Rabobank Group Annual Report 2006

Transcription

1 Rabobank Group Annual Report 2006

2 Key figures Volume of services (in EUR millions) Total assets 556, , , , , ,720 Private sector lending 324, , , , , ,323 Due to customers 215, , , , , ,632 Assets managed and held in custody 286, , , , , ,000 Financial position and solvency (in EUR millions) Equity 29,377 26,349 23,004 18,143 15,233 14,261 Tier I capital 26,391 24,860 21,404 22,621 19,660 17,202 Qualifying capital 27,114 25,272 21,205 22,586 19,892 17,414 Risk-weighted assets 247, , , , , ,843 Solvency requirement 19,797 17,112 15,684 15,887 14,626 13,268 Tier I ratio BIS ratio Profit and loss account (in EUR millions) Total income 10,049 9,363 9,222 10,055 9,018 8,518 Operating expenses 6,887 6,242 6,177 6,732 6,243 5,839 Value adjustments Addition to the fund for general banking risks Operating profit before taxation 2,712 2,604 2,566 2,809 2,348 1,927 Net profit 2,345 2,083 1,793 1,536 1,370 1,222 Ratios Return on equity 3 9.4% 9.7% 9.1% 10.1% 9.6% 9.9% Efficiency ratio 68.5% 66.7% 67.0% 67.0% 69.2% 68.5% Nearby Local Rabobanks Offices: - branches 1,214 1,249 1,299 1,299 1,378 1,516 - contact points 3,091 3,031 2,965 2,965 2,800 2,697 Cash dispensing machines 3,139 3,116 3,062 3,062 2,981 2,979 Foreign offices Employees - total number 56,209 50,988 56,324 56,324 57,055 58,096 - full-time equivalents 50,573 45,580 50,216 50,216 50,849 51,867 Employee satisfaction 87% 81% 85% 85% 85% 84% Client data Members (x 1,000) 1,641 1,551 1,456 1,456 1,360 1,108 Membership/customer ratio 18.4% 17.7% 16.7% 16.7% 16.0% 13.2% Rating Standard & Poor s AAA AAA AAA AAA AAA AAA Moody s Investor Service Aaa Aaa Aaa Aaa Aaa Aaa Dominion Bond Rating Service AAA AAA AAA AAA AAA AAA SAM rating (corporate social responsibility) 4 80% 74%

3 Volume of services (in EUR millions) Total assets 363, , , , ,222 Private sector lending 197, , , , ,569 Due to customers 172, , , ,826 98,307 Assets managed and held in custody 194, , , ,100 83,700 Financial position and solvency (in EUR millions) Equity 12, ,458 11,217 10,381 9,708 Tier I capital 15, ,653 13,007 11,817 11,113 Qualifying capital 15, ,093 13,650 12,660 11,947 Risk-weighted assets 152, , , , ,163 Solvency requirement 12,225 11,382 10,384 9,156 8,573 Tier I ratio BIS ratio Profit and loss account (in EUR millions) Total income 8,388 7,714 6,801 5,832 5,280 Operating expenses 5,965 5,459 4,826 4,099 3,730 Value adjustments Addition to the fund for general banking risks Operating profit before taxation 1,884 1,834 1,525 1,393 1,296 Net profit 1,178 1,166 1, Ratios Return on equity 3 9.5% 10.4% 9.8% 9.6% 9.8% Efficiency ratio 71.1% 70.8% 70.9% 70.3% 70.6% Nearby Local Rabobanks Offices: - branches 1,648 1,727 1,795 1,797 1,823 - contact points 2,618 2,693 2,719 2,727 2,750 Cash dispensing machines 2,889 2,676 2,546 2,430 2,268 Foreign offices Employees - total number 58,120 55,098 53,147 49,465 44,667 - full-time equivalents 52,173 49,711 48,224 45,310 40,927 Employee satisfaction 83% 82% 80% Client data Members (x 1,000) Membership/customer ratio 9.7% 6.1% Rating Standard & Poor s AAA AAA AAA AAA AAA Moody s Investor Service Aaa Aaa Aaa Aaa Aaa Dominion Bond Rating Service AAA SAM rating (corporate social responsibility) 4 64% General: Due to consolidation effects, the sum of the figures relating to Group entities will not always correspond with Rabobank Group totals. Changes in terms of percentages can vary as a result of rounding. 1) The first three columns corresponding to the years 2006, 2005 and 2004 are based on IFRS. The other columns corresponding to the years 1997 up to and including 2004 are based on Dutch GAAP. 2) The Tier I ratio and the BIS ratio for 2001 have been calculated taking into account the effect on equity of the changed accounting policy for pensions with effect from 1 January ) Since the adoption of IFRS, the return on equity is expressed as the ratio of net profit to Tier I capital. 4) The SAM rating is calculated every two years.

4 Profile of Rabobank Group Rabobank Group is a financial services provider operating on the basis of co-operative principles. It offers a wide range of financial services and products. Its origins are in the local loan cooperatives that were founded in the Netherlands more than a century ago by enterprising people who had virtually no access to external financing. The local Rabobanks that evolved from this have a long tradition, particularly in the agricultural sector and in small and medium-sized enterprises. Rabobank Group Rabobank Group comprises 188 independent local co-operative Rabobanks with over 1,200 branches in the Netherlands plus their central organisation Rabobank Nederland and its (international) subsidiaries. Rabobank serves more than 9 million private individuals and corporate clients in the Netherlands and a growing number abroad. It employs 56,000 staff and is represented in 42 countries. Rabobank Group has the highest credit rating (Triple A), awarded by the well-known international rating agencies Standard & Poor s, Moody s and Dominion Bond Rating Service. In terms of Tier I capital, the organisation is among the world s twenty largest financial institutions. Local Rabobanks and Rabobank Nederland The local Rabobanks and their clients make up Rabobank Group s co-operative core business. Clients can become members of their co-operative local Rabobank. In turn, the local Rabobanks are members and shareholders of Rabobank Nederland, the supralocal co-operative organisation that advises the banks and supports their local services. Rabobank Nederland also supervises, on behalf of the Dutch central bank, the solvency, liquidity and administrative organisation of the local Rabobanks. Rabobank Nederland further acts as an (international) wholesale bank and as a bankers bank to the Group and is the holding company of a large number of specialised subsidiaries. Rabobank Group combines the best of two worlds: the local involvement and personal touch of the local Rabobanks with the expertise and economies of scale of Rabobank Nederland and its subsidiaries. Mission and ambition Rabobank puts the common interests of people and communities first. Based on its commitment to those interests, Rabobank aims to be a driver and an innovator that contributes to the sustainable development of prosperity and well-being. Its goal is to help people and communities achieve their present and future ambitions. Strengthening mutual collaboration and supplying the best possible financial solutions are the means to achieve that end.

5 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. With their co-operative structure and a current membership of more than 1.5 million, the local Rabobanks are firmly rooted in society. In the Netherlands, Rabobank may justifiably call itself committed, near-you and a leader. Through its commitment to its clients and their world, Rabobank plays an active, leading role near by them. Innovating, inspiring, competent and visionary are core concepts in this context. In addition, Rabobank is a personal bank - a bank with a human face. Rabobank gets to business starting from the human aspect: human orange first, and then to business blue, the two core colours of Rabobank s corporate logo. Our values In the Netherlands, Rabobank Group offers all the financial services needed by clients as they participate in an economydriven modern society. The Group strives to ensure that its services are continually adjusted and updated so that they always meet the needs of private individuals and businesses alike. Rabobank believes that sustainable growth in prosperity and well-being requires careful nurturing of natural resources and the living environment and it aims to contribute to this development with its activities. Rabobank respects the culture and traditions of the countries where it operates without losing sight of its own objectives and values. In the international environment, Rabobank Group aspires to be the best food & agri bank, with a strong presence in the world s major food & agriculture countries. For this purpose, the Group uses the experience it has accumulated in the Netherlands over many years. In addition, the Group aims at global excellence in sustainable entrepreneurship and banking, as would befit its identity and position in society. Rabobank Group will further integrate corporate social responsibility in its core activities. In all its actions, Rabobank puts its clients best interests first. The bank creates customer value by: - providing those financial services considered best and most appropriate by our clients; - ensuring continuity in the services provided with a view to the long-term interests of the client; - showing commitment to our clients and their environment, so that we can contribute to achieving their ambitions. Profile of Rabobank Group 1

6 Contents Real estate Domestic retail banking In 2006, the local Rabobanks strengthened their market leadership in the mortgages market and maintained their dominant positions in both the savings market and in the small and medium-sized enterprises sector. Rabobank invested a great deal in new distribution channels, such as Rabo TV banking and Rabo Mobiel. Its ambition for 2007 is to expand its market leadership positions further. Rabobank s real estate division made a big leap forward in 2006, especially with the acquisition of parts of Bouwfonds, and is called Rabo Bouwfonds from now on. In the Netherlands, Rabobank is now the leader in real estate services, including project development and real estate asset management. The division reported strong income growth, both organic and as a result of acquisitions Wholesale banking and international retail banking Rabobank International made a strong contribution to Group income. The retail banking network was expanded further in the United States. Also in 2006, the bank s third international Internet bank was opened in New Zealand. Rabobank International has a global presence in food & agri and will expand its retail banking business further in Membership policy Rabobank s membership policy has entered a new phase, in which besides strong member involvement, member loyalty is stimulated as well. Approaches include leading initiatives in the area of cooperative dividend and member benefit projects. In 2006, membership reached a historical high of more than 1.6 million. 2 Rabobank Group Annual Report 2006

