional in Paraguay and a 35% interest in Banque Populaire du Rwanda, Rabo Development now has a total of six partner banks, in Tanzania, China, Zambia, Mozambique, Paraguay and Rwanda. In 2008, several Supervisory Board members took part in a study trip to Tanzania together with SME clients. 86 Rabobank Group Annual Report 2008

88 In 2008, Rabobank Group expanded its interest in the Polish Bank BGZ to a majority interest and the sale of security trading services provider Alex was completed. Late in 2008, a collaboration agreement was signed with Rothschild for world-wide advisory services on mergers, acquisitions and equity participations in the foodstuff and agricultural sectors. In the area of insurance, the integration of Interpolis into Eureko was completed, while health insurance policies were added to the insurance product range offered by local Rabobanks. The Supervisory Board gives its full attention to monitoring the consistency and decision-making concerning intended equity investments, acquisitions or divestments and their consequences for the financial ratios. Corporate social responsibility The Supervisory Board is pleased to see that corporate social responsibility was embedded further in internal lending procedures in Sector policy documents on vulnerable sectors such as soy and palm oil and advice from the internal Ethics Committee offer new guiding principles for the future. During the year under review, the Cooperative Issues Committee reviewed, in an advisory quality, various CSR related themes and discussed these with the Executive Board. Articles of Association and regulations On 19 June 2008, the General Meeting of Rabobank Nederland resolved to amend the Articles of Association of Rabobank Nederland, to increase Rabobank Nederland s share capital through the issue of new shares, to amend the regulations for the Central Delegates Assembly and to amend the regulations for the Regional Delegates Assemblies. The amendments to the Articles of Association and the increase in share capital through the issue of new shares resulted from an internal committee s report. They relate to the modernisation of the financial relationship between the local Rabobanks and Rabobank Nederland and an adjustment to internal regulations. This also increases internal transparency. Strong performance Inevitably, the global financial crisis is leaving its marks on Rabobank Group and Rabobank International in particular. Fundamentally however, Rabobank Group is continuing its strong performance and this holds for both the local Rabobanks and the Group entities. Their positions in the private and the corporate markets were indeed strengthened. Nevertheless, cost levels at Rabobank Nederland and the local Rabobanks remain a matter of constant attention, as does the significance of amounts due to customers as a key source of financing. The Supervisory Board concluded to its great satisfaction that the cooperative organisational structure fully proved its strength in Rabobank has shown itself to be less vulnerable than many listed banks. Also, the international cooperative network of banks came into action. Seven European cooperative banks are committing themselves to getting the interbank lending market up and running again. The Supervisory Board is satisfied with the general course of affairs and with the way in which the Executive Board has coped with the effects of the global financial crisis. The Supervisory Board wishes to thank both management and staff for the commitment and professionalism they have demonstrated. Utrecht, 4 March 2009 Supervisory Board 87 Control aspects

89 Annual figures Consolidated balance sheet In millions of euros Assets Cash and cash equivalents 7,105 2,129 Due from other banks 33,776 43,218 Trading financial assets 11,576 29,179 Other financial assets at fair value through profit and loss 7,896 18,133 Derivative financial instruments 66,759 26,089 Loans to customers 426, ,968 Available-for-sale financial assets 31,665 50,355 Held-to-maturity financial assets Investments in associates 3,455 4,558 Intangible assets 3,728 3,183 Property and equipment 5,870 5,572 Investment properties 1,038 1,105 Current tax assets Deferred tax assets 1,619 1,565 Other assets 10,555 11,159 Total assets 612, , Rabobank Group Annual Report 2008

90 In millions of euros Liabilities Due to other banks 23,891 46,332 Due to customers 304, ,610 Debt securities in issue 135, ,812 Derivative financial instruments and other trade liabilities 77,230 31,097 Other debts 8,644 10,518 Other financial liabilities at fair value through profit and loss 24,797 27,303 Provisions 875 1,167 Current tax liabilities Deferred tax liabilities Employee benefits Subordinated debt 2,159 2,294 Total liabilities 578, ,082 Equity Equity of Rabobank Nederland and local Rabobanks 20,074 19,684 Rabobank Member Certificates issued by group company 6,236 6,233 26,310 25,917 Capital Securities and Trust Preferred Securities III to VI 3,510 2,779 Minority interests 3,639 2,713 Total equity 33,459 31,409 Total equity and liabilities 612, , Annual figures