7 86 Cover Cover also in this report Profile of Rabobank Group Key figures The people at Rabobank For its own people, Rabobank has set out a new and leading policy focused on talent development, diversity and inclusiveness, conditions of employment and performance management. In its policy for 2007 and beyond, Rabobank will explicitly take long-term trends in the society into account Contents Chairman s foreword Executive Board and Supervisory Board of Rabobank Nederland Report of the Supervisory Board of Rabobank Nederland Strategy: Plotting a course into the future Financial developments Core activities Domestic retail banking Wholesale banking and international retail banking Asset management and investment Leasing Real estate Corporate governance Risk management Corporate social responsibility (CSR) Rabobank believes that sustainable growth in prosperity and well-being requires careful nurturing of natural resources and the living environment. In 2006, the bank introduced many CSR elements in its own organisation and set CSR targets for itself. Externally, the effect of CSR on client assessment is becoming increasingly visible in both lending and real estate development plans Customer value Membership policy The people at Rabobank Corporate social responsibility Annual figures Consolidated balance sheet Consolidated profit and loss account Consolidated statement of changes in equity Consolidated cash flow statement Business segments Auditors report Information of persons of the Rabobank Group Rabobank Group all over the world Colophon Rabobank Group structure Cover Profiles Rabobank Group Contents 3

8 Chairman s foreword Good year with leading initiatives you, committed and leading. Many of our social responsibility initiatives may justifiably be called I would like to draw your attention the theme Leading of our beautiful Annual Report for As you know, Rabobank has three hard and fast core values: near- leading. Last year too, a large number of projects were started, both on a local and on a national level. A selection of these projects can be found throughout In spite of a number of financial and strategic challenges in our markets, 2006 was a successful year. Net profit increased by 13%, which means that once again we achieved our target of 12%. At least as important is the fact that customer satisfaction improved further. We acquired a number of prominent companies and participations abroad, thus furthering our ambition of becoming a leading global food & agri bank. 4 Rabobank Group Annual Report 2006

9 All Group units contributed to the growth in net profit. Despite fierce competition in the Dutch mortgage market and side effects of mergers by local Rabobanks, domestic retail banking showed a healthy increase in profit, while regaining market share in the mortgage market to above 25%. Wholesale banking and international retail banking showed a sharp increase in profit, partly thanks to the good performance of their equity investments. Our subsidiaries Robeco, De Lage Landen, Rabo Bouwfonds, Alex, Schretlen & Co and Obvion again achieved excellent results. A great deal of attention was paid to extending the successful collaboration with Eureko/Achmea and to the way the contemplated follow-up could be shaped. The year 2006 also saw Rabobank launch a number of initiatives and projects that set the trend for its industry. A selection of these projects, many of which are pioneering and groundbreaking, can be found throughout this report. Supported by a strong all-finance organisation and favourable economic conditions, we are optimistic about no less than 17%. Despite tightening interest margins, we achieved a 7% rise in income to EUR 10.0 billion - an admirable feat. Despite the favourable spread in income, the slowdown in the growth rate of the local Rabobanks is a point of some concern. Income growth levelled out slightly under the pressure of continued fierce competition. In addition, more staff had to be recruited locally due to the pressing issue of increased laws and regulations. Moreover, virtually all local Rabobanks are currently involved in an intensive but much needed scaling-up operation. For many of the new combinations of local Rabobanks, 2006 was their first post-merger year, during which higher costs are generally incurred. With the reorganisation processes in progress, we nevertheless achieved our target of increasing our market share in the mortgages market in I am pleased that Rabobank, with a market share of more than 25%, again succeeded in strengthening its traditional market leadership. this report. They include the launch of Rabo Mobiel, which offers fixed telephone rates and a pay feature, the launch of the Rabocard with climate contribution, innovative funding of a wind farm, Rabo Bouwfonds Central Station, Rabo Groenbank s funding of Green Labelled Greenhouses and the investment in National Microfinance Bank, in Tanzania. I hope you will read it with pleasure! ground-breaking urban project close to Amsterdam Strong economic recovery Whereas in 2005, only the United States, Asia and various emerging economies had shown favourable economic development, 2006 saw strong global recovery. The Dutch economy did not lag behind and grew by 2.9%, almost twice as fast as in The AEX index rose by 13% and many other European stock exchanges likewise showed double-digit growth figures. Business investments increased, as did - at long last - consumer spending. Income up despite difficult mortgages market Rabobank s net income grew by 13% in 2006 to EUR 2.3 billion. Lending abroad showed particularly strong growth, which resulted in a rise in lending to the private sector of Market leadership in the Netherlands Besides the success of the local Rabobanks and Obvion in 2006 in expanding their market leadership in mortgages further, Rabobank maintained its dominant market share in other highly competitive markets. Examples include our position in the savings market and in the small and mediumsized enterprises sector and, naturally, our traditionally very high market share in the agricultural sector. Due to the acquisition of parts of Bouwfonds we are now the largest real estate developer in the Netherlands. With Interpolis/Achmea, which is the largest insurance company in the national market, we also made important steps towards all-finance market leadership in the Chairman s foreword 5

10 Netherlands in The economies of scale and the combined networks offer excellent opportunities for successful expansion of the modern (healthcare) insurance package. The merger process at the local Rabobanks, which progressed according to schedule in 2006 as well, should contribute to maintaining our leading position. This process will enhance both the quality and the professionalism of the banks, with the aim to also strengthen our positions in the top segments of the corporate and the private clients markets. First indications are that we are in fact laying a strong foundation in these segments as well. Sustainable entrepreneurship When it comes to sustainable entrepreneurship, Rabobank has a reputation to keep up. A subject of both internal and external scrutiny is how our activities can contribute to a more sustainable world. For example, Rabobank desires to be among the top players in the area of renewable energy, in particular in funding and investing in renewable energy. Another focus area in 2006 was embedding corporate social responsibility (CSR) in lending. For our own staff, a CSR manual was prepared to help them apply our CSR guidelines in our professional services. In addition, several new CSR products were launched within Rabobank Group, including the Robeco Clean Tech Certificate and Robeco Clean Tech Fund II. In early 2007, in collaboration with World Wildlife Fund, we introduced a new credit card with climate compensation. Our Rabobank Development Program was extended via the acquisition of a 49% interest in Zambia National Commercial Bank, in Zambia. Food & agri bank with global operations In the global markets, Rabobank profiles itself as a food & agri bank with global operations but with its roots in the Netherlands. Last year, we worked hard to enhance this profile. Early in 2006, Rabobank extended its Direct Banking network by opening its third foreign Internet bank, in New Zealand. To our great disappointment, the envisaged acquisition of an interest in the Turkish Sekerbank fell through. This did not discourage us however, as is evident from the acquisitions we made during The acquisition of Community Bank of Central California was finalised and we made an offer for Mid-State Bank & Trust in late This will provide greater access to both the food & agri market and the retail banking business in the United States. In early 2007, we took over two banks in Indonesia, acquired an interest in the first rural cooperative bank in China and participated in a number of banks in Africa. During the remainder of this year, we shall keep looking at opportunities to strengthen our position as a global food & agri bank. Service provision improved; customer satisfaction increased Our clients showed themselves satisfied with Rabobank Group s service provision and initiatives in The website was awarded the title of website of the year in the financial products and services category and was the winner of the Usability Award In addition, Rabobank Private Banking was awarded the title of private bank of the year. In late 2006, Rabobank was the first bank in Europe to introduce a combined package of mobile banking and low-cost telephony. Rabo Mobiel enables clients to transfer money quickly, comfortably and safely. With Zoekallehuizen.nl, we introduced a great and easily accessible alternative to existing sites announcing owner-occupied houses for sale. The quality of services and the service provision to both clients and members received a significant boost in I am very pleased that market surveys showed a further increase in customer satisfaction among private individuals in 2006, from 7.4 to 7.5. This means that we achieved our own minimum longer-term target. But there is no room for complacency. Our service provision still wants improvement in many respects and this will require renewed, strong efforts in Member engagement As a cooperative bank, we pay a lot of attention to engaging members, whose number now exceeds 1.5 million, in the activities of our local Rabobanks. Member control was assured during the past years in the upsized local Rabobanks, for example by the introduction of member councils, that operate perfectly. In 2006, the Dichterbij magazine was launched. This is a beautiful new magazine for members and contains a good mix of news from local Rabobanks and general Rabobank matters. In addition, we invested a great deal in the cooperative dividend, through which the local Rabobanks give profits in return to the communities in which they operate. As a result, many heart-warming local community projects could be realised again in Economic green light in 2007 The economic outlook for the Netherlands is favourable. In our view, exports from the Netherlands will continue their positive trend in 2007, and business investments will likewise grow further. Private consumption could show 6 Rabobank Group Annual Report 2006

11 another significant increase because purchasing power will rise again, employment will grow further and consumer confidence is at a high level. Because of all this, economic growth in 2007 might even turn out slightly higher than in Moreover, the market for owner-occupied houses is likely to continue its favourable development. The year 2007 will be truly successful if top performances are again achieved in the sports activities that we sponsor: cycling, hockey and equestrian sports. Such top performance can inspire us in achieving our own targets. With the dedication of all our employees, I am confident that we shall be able to outperform ourselves on However, economic recovery goes hand in hand with tightening in parts of the labour market, with accelerated wage increases as a probable result. It is anticipated that such increases will be reflected in a rising inflation. Export growth will be fairly strong in 2007, although at a somewhat more moderate expansion rate than in 2006 because world trade growth will be slightly lower due to a slowdown in growth in the United States. The interest rate curves in both the United States and Europe clearly flattened in It is even likely that 2007 will show inverse yield curves with short-term interest rates higher than long-term interest rates. This phenomenon is expected to be less pronounced and of a shorter duration in Europe than in the United States. Finally, I thank our more than 56,000 employees, who wholeheartedly commit themselves to our enterprise, and wish them every success in achieving our ambitious targets for Outlook for 2007 For Rabobank, 2007 will be another year full of big challenges. One of the key challenges will be to leverage the full potential effectiveness of the scaled-up local Rabobanks. An ambitious cost reduction policy will support income growth to traditional levels and the imminent economic boom will help this. On another note, we shall not stop urging to address Dutch laws and regulations, which have got out of hand and seriously impede efficient and clientoriented operations. Bert Heemskerk, Chairman of the Executive Board of Rabobank Nederland Low interest rate margins are forcing us to cross-sell multiple products from our range to our clients. Cross-selling will be necessary for sustained income growth. Opportunities in this respect include mortgages and insurance and this will be one of the subjects of special internal focus in In the Netherlands, Rabobank aims to further increase its market share among large corporate clients and in private banking. At the same time, we wish to maintain our leading position in the market for private individuals and in the small and medium-sized enterprises sector. The campaign aimed at strengthening our position in the large cities, which was launched in 2006, will be continued at full force in Abroad, Rabobank will work hard this year to achieve its ambition of becoming the world s largest food & agri bank. In addition, we aim to be a leader in investments in, and funding of, various forms of renewable energy. Chairman s foreword 7