91 Consolidated profit and loss account For the year ended 31 December In millions of euros Interest income 27,245 29,356 Interest expense 18,728 22,585 Interest 8,517 6,771 Fee and commission income 3,400 3,394 Fee and commission expense Fees and commission 2,889 2,857 Income from associates (26) 753 Net income from financial assets and liabilities at fair value through profit and loss (1,155) (515) Gains on available-for-sale financial assets (51) 64 Other 1,478 1,092 Income 11,652 11,022 Staff costs 4,290 4,400 Other administrative expenses 2,796 2,779 Depreciation and amortisation Operating expenses 7,611 7,663 Value adjustments 1, Operating profit before taxation 2,852 3,093 Taxation Net profit 2,754 2,696 Of which attributable to Rabobank Nederland and local Rabobanks 2,089 1,971 Of which attributable to holders of Rabobank Member Certificates Of which attributable to Capital Securities Of which attributable to Trust Preferred Securities III to VI Of which attributable to minority interests Net profit for the year 2,754 2, Rabobank Group Annual Report 2008

92 Consolidated statement of changes in equity Equity of Rabobank Rabobank Capital In millions of euros Nederland and local Rabobanks Member Certificates securities and TPS Minority interests Total At 1 January ,426 5,808 1,959 4,184 29,377 Arising in the period (after taxation): Net fair value changes available-for-sale financial assets (39) - - (584) (623) Net fair value changes associates Net fair value changes cash flow hedges Currency translation differences (205) - (170) (225) (600) Transferred to net profit for the year available-for-sale financial assets Costs of issue of Capital Securities - - (17) - (17) Total income and expense for the year recognised directly in equity (187) (809) (843) Net profit 1, ,696 Total income and expense 2, (64) (506) 1,853 Payment on Rabobank Member Certificates and Trust Preferred Securities III to VI (TPS) - (299) (123) - (422) Issue of Capital Securities - - 1,007-1,007 Exchange of government bonds for subordinated loans to Rabobank Nederland (415) - Other (550) (406) At 31 December ,684 6,233 2,779 2,713 31,409 At 1 January ,684 6,233 2,779 2,713 31,409 Arising in the period (after taxation): Net fair value changes available-for-sale financial assets (1,898) (1,426) Net fair value changes associates (1) (1) Net fair value changes cash flow hedges (32) (32) Currency translation differences (337) - (91) 56 (372) Transferred to net profit for the year available-for-sale financial assets Costs of issue of Capital Securities - - (12) - (12) Total income and expense for the year recognised directly in equity (1,757) - (103) 528 (1,332) Net profit 2, ,754 Total income and expense ,422 Payment on Rabobank Member Certificates, Trust Preferred Securities III to VI (TPS) and Capital Securities - (316) (194) - (510) Issue of Capital Securities Share premium (115) Other 173 (151) (1) At 31 December ,074 6,236 3,510 3,639 33, Annual figures

93 Consolidated cash flow statement For the year ended 31 December In millions of euros Cash flows from operating activities Operating profit before taxation 2,852 3,093 Adjusted for: Non-cash items recognised in profit and loss Depreciation and amortisation Value adjustments 1, Result on sale of property and equipment (12) (9) Share of (profit) of associates and result on sale of subsidiaries 84 (698) Fair value results on investment properties 2 (6) Fair value results on financial assets and liabilities at fair value through profit and loss 1, Net result on available-for-sale financial assets 51 (64) Net change in operating assets: Due from and to other banks (12,999) (15,330) Trading financial assets 17,603 7,610 Derivative financial instruments (40,670) (7,097) Net change in non-trading financial assets at fair value through profit and loss 7,731 3,335 Loans to customers (53,315) (18,044) Dividends received from associates and financial assets Net change in liabilities relating to operating activities: Derivative financial instruments and other trade liabilities 46,133 4,403 Due to customers 27,604 14,598 Debt securities in issue (6,033) 13,746 Other debts (1,874) (131) Income tax paid (789) (833) Other changes 12, Net cash flow from operating activities 2,253 6,802 Cash flows from investing activities Acquisition of subsidiaries net of cash and cash equivalents acquired (181) (431) Disposal of subsidiaries net of cash and cash equivalents 1 18 Acquisition of property and equipment and investment properties (1,638) (559) Proceeds from sale of property and equipment Acquisition of available-for-sale financial assets and held-to-maturity financial assets (16,508) (21,443) Proceeds from sale and repayment of available-for-sale financial assets and held-to-maturity financial assets 19,889 15,156 Net cash flow from investing activities 2,456 (6,861) Cash flows from financing activities Proceeds from issue of Capital Securities Payment on Rabobank Member Certificates, Trust Preferred Securities III to VI and Capital Securities (510) (422) Repayment of subordinated debt (46) (10) Net cash flow from financing activities Net change in cash and cash equivalents 4, Cash and cash equivalents at beginning of year 2,129 1,630 Cash and cash equivalents at end of year 7,105 2,129 The cash flows from interest are included in the net cash flow from operating activities Interest income 27,088 28,831 Interest expense 18,219 21, Rabobank Group Annual Report 2008