12 Executive Board and Supervisory Board of Rabobank Nederland Bert Heemskerk Hans ten Cate Piet Moerland Bert Bruggink Sipko Schat Piet van Schijndel 8 Rabobank Group Annual Report 2006

13 Executive Board Secretary to the Executive Board Rens Dinkhuijsen (L.A.M.) Bert Heemskerk (H.) Chairman - Group Audit - Communication - Legal and Tax Affairs - Personnel (Corporate) - Supervision & Compliance - Knowledge and Economic Research - Executive Secretariat Hans ten Cate (J.C.) - Rabobank International (RI) Management Board Rabobank International (MBRI), Chairman Regional management Americas/Asia/Europe Chief Financial and Risk Officer (CFRO) RI domain - Special Management - Corporate Social Responsibility - Real Estate - Robeco Piet van Schijndel (P.J.A.) - Private Individuals - Private Banking - Group ICT - Leasing Bert Bruggink (A.) - Control Rabobank Group - Group Risk Management - Credit Risk Management - Treasury - Investor Relations Sipko Schat (S.N.) - Rabobank International (RI) Managing Board Rabobank International (MBRI), Deputy Chairman Chief Operating Officer (COO) RI domain Corporate Clients Netherlands Financial Markets Corporate Finance Trade & Commodity Finance Private Equity Piet Moerland (P.W.) - Cooperative & Management Member Banks - Personnel (Member Banks) - SME - Shared Services & Facilities Supervisory Board Lense Koopmans (L.), Chairman Antoon Vermeer (A.J.A.M.), Deputy Chairman Sjoerd Eisma (S.E.), Secretary Leo Berndsen (L.J.M.) Bernard Bijvoet (B.) Teun de Boon (T.) Louise Fresco (L.O.) Rinus Minderhoud (M.) Paul Overmars (P.F.M.) Hans van Rossum (J.A.A.M.), Deputy Secretary Herman Scheffer (H.C.) Martin Tielen (M.J.M.) Aad Veenman (A.W.) Arnold Walravens (A.H.C.M.) For more information Executive Board and Supervisory Board of Rabobank Nederland 9

14 Report of the Supervisory Board of Rabobank Nederland The Supervisory Board of Rabobank Nederland is responsible for the appointment, dismissal and remuneration of the members of the Executive Board of Rabobank Nederland. It 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. In addition, the Supervisory Board advises the Executive Board. Membership of the Supervisory Board, at 1 January ) 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. In 2007, Mr A.J.A.M. Vermeer, Mr M. Minderhoud, Mr J.A.A.M. van Rossum and Mr A.H.C.M. Walravens retired by rotation. Year of first appointment End of current term Supervisory Board Lense Koopmans (L.) Chairman Antoon Vermeer (A.J.A.M.) Deputy Chairman Sjoerd Eisma (S.E.) Secretary 2002 (1998) Leo Berndsen (L.J.M.) Member Bernard Bijvoet (B.) Member Teun de Boon (T.) Member Louise Fresco (L.O.) Member Rinus Minderhoud (M.) Member Paul Overmars (P.F.M.) Member Hans van Rossum (J.A.A.M.) Deputy Secretary Herman Scheffer (H.C.) Member 2002 (1998) Martin Tielen (M.J.M.) Member Aad Veenman (A.W.) Member 2002 (1998) Arnold Walravens (A.H.C.M.) Member Rabobank Group Annual Report 2006

15 Membership of the Supervisory Board 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 composition, the criteria for which have been defined in the profile for the Supervisory Board. In both appointments and reappointments of members of the Supervisory Board, these aspects are the subject of extensive review. On 15 June 2006, the General Meeting of Rabobank Nederland appointed Ms L.O. Fresco as a new member of the Supervisory Board in the vacancy resulting from Mr W.F. Duisenberg s sudden death in Ms Fresco s background fits Rabobank s international food & agri strategy and CSR ambitions well. Until 1 June 2006, she was Assistant Director-General of the Food and Agriculture Organisation (FAO) of the United Nations in Rome. From that date, she has been a University Professor at Amsterdam University holding the chair of International Development and Sustainability. The General Meeting also resolved to reappoint Mr H.C. Scheffer, Mr M.J.M. Tielen and Mr A.W. Veenman as members of the Supervisory Board. Committees of the Supervisory Board The Supervisory Board has five committees. These committees prepare advice to the Supervisory Board, which then bases its resolutions in part on this advice. In 2006, the Audit Committee changed its name into Audit & Compliance Committee to reflect its responsibility for compliance supervision, while the Cooperative Issues Committee included corporate social responsibility (CSR) in its duties as an area of special focus. Working methods To support it in the proper performance of its duties, the Supervisory Board regularly requests information on banking and non-banking issues. In 2006, specific areas of focus were Rabobank Group s solvency, ICT, CSR, the functioning of the compliance organisation within Rabobank and acquisitions according to strategic priorities. Other points of special interest in 2006 included the development of top talent, the fierce competition in the mortgage market and trends in the results of the local Rabobanks. In this context, the Supervisory Board also discussed on several occasions the great burden placed on Rabobank s regular activities ensuing, in particular, from the volume of external regulation. Maintaining sufficient effectiveness in the market under these conditions is an important issue. The Supervisory Board met nine times in Not one member was repeatedly absent from those meetings. The Audit & Compliance Committee met six times, the Cooperative Issues Committee four times, the Appointment Committee and the Remuneration Committee each met three times and the Appeals Committee met once. The Chairman of the Supervisory Board has contact at least on a monthly basis with the Chairman of the Executive Board and holds monthly meetings with the internal auditor and the Supervision and Compliance Manager. 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. Committee and duties Audit & Compliance Committee Preparatory work for the Supervisory Board s decision-making on financial issues, supervision and information and communication technology (ICT). Cooperative Issues Committee Preparatory work for the Supervisory Board s decision-making on intended policies of the Executive Board concerning the cooperative structure of the local Rabobanks and Rabobank Nederland and concerning corporate social responsibility. Appointment Committee Preparatory work for the Supervisory Board s decision-making on the composition of and (re)appointments to the Supervisory Board and the Executive Board. Remuneration Committee Preparatory work for the Supervisory Board s decision-making on the remuneration of the members of the Executive Board. Appeals Committee Advisory body of appeal in disputes between local Rabobanks or between one or more local Rabobanks and Rabobank Nederland. Composition at 1 January 2007 M. Minderhoud chairman L.J.M. Berndsen permanent member L. Koopmans permanent member S.E. Eisma rotating member A.W. Veenman rotating member A.J.A.M. Vermeer rotating member A.J.A.M. Vermeer chairman L. Koopmans permanent member M.J.M. Tielen permanent member P.F.M. Overmars permanent member T. de Boon rotating member B. Bijvoet rotating member L.O. Fresco rotating member J.A.A.M. van Rossum rotating member H.C. Scheffer rotating member A.H.C.M. Walravens rotating member L. Koopmans chairman L.O. Fresco member P.F.M. Overmars member H.C. Scheffer member A.W. Veenman member A.J.A.M. Vermeer member A.H.C.M. Walravens member A.H.C.M. Walravens chairman L.O. Fresco member L. Koopmans member Overmars member H.C. Scheffer member A.W. Veenman member A.J.A.M. Vermeer member S.E. Eisma J.A.A.M. van Rossum M.J.M. Tielen chairman member member Report of the Supervisory Board of Rabobank Nederland 11

16 During the year, the members of the Supervisory Board regularly attended, as observers, meetings of the Rabobank Nederland Works Council, the regions and the Central Delegates Assembly. This enables the Supervisory Board to keep up to date with concerns among Rabobank Nederland s major stakeholders. Change in the Executive Board On 1 July 2006, Mr D.J.M.G. (Rik) van Slingelandt, having reached the pensionable age, retired from the Executive Board, of which he had been Deputy Chairman for many years. Mr van Slingelandt made major contributions to the successful expansion of Rabobank Group s international banking business. In addition, he has had great influence on the international positioning of Rabobank as the pre-eminent global food & agri business bank. We are particularly grateful to him for his commitment over many years. Mr S.N. (Sipko) Schat has been appointed a member of the Executive Board as of 1 July Until that date, Mr Schat was a member of the Managing Board within Rabobank International, with the wholesale banking business as special area of responsibility. Corporate governance Corporate governance at Rabobank Nederland is discussed in the chapter Corporate Governance Rabobank Group. The three pillars of this governance are effective management, effective member influence and strong and independent supervision. The Supervisory Board fully endorses the contents of that chapter. The Supervisory Board discussed the work of the committee for regional revision, which has resulted in a reduction in the number of regions from 20 to 12, and that of the local/ central committee, that developed a decision matrix for the question which activities could be best organised locally and which collectively. Both committees comprised General managers and directors as well as supervisors of member banks and employees of Rabobank Nederland. The same applies to the two committees discussed below. The formulation and functioning of corporate governance at Rabobank Nederland are the object of constant scrutiny and are adjusted where necessary, as is reflected by the fact that an internal committee has been requested to review the organisation of Rabobank Nederland s important member body, the Central Delegates Assembly (CKV). In addition, the Internal financial relationships review committee started its activities in late This work concerns core aspects of the mutual relationship between member banks and Group units as well as the relationship between member banks and Rabobank Nederland. The Supervisory Board looks forward with great interest to the advice of both committees. The Supervisory Board s own performance In 2006, the Supervisory Board considered its own performance in terms both of its performance as a collective body and that of its individual members. Matters reviewed in this context included members attendance at Board meetings and the extent to which the Supervisory Board complied with its desired profile, its composition and its required competencies. Where possible, improvements in the Board s effectiveness are made on the basis of this review, which is held annually. The Audit & Compliance Committee likewise reviewed its composition and effectiveness in 2006 and, on the basis thereof, introduced some improvements in its working methods. Performance of supervisory role In 2006, The Supervisory Board again assessed the performance of the Executive Board and its individual members and arrived at conclusions on that basis. Further, 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 for the Executive Board. Regular subjects of discussion are the strategy, the results and the risks associated with the enterprise, such as the Executive Board s assessment of the design and operation of the internal risk management and control systems and any significant changes therein. 12 Rabobank Group Annual Report 2006

17 The following subjects were given special attention: Financial statements 2005 This review included a detailed discussion, in the presence of both the internal auditor and the external auditors, of the management letter. The Audit & Compliance Committee did intensive preparatory work to facilitate the review of the 2005 financial statements. Budget 2007 In accordance with the Articles of Association, the budget for 2007 was discussed and approved by the Supervisory Board. Again, the Audit & Compliance Committee provided important input for this purpose. The local Rabobanks The drive for market leadership took more shape in 2006: the chief market shares of the local Rabobanks showed a favourable development. The corresponding results lagged behind expectations however, reflecting the increase in laws and regulations, lower income due to fierce competition in the market and declining interest margins. Following this, the Supervisory Board and the Executive Board discussed suitable policy measures to help improve the long-term financial outlook of the domestic retail banking business. In addition, the Supervisory Board gained extensive information on the way in which the demand for future top management for the local Rabobanks can be met. Strategy implementation In 2005, ambitions and plans for the period up to 2010 were established in the new Strategic Framework. This Strategic Framework aims at maintaining Rabobank s leadership in the domestic market and - where applicable - strengthening our market position. Rabobank wishes to develop its international banking business further, focusing on the food & agri business and - particularly in a few large mature economies - on retail banking. Strengthening the successful collaboration with Eureko/Achmea as well as the way in which the envisaged follow-up must be defined, are regular items on the Supervisory Board s agenda. The implementation of the targets of the Strategic Framework is making strong progress. The Supervisory Board pays due attention to monitoring the alignment and decision-making concerning intended equity investments or acquisitions and their consequences for the financial ratios. The year 2006 saw the acquisition of Athlon by De Lage Landen, the acquisition from ABN AMRO of part of the activities of Bouwfonds, the acquisition of Mid-State Bank in California, which is expected to be finalised in the second quarter of 2007, and the increase to a controlling interest of Rabobank s participation in Sarasin, the Swiss private bank. These investments are practical translations of Rabobank s strategic ambitions. In addition, Rabobank acquired both Bank Haga and Bank Hagakita, in Indonesia. With due regard to the implementation of the BIS II guidelines, the Supervisory Board and the Executive Board discussed the desired future solvency level and the associated policy. 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. Partly on the basis of the auditor s report issued by Ernst & Young Accountants and with due regard to the relevant provisions of the Articles of Association of Rabobank Nederland, the Supervisory Board proposes that the General Meeting of Rabobank Nederland adopt the financial statements for 2006 and appropriate the profit for the year as proposed. Report of the Supervisory Board of Rabobank Nederland 13

18 Strategy: Plotting a course into the future Rabobank Group has been showing organic growth for over a century. Since 1898, Rabobank has grown from a collection of small cooperative rural banks into the largest provider of allfinance services in the Netherlands and the world s leading food & agri bank. Rabobank owes its triple A rating to stable financial developments, its strong capital buffer and conservative risk policies. Sustained organic growth is also a leading factor in the strategic course that Rabobank Group aims to steer in the coming years. In 2006, Rabobank expanded its market leadership in the Dutch mortgage market by 2.5 percentage points to 25.5% (23.0%). With the acquisition of Athlon and parts of Bouwfonds, Rabobank strengthened its leading market position in the Netherlands. In the asset management activities, both the number of service concepts and the investment expertise were expanded further. In addition, the international retail banking business showed good progress in 2006 thanks to a combination of organic growth and cleverly selected acquisitions. 14 Rabobank Group Annual Report 2006

19 Besides organic growth, Rabobank s Strategic Framework for is founded on the following principles: - Rabobank is and remains Dutch, with its dominant market position in food & agri, among private individuals and in small and medium-sized enterprises; - Rabobank is and remains a cooperative; exceptions may be made for Group subsidiaries; - Rabobank remains Triple A worthy; - Rabobank remains independent. Growth in three areas The Strategic Framework profiles Rabobank as the global food & agri bank with its roots in the Netherlands and in doing so distinguishes three areas in which growth must be realised: - growth in the Dutch all-finance market, in particular through further collaboration with Eureko/Achmea and through further strengthening of Rabobank s position in the top end of the private and corporate markets; - continued expansion abroad as a leading international food & agri bank; - further growth of and synergy between the Group subsidiaries. Strategy in the Netherlands - market leader in the all-finance market Market leadership in all-finance in the Netherlands remains the chief goal. In addition to the mass market for banking services to private individuals, small and medium-sized enterprises and the agricultural sector, there are attractive opportunities for growth in the top end of the private and corporate markets, where Rabobank is currently in second place. Equally rich in perspective are the segments of the future - young people and starting entrepreneurs. Traditionally, Rabobank has a strong presence in the rural areas, with less prominence of the local Rabobanks in the large cities. It is the bank s ambition to expand its positions in the urban areas further. In the year under review, the bank s market share in the urban small and medium-sized enterprises sector grew by 1 percentage point to 29% (28%). The market share in the mortgage market increased in With a market share of 25.5% (23.0%), Rabobank is the biggest mortgage lender in the Netherlands. Its leading positions in the savings market and the small and mediumsized enterprises sector were virtually unchanged. The acquisition of Athlon has made De Lage Landen the number two in the Dutch car lease market and the acquisition of parts of Bouwfonds gave Rabobank Group Strategy Continuity through sustained organic growth. Rabobank positions itself as the global food & agri bank with its roots in the Netherlands. the market leadership in owner-occupied housing projects. In addition, this acquisition gave the Real Estate division a prominent position in real estate asset management. In addition, a number of product markets offer opportunities for further growth, with insurance, investment, consumer credits and real estate as the spearheads. Leverage distribution strength as a near-you bank Rabobank leverages its distribution strength as the nearyou bank of the Netherlands, not just physically but also - and increasingly - virtually. Using differentiated market strategies, it responds to differences in client segments, geographical differences and distinct labels and distribution channels. The bank s answer to the growing competition on the near-you aspect lies in expansion of the number of client interface points. By expanding its virtual bank further, clients experience of Rabobank as near-you and personal must likewise be maintained. In the year under review, the number of client interface points was expanded further and investments included Rabo Mobiel, the new member magazine Dichterbij and the renewal of the website. International strategy Rabobank International aims to be the world s leading food & agri bank. This ambition dovetails seamlessly with Rabobank s cooperative origins as the pre-eminent financier of the Dutch agricultural sector and the enormous amount of expertise it has developed. Rabobank s international operations can be divided into four categories: - International retail banking Here, Rabobank focuses on three growth markets. At the top of the priority list are traditionally agricultural countries with a stable political climate and a structurally attractive agricultural sector, such as the United States and Australia. Rabobank also focuses on countries in Central and Eastern Strategy: Plotting a course into the future 15

20 Europe that have a growing agricultural sector, such as Poland. Then follow the rapidly emerging countries with a large agricultural sector, such as Brazil, China, India and Indonesia. Projects in these countries are small-scale, with a relatively limited financial interest. In 2006, the retail activities in the United States were expanded further with the acquisition of Community Bank of Central California and by making an offer for the shares in Mid-State Bank & Trust. In 2007 in Asia, the retail network was strengthened with the acquisition of Bank Haga and Bank Hagakita, in Indonesia. The Raboplus Internet bank was opened in New Zealand in International wholesale banking In future years, and more than has been the case in the past, the international office network will focus its wholesale operations on Dutch wholesale clients, besides the international food & agri clients. The geographical focus of the wholesale activities is on Europe and the countries where Rabobank International is developing retail operations. Rabobank International has a global network in more than thirty countries and with hundreds of branch offices abroad. - Professional market activities Rabobank cherishes its Triple A rating and will continue to use it for a selected number of profitable product/market combinations in the professional financial markets. The global product groups comprise Global Financial Markets, Corporate Finance and Participations. Intensified cooperation with other Group entities should result in extra growth of these activities in coming years. In view of the greater volatility in the profitability of professional markets, the target for the future is to realise around 50% of international profits from international retail operations - Rabobank Development Program The Rabobank Development Program (RDP) was started in The RDP s aim is to help a number of banks in developing countries grow into successful Rabobanks. During the next few years, its activities will be focused on five countries, including China and a number of countries in East Africa. In 2005, an interest was acquired in the National Microfinance Bank LTD, in Tanzania. As part of the RDP s strategy, minority interests in United Rural Cooperative Bank of Hangzhou, in China, and in Zambia National Commercial Bank PLC were acquired in the year under review. Strategy: subsidiaries and equity investments Good cooperation between the Group units is of great importance. The local Rabobanks offer a broad range of Robeco products to their clients and they work closely with Schretlen & Co for optimum service provision to high networth clients. In the Netherlands, a large part of De Lage Landen s products is sold via Rabobank. Rabo Bouwfonds works closely with the local Rabobanks in order to support clients along the entire house-buying process. Because the local Rabobanks are firmly rooted in the local communities, they understand the clients housing wishes, while the good cooperation enables Rabo Bouwfonds to respond to those wishes. The ambition is to strengthen the cooperation between Rabobank Group and its subsidiaries further. The cooperation with Eureko, one of Rabobank s equity investments, made good progress as well. In 2006, a larger number of insurance policies were sold via the local Rabobanks. The activities of the Dutch Rabobank Group subsidiaries play an important part in achieving its market leadership ambitions. Such market leadership would serve as a means to achieve higher customer value. The target is to achieve leading market positions and an annual net profit growth of 10% to 15% of the subsidiaries. Asset management The performance of asset manager Robeco s flagship funds improved in 2006, as did the overall performance. Robeco intends to invest in Europe, to grow in the United States and to invest selectively in emerging markets. Robeco will strengthen its investment skills further and in the year under review, these skills were expanded by interests acquired in Analytical Investment Management and in Sustainable Asset Management Group. In addition, Robeco intends to improve its products packaging to make them accessible to a large audience and to strengthen its position in institutional asset management. Robeco is to expand funds distribution through third parties further. Via Alex, Rabobank offers investment services to active and independent investors. Schretlen & Co focuses on high networth individuals and medium-sized institutional investors, in close cooperation with the local Rabobanks. Through the Swiss Sarasin bank, Rabobank serves both private and institutional clients. 16 Rabobank Group Annual Report 2006