94 Business segments Wholesale banking and Asset In millions of euros Domestic retail banking international retail banking management and investment Leasing Real estate Other¹⁶ Total For the year ended 31 December 2008 External income 10,351 (4,474) 1,796 1,742 1,102 1,135 11,652 Income from other segments (3,950) 6,471 (178) (727) (675) (941) - Total income 6,401 1,997 1,618 1, ,652 Segment expense 4,243 2,494 1, (100) 8,800 Operating profit before tax 2,158 (497) ,852 Income tax expense 541 (524) (119) 98 Net profit 1, ,754 For the year ended 31 December 2007 External income 7,849 (1,882) 1,473 1,611 1, ,022 Income from other segments (1,941) 3,871 6 (616) (362) (958) - Total income 5,908 1,989 1, ,022 Segment expense 3,980 1, ,929 Operating profit before tax 1, (90) 3,093 Income tax expense 495 (76) (269) 397 Net profit 1, ,696 16) Including elimination of inter-segment items for segment profit or loss. 93 Annual figures

95 Auditor s report on the financial information To the Executive Board and Supervisory Board of Rabobank Nederland Introduction We have audited whether the consolidated balance sheet as at 31 December 2008, consolidated profit and loss account, consolidated statement of changes in equity, business segments and consolidated cash flow statement for the year then ended, as set out on pages 88 to 93 of this annual report -hereafter financial information - of Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank Nederland), Amsterdam, has been derived consistently from the audited consolidated financial statements 2008 of Rabobank Nederland. In our auditor s report dated 2 March 2009 we expressed an unqualified opinion on these consolidated financial statements. The executive board is responsible for the preparation of the financial information in accordance with the accounting policies as applied in the consolidated financial statements 2008 of Rabobank Nederland. Our responsibility is to express an opinion on the financial information. Scope We conducted our audit in accordance with Dutch law. This law requires that we plan and perform the audit to obtain reasonable assurance that the financial information is derived consistently from the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial information has been derived consistently, in all material respects, from the consolidated financial statements. Emphasis of matter For a better understanding of Rabobank Group s financial position and results and the scope of our audit, we emphasize that the financial information should be read in conjunction with the consolidated financial statements, from which the financial information has been derived and our unqualified auditor s report thereon dated 2 March, Our opinion is not qualified in respect of this matter. Utrecht, 2 March 2009 Ernst & Young Accountants LLP G.H.C. de Meris 94 Rabobank Group Annual Report 2008

96 95 Annual figures

97 Colophon Published by Rabobank Nederland Communications Materials used This document was printed using environmentally friendly materials. The ink was mineral oil-free Novavit Easy Mix Bio and the paper 130 and 300 gram Arctic the Volume (FSC certified). Disclaimer This Annual Report is a translation of the Dutch Annual Report. In the event of any conflict in interpretation, the Dutch original takes precedence. Publication This document and the separate publication Consolidated Financial Statements 2008 and the Financial Statements Rabobank Nederland 2008, together form the annual report, the financial statements and other information of Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. Filing After they have been adopted, the annual report, the financial statements and other information will be filed at the offices of the Trade Registry of the Chamber of Commerce and Industries under number Our reports Rabobank Group publishes the following reports in both Dutch and English: Annual Summary 2008 (March 2009) Annual Report 2008 (April 2009) Consolidated Financial Statements 2008 (April 2009) Annual Sustainability Report 2008 (April 2009) Financial Statements Rabobank Nederland 2008 (April 2009) Interim Report 2009 (August 2009) All reports are available online at: and Contact [email protected] Photography The covers of our reports and pages 7 and 13 of this report contain edited photographs. The photographic concept consists of two layers: an environment layer and a people layer, with the people in the foreground overlapping the various living and work environments. This emphasises the diversity in people and communities, as well as their interdependence. It is in the context of this diversity and interdependence that that Rabobank operates: reliable to people and committed to their way of living. 96 Rabobank Group Annual Report 2008

98 Rabobank Group Annual Report