21 Leasing De Lage Landen offers financing solutions world-wide aimed at enhancing vendor sales manufacturers or distributors via structured international collaboration and on the basis of partnerships. Since it was decided in 2006 that De Lage Landen is to be the centre of competence in consumer credit, this has become an integral part of De Lage Landen s strategy. In addition, De Lage Landen aims for a more prominent profile as Rabobank s factoring specialist. The acquisition of Athlon resulted in significant expansion of the car lease activities, also outside the Netherlands. It is De Lage Landen s ambition to be the most client oriented car lease business in Europe. The Real Estate division Thanks to further growth, both organic and via the acquisition of parts of Bouwfonds, the Real Estate division acquired a stronger profile in The division intends to strengthen its leading position in the Dutch market for the development of owner-occupied houses and commercial real estate. Abroad, the Real Estate division has a number of housing and commercial real estate development projects in its portfolio. It intends to obtain a dominant position in commercial real estate financing. Rabobank will leverage its distribution strength for the growth of assets managed by real estate asset management. Organisational and financial implications Rabobank Group s strategic ambitions have been embedded in a cooperative and high-quality organisation driven by corporate social responsibility (CSR). Cooperative roots The cooperative is and remains Rabobank s cornerstone. The local cooperative Rabobanks and their central cooperative Rabobank Nederland, which is also the holding company of the Group s subsidiaries, are and will continue to be managed in accordance with the cooperative model. Over the past years, Rabobank has succeeded in strengthening its cooperative identity and one of the results has been a large number of new members of the local Rabobanks. In 2006, membership increased again, by 90,000 to 1,641,000 (1,551,000). Further development of active member engagement is crucial to the local cooperative s permanent license to operate. In the coming years, the cooperative s distinct character will be emphasised further, both internally and externally. Leading in HRM policy The quality of our people is of paramount importance to the strategy. The bank s HRM policy is aimed at attracting and developing talent, broadening its management and improving the flow of staff. Another important aspect is ongoing investment in knowledge, skills and experience. Staff satisfaction in general recovered in 2006, with 87% (81%) of staff, all things considered, being satisfied with working at Rabobank. In addition, Rabobank is among the three most popular employers, as appeared from the Intermediair magazine s image survey for Sustainability Rabobank intends to strengthen its identity and reputation as a cooperative, committed and sustainability-driven bank. In 2006, particularly good progress was made in embedding CSR criteria in our core activities. It is anticipated that the greatest impact will come from embedding CSR in the lending process. Other aims are growth in the sales of CSR products and services, expansion of the Rabobank Development Programme and a lower environmental burden. Financial targets Rabobank Group attaches great value to financial stability. In order to ensure this stability, the following long-term financial targets have been formulated: - Annual net profit growth of at least 12%. - Tier I ratio of 10% or higher. - Return on equity of at least 10%. It is along these strategic lines that Rabobank Group believes it can provide optimum services to its clients both at home and abroad while maintaining its sound financial ratios and remaining a good and attractive employer. Thus, Rabobank Group can advantageously position itself for the possible consolidation cycle in the European financial sector in the medium term. Strategy: Plotting a course into the future 17

22 Financial developments In financial terms, 2006 was another successful year for Rabobank Group. Net profit increased by 13% to EUR 2.3 billion, compared with EUR 2.1 billion in 2005, which means that the bank s target - an increase in net profit of at least 12% - was achieved. Total lending increased due to the great number of mortgages taken out in the Netherlands and the increase in lending abroad. Results (in EUR millions) change Interest 6,472 6,261 3% Fees and commission 2,296 2,060 11% Other income 1,281 1,042 23% Total income 10,049 9,363 7% Staff costs 4,117 3,880 6% Other administrative expenses 2,429 2,031 20% Depreciation % Operating expenses 6,887 6,242 10% Gross profit 3,162 3,121 1% Value adjustments % Operating profit before taxation 2,712 2,604 4% Taxation % Net profit 2,345 2,083 13% Risk-related costs (in basis points) % Ratios Efficiency ratio 68.5% 66.7% Return on equity 9.4% 9.7% Balance sheet (in EUR billions) 31-Dec Dec-05 Total assets % Private sector lending % Savings % Risk-weighted assets % Capital ratios BIS ratio Tier 1 ratio FTEs 50,573 45,580 11% As a result, private sector lending increased by 17%, from EUR billion in 2005 to EUR billion in The 4% increase in savings to EUR 89.5 billion was mainly due to growth in the international Direct Banking activities. Despite pressure on interest margins, income rose by 7% to EUR 10.0 billion. Organic growth and acquisitions contributed to a 10% increase in operating expenses to EUR 6.9 billion. As a result of acquisitions, the Tier I ratio declined by 0.9 to 10.7 in 2006, well above Rabobank Group s target for its Tier I ratio of at least 10. The return on equity declined slightly to 9.4% (9.7%). 18 Rabobank Group Annual Report 2006

23 Financial developments Total income up 7% Total income grew by 7% in 2006 to EUR 10,049 (9,363) million, with particularly strong increases in commission and other income. Interest Interest income increased by 3% to EUR 6,472 (6,261) million. Fierce competition in the domestic mortgages market caused interest margins to narrow. Due to the higher interest rates, clients felt less inclined to settle their mortgage loans prematurely. Income from penalty interest declined. Likewise did the margins in wholesale banking and leasing operations decline. Increased lending, however offset the tighter interest margin. Fees and commission The improved investment climate resulted in an increase in assets managed and held in custody. Commission income increased by 11% to EUR 2,296 (2,060) million, mainly due to higher asset management and insurance commission. Other income Other income rose by 23% to EUR 1,281 (1,042) million. Other income includes trading results and the results on available-for-sale financial assets and equity investments. The trading results and the results on available-for-sale financial assets are relatively volatile, because these items are heavily influenced by exchange-rate and interest-rate movements. The growth in car lease activities resulting from the acquisition of Athlon contributed to the growth in other income. In addition, income from the participations in the Gilde funds was higher in Financial targets - Annual net profit growth of at least 12%. - Tier I ratio of at least Return on equity of at least 10%. - Net profit up 13% to EUR 2.3 billion - Income up 7% to EUR 10.0 billion - Private sector lending up 17% to EUR billion - Savings up 4% to EUR 89.5 billion - Tier I ratio down to 10.7 (11.6) due to acquisitions - Return on equity 9.4% (9.7%) - Operating expenses up 10% to EUR 6.9 billion Other administrative expenses The growth in activities caused an increase in other administrative expenses. These expenses, which include the costs of marketing, offices, accommodation and IT, went up by 20% to EUR 2,429 (2,031) million. Compliance costs for the increase in laws and regulations were higher in 2006, as were allocations to reorganisation and legal provisions. Operating expenses up 10% Total operating expenses increased by 10% to EUR 6,887 (6,242) million, with staff costs accounting for 60% of total costs. Net profit by Group entity in EUR millions 1,200 Staff costs The increase in the staffing level and standard salary increases caused staff costs to go up by 6% to EUR 4,117 (3,880) million. Various acquisitions and the increase of the bank s interest in Sarasin resulted in strong growth of around 3,400 FTEs. The staffing level was also higher due to both organic growth and more regulations. In 2006, Rabobank Group s total number of employees grew by 11% to 50,573 (45,580) FTEs. 1, Domestic retail banking Wholesale banking and international retail banking Asset management and investment Leasing Real estate Financial developments 19

24 Depreciation Depreciation charges increased by 3% in 2006 to EUR 341 (331) million. Value adjustments down 13% The item value adjustments, which comprises bad debt expenses and losses incurred on financial assets, declined by 13% to EUR 450 (517) million as a result of positive economic developments and a further quality improvement in the loan portfolio. The risk-related costs were 20 (25) basis points of the average risk-weighted assets, which is well below the long-term average of 30 basis points. Income tax down 30% Income tax recognised in 2006 amounted to EUR 367 (521) million, which is equivalent to an effective tax rate of 14%, against 20% in The reduction in the Dutch corporate income tax rate from 31.5% to 29.6% contributed to the decrease in the effective tax rate. Higher results from the participations in the Gilde funds, which are exempt from taxation, likewise contributed to a lower tax burden. The decrease in the effective tax rate was also partly due to non-recurring tax income. Lending by activity at year-end 2006 Lending by region at year-end 2006 Net profit up 13% Rabobank Group achieved a 13% increase in net profit, to EUR 2,345 (2,083) million in After deduction of the portion attributable to minority interests and payments on Rabobank Member Certificates and Trust Preferred Securities III-VI, the sum remaining of EUR 1,757 (1,577) million has been appropriated to equity. Balance sheet Private sector lending up 17% The item loans to customers grew by 17% to EUR (304.5) billion in This balance sheet item comprises: - private sector lending; - lending to government clients; - securities transactions due from private sector lending; - credit adjustments due to hedge accounting. The increase in lending related largely to private sector lending. At the end of 2006, lending to government clients amounted to EUR 3.1 (2.5) billion and the outstanding amount of securities transactions was EUR 28.4 (22.0) billion. Rabobank Group uses derivatives to hedge the greater part of its interest rate risk for loans to clients. These derivatives are valued at fair value and loans to clients are valued on an amortised cost basis. Rabobank Group applies hedge accounting to prevent these value changes from being reflected directly in the profit and loss account. Due to interest rate developments in 2006, this resulted in a revaluation of loans to customers, with the item credit adjustments due to hedge accounting at EUR -0.7 (1.8) billion. Domestic retail banking 68% Wholesale banking and international retail banking 23% Leasing 5% Real estate 3% Other 1% Netherlands 76% Europe excluding the Netherlands 10% America 10% Australia and New Zealand 3% Asia 1% In the year under review, private sector lending - which accounts for 91% of total lending - increased by 17% to EUR (278.1) billion, reflecting mainly the growth in domestic mortgage lending and strong growth in lending abroad. The greater part - 76% - of private sector lending was to clients in the Netherlands, with 10% in Europe excluding the Netherlands, 10% in America, 3% in Australia and New Zealand and 1% in Asia. At 31 December 2006, total private sector lending comprised 51% to private individuals, 33% to the trade, industry and services sector and 16% to the food & agri sector. 20 Rabobank Group Annual Report 2006

25 Private individuals The growth of the mortgage portfolio was an important driver for the 13% increase in lending to private individuals to EUR (146.5) billion. The private mortgage portfolio grew by 12% to EUR (143.1) billion. Further growth of the international retail banking business caused a 26% increase in lending to private individuals abroad, to EUR 3.3 (2.6) billion. Trade, industry and services More loans were granted to producers of durables and to the real estate sector. This contributed to the growth in lending to businesses in the trade, industry and services (TIS) sector by 27% to EUR (83.3) billion. Food & agri Lending to the food & agri sector covers the complete chain from the primary agricultural sector up to and including food retail. Lending in this sector grew by 9% to EUR 52.5 (48.2) billion. The growth in food & agri was mainly achieved abroad, where lending increased by 15%. The increase in lending to meat producers and the dairy farming sectors made a strong contribution to the growth in lending to the primary agricultural sector. Of private sector lending, 68%, or EUR (200.7) billion, was granted to domestic retail banking customers. The wholesale banking business and the international retail banking business together granted 23% of total loans, and leasing and real estate 5% and 3%, respectively. Other Group units granted 1% of lending. Financial assets Financial assets comprise shares, bonds, money market paper, short-term government paper and other types of securities. These financial assets are subdivided into the following categories: - Trading financial assets; - Available-for-sale financial assets; - Other financial assets at fair value through profit and loss; - Held-to-maturity financial assets. The financial assets increased by 2% in the year under review, to EUR (107.0) billion. Around one third of these financial assets - EUR 36.8 (39.0) billion - is held for trading. Value changes in these items are taken directly to the profit and loss account. At EUR 49.0 (48.6) billion, the item available-for-sale financial Lending by sector, at year-end 2006 in EUR billions Savings, at year-end 2006 in EUR billions Breakdown of amounts due to customers, at year-end Other Roparco Food & agri TIS Private individuals Fixed-term deposits Savings accounts Telesavings Internet saving Savings 42% Current accounts/settlement accounts 24% Time deposits 21% Other amounts due to customers 9% Repurchase transactions 4% Financial developments 21

26 Equity in EUR billions Other minority interests Trust Preferred Securities III-VI Rabobank Member Certificates Retained earnings and other reserves assets is the largest category within other financial assets. These assets play an important part in providing for Rabobank Group s liquidity needs. Differences between carrying value and fair value are taken to the revaluation reserve. The value differences of those financial assets that are valued at fair value, EUR 21.5 (17.4) billion, are taken to the profit and loss account. This concerns securities linked directly to financial instruments where any value changes are likewise taken to the profit and loss account. A small part of the other financial assets, EUR 1.5 (1.9) billion, is held-to-maturity and is valued at amortised cost. savings - EUR 80.5 (77.7) billion - is entrusted to the local Rabobanks. Otherwise, the growth of the item due to customers reflected mainly an increase in corporate term deposits and other amounts due to customers. Term deposits increased by 28% to EUR 46.3 (36.2) billion. Debt securities in issue In the year under review, more than EUR 25 billion in longterm debt securities was issued to finance the growth in lending. These issuances contributed to the increase in the amount in debt securities in issue to EUR (116.0) billion, more than a third of which concerns short-term debt securities. Equity Rabobank Group s equity increased by EUR 3.1 billion in 2006 to EUR 29.4 (26.3) billion. Equity comprises equity of Rabobank Nederland and local Rabobanks, Rabobank Member certificates, Trust Preferred Securities III-VI and other minority interests. The addition of profit resulted in an increase in the item retained earnings and other reserves to EUR 17.4 (15.5) billion. At the end of 2006, 59% of equity consisted of retained earnings and other reserves, 20% of Rabobank Member certificates, 7% of Trust Preferred Securities III-VI and 14% of minority interests. Goodwill and other intangible assets At 31 December 2006, an amount of EUR 1,844 (252) million in goodwill and intangible assets was outstanding on the balance sheet. The increase of the item goodwill and intangible assets was mainly due to the acquisitions of Athlon, parts of Bouwfonds and Community Bank of Central California. Another contributor was the increase in the bank s interest in Sarasin. Savings up 4% Amounts due to customers grew by 16% in 2006 to EUR (186.4) billion. Savings make up a significant part of this item and increased by 4% in 2006 to EUR 89.5 (86.2) billion. This growth was realised entirely in Internet savings, which showed an increase of EUR 4.1 billion. Partly as a result of the expansion of the Direct Banking activities abroad, Internet savings as a percentage of total savings climbed from 46% to 48%. One factor offsetting this was a decline in savings at Roparco. The greater part of total Financial targets Rabobank s financial targets are threefold: net profit growth, Tier I ratio and return on equity. With a net profit growth of 13% for 2006, Rabobank Group exceeded its target of 12%. The Tier I ratio - the ratio between core capital and total risk-weighted assets - was 10.7 (11.6), which is well above the target of 10. The acquisition of Athlon and parts of Bouwfonds caused the Tier I ratio to decline. Tier I capital increased by EUR 1.5 billion to EUR 26.4 (24.9) billion in the year under review. Further growth in lending caused the risk-weighted assets to increase by 16% to EUR (213.9) billion. Rabobank achieved a return on equity - net profit expressed as a percentage of core capital - of 9.4% (9.7%), compared with the target figure of 10%. For more information 22 Rabobank Group Annual Report 2006

27 The whole is greater than the sum of the parts Core activities Rabobank Group is a financial service provider founded on cooperative principles and pursues an all-finance concept. The domestic retail business of the local Rabobanks is at the core of this. The concept is complemented by the specialist knowledge and activities of other Group units. The activities of these units comprise: - wholesale banking and international retail banking; - asset management and investment; - leasing; - real estate. Thanks to the close collaboration between the Group units there is a high degree of synergy within Rabobank Group: in other words, the whole is greater than the sum of the parts. Core activities 23

28 Local Rabobanks and Obvion Domestic retail banking Net profit from domestic retail banking, comprising the local Rabobanks and Obvion, which sells mortgages via the broker channel, amounted to EUR 1,091 (1,024) million was a twofaced year. On the one hand, fierce competition in the mortgage market put income under pressure. In addition, further laws and regulations requiring an increase in FTEs caused a decline in gross income. The 7% increase in net profit was due to lower value adjustments and taxation. On the other hand, the bank strengthened its market leadership in the Netherlands. 24 Rabobank Group Annual Report 2006

29 Strategy and targets Pursue market leadership in all financial services sectors in the Netherlands. Be and remain the near-you bank in the Netherlands, in both physical and virtual terms. Strengthen position in the large cities. - Customer satisfaction rating of at least Annual net profit growth of 6 to 10%. The share of the mortgage market increased by 2.5 percentage points to 25.5% (23.0%). Rabobank Group retained its dominant position in the savings market, with a market share of 39.3% (39.4%). Its market share in the small and medium-sized enterprises sector was stable at 38% (38%). Thanks to the influx of start-up businesses, Rabobank regained its leadership in this market, with a market share of 33%. Market and clients The Dutch economy performed well in Consumer spending and corporate investments both increased further. Interest rates in the money and capital markets gradually increased, with the interest rate curve levelling out. In the mortgage market, the fierce competition continued unabated and both the local Rabobanks and Obvion saw their mortgage margins decline. Clients opted for security in 2006 and took out mortgages at relatively low interest rate levels and with longer fixed-interest terms of 20, 25 or even 30 years. Obvion s clients too, preferred to fix their interest rates for a longer term. For that reason, Obvion launched a mortgage with a 30-year fixed-interest term in late Competition in the corporate market, too increased, which resulted in a decline of the margin on corporate lending, although to a lesser extent than in the mortgage market. Phoning with tomorrow s purse With the launch of Rabo Mobiel in 2006, Rabobank was the first bank in Europe to introduce mobile banking and low-cost phoning in a single package. Clients can make phone calls at a fixed, competitive rate and have 24/7 access to their bank. Rabobank has thus responded to the clients wish to have the bank near-by at any place and any time. Rabo Mobiel enables clients to transfer money between accounts quickly and easily, pay bills and use special banking services, including an SMS service the moment they receive their salaries. Domestic retail banking 25

30 They can also view their bank balances any time and anywhere and keep up to date with the financial news. In addition, it is tomorrow s purse: soon, clients will be able to use their mobile phones to pay in shops and buy train and entrance tickets. Rabo Mobiel is a joint project of Rabobank, multimedia company Talpa and telecom provider Orange. With the cyclical upturn, the number of start-up enterprises began to rise again, particularly in business services, non-food retail and the building industry. This trend was illustrated in the 30th issue of Rabobank s annual Figures & Trends publication, which did extensive research of developments in 80 industries in the Dutch small and medium-sized enterprises sector (SME). Since its going digital in 2006, Figures & Trends contains even more information and is more up to date. The number of small and medium-sized enterprises showed a significant 6% increase in 2006 to 731,000. In line with previous years, the number of agricultural enterprises declined in the year under review, although the market volume continued to rise. Rabobank invests in emerging distribution channels The local Rabobanks wish to be and remain near to their clients. For optimum contact with clients, Rabobank therefore worked hard to invest in alternative distribution channels, including Rabo TV banking and Rabo Mobiel. Due to mergers, the number of local Rabobanks fell from 248 to 188. However, with 1,214 (1,249) branch offices, Rabobank is still the bank with the densest network by far in the Netherlands. Due to the increase in the number of cash back points, among other things, the number of physical client interface points grew by 2% to 3,091 (3,031). Cash back points enable clients to draw cash at retailers. The number of cash dispensing machines was virtually unchanged at 3,139 (3,116) at 31 December The site was renewed in early Clients appreciated the improved website and on 24 May 2006, it saw a record of nearly 770,000 hits. The website was awarded the title of website of the year in the financial products and services category by Website of the Year. In addition, the Rabobank site won the Usability Award A survey by TNS NIPO showed that 42% of Dutch households using the Internet for their banking affairs, use Rabo Internet banking. In 2006, Rabobank launched the Rabo NotaBox, enabling private clients to receive digital invoices and giro collection forms from companies via Internet banking. Rabobank also launched Rabo TV banking, i.e. secure Internet banking on television using the remote control. In addition, Rabobank developed Readspeaker, a functionality for the visually handicapped that reads out the website texts. Late in 2006, Rabobank was the first European bank to introduce mobile banking and lowcost telephony as a combined feature. Rabo Mobiel enables clients to transfer money quickly, conveniently and safely. Rabobank expects that in the near future, many clients will want to manage their bank affairs via their mobile telephones. Market shares in % Mortgages Savings SME Rabobank Group Annual Report 2006

31 Private individuals Mortgages The local Rabobanks and Obvion both gained market share. Rabobank Group s market share increased by 2.5 percentage points to 25.5% (23.0%) in the year under review. To achieve a higher market share, the local Rabobanks started the mortgages action programme in 2006, with the stated aims of greater contact with clients and more customer-oriented at the local Rabobanks. The local Rabobanks succeeded in strengthening their positions and market share increased from 18.9% to 20.3%. For Obvion, which sells mortgages via the broker channel, 2006 was an excellent year as well. Obvion s market share grew by 1.1 percentage points to 5.2% (4.1%). Its success was partly due to the launch of the Obvion Basic mortgage. The simple structure of this product makes it possible to offer a lower rate of interest. Since March 2006, clients have taken out Obvion Basic mortgages totalling EUR 2.7 billion, representing more than 40% of total mortgage production of EUR 6.1 billion in In the second half of 2006, Rabobank acquired Zoekallehuizen.nl, which gives access to a broad offer of owner-occupied houses. Through this website, Rabobank assists private individuals in finding their dream house. The local Rabobanks believe it is important that products are aligned with the client s current financial situation. In 2006, this was translated into the Your Rabo Mortgage always up to date campaign, among other things. The bank s more effective response to client needs resulted in higher customer satisfaction among private individuals, with a score of 7.5 (7.4). Savings Rabobank s share of the Dutch savings market at 31 December 2006 was 39.3% (39.4%). The economic upturn provided an impulse to consumers to free savings for additional consumption and to invest in stock, as a result of which savings at the local Rabobanks increased by only 4%, while their market share increased by 0.3 percentage points to 37.4% (37.1%). Roparco s market share declined. At 31 December 2006, Roparco s market share was 1.9% (2.3%). Private banking Clients whose assets or income exceeds EUR 80,000 may become private banking clients at the local Rabobanks. Private banking clients are assigned an account manager and receive a custom-built service package. In 2006, Rabobank Private Banking was awarded the title private bank of the year by Incompany business magazine. By serving clients with both corporate and private banking needs as one - the entrepreneur in private - Rabobank is able to offer broader options to the client. The local Rabobank ensures that the client s private financial affairs are aligned with those of his enterprise and vice versa. In 2006, the number of entrepreneurs/private banking clients grew from 102,000 to 111,000. Corporate clients Small and medium-sized enterprises Despite strong competitive pressure, Rabobank remained the market leader in the small and medium-sized enterprises (SME) sector in The number of SME clients grew by 3% to more than 550,000. Rabobank traditionally has a strong presence in rural areas. In order to strengthen their position, the local Rabobanks are increasingly focusing on SME clients in the large cities. Their market share in cities was 1 percentage point higher, at 29% (28%). The overall SME market share, as measured by TNS NIPO, was stable at 38% (38%). Rabobank invests in start-up enterprises, offering them a range of support facilities. Thanks to the influx of start-up businesses, Rabobank regained its leadership in this market, with a market share of 33%. Since the number of Internet clients is still growing and because they prefer to manage their bank affairs themselves, Rabobank is extending its Internet services ever further. For instance, from 2006 the Rabobank site has TV banking Home banking from your couch with your TV remote. Subscribers to Rabobank Internetbankieren owning a Windows Media Center have been able to do this since February Rabobank is the first bank in the Netherlands to make this new way of banking possible. Rabo TV banking lets you do more than just transfer money, view bank balances and check debits and credits. Through interactive videos, clients can obtain information and advice on such matters as mortgages, healthcare insurance, life course scheme and starting a business. In addition, the bank broadcasts a daily investment news programme, with the latest stock exchange items, financial-economic background information and concrete trading tips. Rabobank s goals with TV banking are to enhance personal contact with its clients and to add a new dimension to its position as the Near-you Bank. Domestic retail banking 27

32 Perfect support I am still virtually at the beginning of my cycle-racing career - and my financial career. That s why it s a comfort to get help from people who really know their business. At Rabobank s Topsport Desk, I get all the professional guidance I am used to in cycling: all the peripherals are perfectly taken care of, so that I can focus fully on my sporting. Lars Boom, espoirs cyclo-cross world champion. A welcome initiative I have an A status as a sportswoman, so I earn enough money to be able to focus completely on my swimming. Normally however, my income would not warrant a mortgage because it is guaranteed for a period of one year only. An A status is something you have to earn each year again. The people at Rabobank s Topsport Desk look beyond the income I will get during my sporting career. They understand both sports and finance and so they can help top athletes along. It s a welcome initiative. Marleen Veldhuis, swimmer. 28 Rabobank Group Annual Report 2006

33 Top athletes are in need of specialised support for financial affairs. Financial advice for top athletes enabled clients to order money and to refill the call account balance of their mobile phones. Also in the year under review, Rabobank developed ideal Lite and the Rabo Pinbox, which are aimed specifically at start-up (Internet) enterprises. The number of ideal transactions exceeded 4 million in 2006, of which Rabobank s share was 45% among private clients and 29% among web shops. In 2006, after its introduction in 2005, the number of enterprises offering ideal as a payment service on their sites increased by more than 700. ideal enables clients to buy comfortably via the Internet. ideal Lite was specially developed for start-up online shops. This product is of interest to web shops effecting fewer transactions, because entrepreneurs pay transaction costs only. Rabo Pinbox offers clients a land-line or a mobile point-of-sale terminal at a fixed monthly amount with all costs included. The local Rabobanks work to ensure that the bank affairs of SME clients too, are always up to date. The Financiële APK ( Financial MOT ), which was developed in 2006, quickly affords clarity to clients as to whether their bank affairs are still aligned with their needs. The bank s excellent response to the needs of SME clients again resulted in large numbers of satisfied clients. Bizner, the virtual bank for online businesses A growing number of businesses use Internet banking. In February 2007, Rabobank launched the virtual bank for entrepreneurs who prefer self-service. Bizner is a compact and flexible Internet-only formula based on self-service and operational excellence and offers a highly standardised bank. The new formula is interesting especially to start-ups and SME clients in the cities. Bizner focuses on small and medium-sized enterprises that require simple payment transactions and small loans. Bizner enables entrepreneurs to buy, change or take out all financial basic products online, 24 hours a day. Bizner is the first corporate Internet bank without account managers and without branch offices, but with self-service. Food & agri The agricultural sector and its related sectors are important clients to Rabobank. For the best possible service to these food & agri clients, Rabobank Group has bundled its expertise, service provision and marketing communication into its Food & Agri department. In 2006, this department paid a lot of attention to developments in energy. Issues that received special attention included greenhouse horticulture (e.g. greenhouses as a source of energy), wind farms as an initiative from agricultural entrepreneurs and the building of biological fermenting installations. Rabobank cherishes young agricultural business successors, as they are the agricultural entrepreneurs of the future. Rabo Opvolgers Perspectief was developed especially for them. It supports young entrepreneurs in both their individual and financial development during the business succession process. Rabobank keeps abreast of developments in the food & agri markets. The Food & Agri group periodically issues publications aimed at agricultural entrepreneurs. In 2006, Rabobank Surveys have shown that top athletes are in need of specialised support for their financial affairs. More than half of all top athletes are concerned about their financial future, one in two say they have no financial agent and one in four does not have their financial affairs in order. In addition, one in four claims they know at least one potential medal winner who gave up his sport for financial reasons. This is why, in 2006, Rabobank set up Topsport Desks especially for top athletes - one in Eindhoven and one in Utrecht. The Topsport Desks are a product of the bank s relationship with NOC*NSF and helps top athletes achieve their ambitions. High-net worth top athletes and those outside that category can turn to these desks for financial advice at a Private Banking level. Managing top athletes bank affairs is a specialised activity, partly because they do not have fixed incomes, spend a lot of time abroad and have relatively short careers. Committed advisers who understand both high-level sporting and finance have tailored solutions for all sports people from young talents to established top athletes. Domestic retail banking 29

34 publications included visions on the sugar market, the flower bulb sector, the pig-farming sector and dairy farming. The vision on dairy farming reviewed the consequences of the abolishment of quotas in The development of entrepreneurship in the agricultural sector serves a mutual interest. In 2006, the local Rabobanks organised various strategic training courses for entrepreneurs in dairy farming and - at a later stage - entrepreneurs in arable farming. Since the average size of businesses is showing strong growth and banking products and advice must align to that trend, there is a growing need for specialised services in the agricultural sector. Accordingly, local Rabobanks are increasingly bundling their food & agri expertise into supralocal collaborative organisations. The local Rabobanks traditionally have strong ties with the food & agri sector, as appears from its large market share of 84%. Up to date information by business sector Rabobank Figures & Trends, Rabobank s unique view of developments in trade and industry in the Netherlands, has been used by entrepreneurs for the past thirty years. In 2006, the familiar weighty book was replaced by an Internet version. This online version is even more extensive: the number of business sectors has increased from 75 to 80 and developments in supply and demand within business sectors are discussed in greater depth. The digital version s chief advantage is that the information can continually be updated to reflect the rapid changes that occur. This creates a living Rabobank Figures & Trends document with which the bank can serve its business clients even better. Part of the information is publicly available. The benchmark tool and more extensive explanations are exclusively accessible to clients via a password. In support of the online version, a Rabobank Figures & Trends Quarterly Report with a specific theme appears every three months. Corporate social responsibility (CSR) in lending Since October 2006, the local Rabobanks use a questionnaire with seven areas of attention, including environmental, social and occupational health & safety issues. It enables them to assess the CSR performance of their corporate clients in the small and medium-sized enterprises sector and the agricultural sector. The seven areas of attention are embedded in the financing process where it concerns loans exceeding one million euro. In addition, schedules were made for the local Rabobanks of the chief CSR issues, including explanations of desirable and undesirable practices. Such schedules exist for all important sectors and for a few segments in the small and medium-sized enterprises sector and the agricultural sector. Insurance The dense network of local Rabobanks serves half of all Dutch private customers and businesses. This makes Rabobank a very large insurance broker in the Netherlands. In 2006, the local Rabobanks in collaboration with Eureko notched up a success with the new Interpolis Zorg Actief policy. With the introduction of the new health care insurance system, many people switched to a new insurance company. Members of the local Rabobanks were offered an attractive discount on the Interpolis Zorg Actief policy. This was key to the tempestuous growth in the number of insured persons to thousand at 31 December The Interpolis Alles in één Polis and the Interpolis Bedrijven Compact Polis also continued their successful performance. The number of Alles in één Polis policies increased to 1,202 (1,163) thousand in 2006, with clients taking out cover for more risks on average under this policy. In the year under 30 Rabobank Group Annual Report 2006

35 review, the number of clients with three or more types of cover grew from 48.0% to 50.4%. In 2006, the local Rabobanks sold 23% more travel insurance policies to private clients. In addition, significantly more homeowners and motor insurance policies were sold than in Since more mortgages were granted, the number of life insurance policies taken out went up considerably as well. The volume of Interpolis Bedrijven Compact policies rose to 172 (168) thousand. In the year under review, some new services for corporate In order to be able to serve Rabobank better, a new Banking Distribution division was established within Eureko in July 2006, which is specifically geared to Rabobank. Within Eureko s new organisation, this is one of its seven divisions. Private sector lending up 10% Lending to the private sector grew by 10% in 2006 to EUR (200.7) billion. Private sector lending comprises 72% to private individuals, 18% to the trade, industry and services sector (TIS) and 10% to the food & agri sector. Loans Thanks to Rabobank Figures & Trends, we keep abreast of developments in business sectors. clients were developed, including the RisicoScan Verzekeren and the CombinatieLevens- Verzekering for agricultural entrepreneurs. The RisicoScan Verzekeren tool provides entrepreneurs with a fast insight into their risk exposure and the possibilities for limiting those risks. The CombinatieLevensVerzekering enables agricultural entrepreneurs to build up a pension outside their business enterprise. Depending on the life cycle phase of the enterprise, the premium allows for flexibility in use for the life insurance element and the savings element. to private individuals grew by 12% to EUR (141.7) billion, virtually all of which - EUR (137.8) billion - are mortgages. Lending to the trade, industry and services sector increased by 6% to EUR 39.9 (37.5) billion, with strong growth in the building and the real estate sectors. Lending to the health care sector declined, however. Lending to the food & agri sector grew by 3% to EUR 22.1 (21.5) billion, with the primary agricultural sector accounting for the greater part. Loans granted to the primary agricultural sector grew by 2% to EUR 18.2 (17.8) billion, partly We are a full discussion partner Thanks to Rabobank Figures & Trends, we keep abreast of developments in business sectors, which is very useful for sparring with existing customers and for submitting proposals to potential customers. Because we know what s happening in the market, we re a full discussion partner. The new version is clearly an improvement: you can compare figures and the information is both more extensive and more up to date. Frank Jongejan, of Jongejan & Tjakkes, auditors and tax advisers Domestic retail banking 31

36 Investing in agricultural successors Young agricultural entrepreneurs are vital to a healthy, forwardlooking and successful Dutch agricultural sector and Rabobank invests in them via Rabo Opvolgers Perspectief (Rabo Business Successors Perspective). This unique programme, launched in 2006, helps young farmers who wish to take over a business. Any entrepreneur wishing to take over a business is confronted with three questions: what are my strengths?, can I finance it? and how do I take over the business? Rabo Opvolgers Perspectief provides answers to these questions. For example, business successors are made aware quite early in the takeover procedure of their personal and entrepreneurial qualities, what that means to their future business and in which areas they can develop further. In a special training course, they learn how to refine their vision of themselves, their business and their surroundings and how to develop and execute a strategy plan. Rabo Opvolgers Perspectief has been developed together with the Landbouw Economisch Instituut (Agricultural Economics Research Institute), the Nederlands Agrarisch Jongeren Kontakt (Dutch Agricultural Young Farmers Association) and De Boer CS Organisation Consultants. 32 Rabobank Group Annual Report 2006

37 You ve got to look ahead Under the Rabo Opvolgers Perspectief programme, I attended the Rabo Opvolgers Spiegel, where my strengths and weaknesses were pointed out to me once more, so that I can really work on them now. Some of my weaknesses are compensated perfectly for by Rianne. She attended the Rabo Opvolgers Training, where they teach you how to achieve your dream future through strategy and actions. You ve got to look ahead and be a real entrepreneur in this industry and Rabo Opvolgers Perspectief is a great help in that respect. Ton van Helmond, together with his wife Rianne, is taking over his parents dairy farm and contracting business. Domestic retail banking 33

38 House hunting via Rabobank In 2006, Rabobank acquired Zoekallehuizen.nl, a search engine that each day scans the websites of nearly all estate agents as well as the Internet sites offering houses for sale by owners. As a result, Zoekallehuizen.nl presents the most complete list of houses on offer in the Netherlands from both private individuals and estate agents. As the Dutch market leader in mortgages as well as Europe s largest Internet bank, Rabobank considers this acquisition a fitting complement to its services. Via Zoekallehuizen. nl, its clients get real and practical assistance in finding their dream house, for it s a fact that most house hunters start their search on the Internet. The Zoekallehuizen.nl brand will remain and the site will eventually become a service offered by Rabobank through its own website. thanks to the growth in lending to dairy farming. Lending the horticultural entrepreneurs declined. Businesses in this sector were affected by higher energy prices. Financial results Income up 2% Total income increased by 2% to EUR 5,551 (5,431) million, mainly due to higher commission income. Despite the lower margin on mortgages and a decline in penalty interests, interest income was up 1% to EUR 4,226 (4,202) million. Growth in lending offset the lower interest margin. Because the local Rabobanks sold more insurance policies, the associated commission income increased by 4% to EUR 379 (364) million. In addition, commission income from corporate treasury products was the main cause of the increase in total commission income by 4% to EUR 1,259 (1,205) million. In the year under review, customers placed considerably more investment orders at the local Rabobanks. Due to the introduction of lower commission rates in 2006, this did not result in an increase in securities commission income. Other income increased by EUR 42 million to EUR 66 (24) million. Operating expenses up 4% Total operating expenses were 4% higher in 2006, at EUR 3,877 (3,735) million. The growth in staff numbers contributed to the 6% increase in staff costs to EUR 2,118 (1,990) million. The rise in staffing level was due particularly to the need for compliance with more laws and regulations. Projects under the Identification (Provision of Services) Act and the Disclosure of Unusual Transactions (Financial Services) Act resulted in higher expenses. Likewise, the mergers of the local Rabobanks resulted in a temporary deployment of extra staff in Other administrative expenses increased by 2% to EUR 1,607 (1,581) million. Depreciation charges on property, plant and equipment were lower, causing depreciation to decline by EUR 12 million to EUR 152 (164) million. Value adjustments down 21% The improved economic climate was a major contributor to the 21% decline of the item value adjustments to EUR 139 (175) million. Risk-related costs fell to 10 (14) basis points of the average risk-weighted assets and were thus below the long-term average of 17 basis points. Ambitions and outlook Rabobank Group desires to be and remain the best financial services provider for its clients. Maintaining customer satisfaction and loyalty are spearheads in this drive. Due to mergers, the number of local Rabobanks is decreasing further, although the number of physical branch offices will remain virtually stable in In addition, new forms of distribution, both physical and virtual, will be developed. It is Rabobank s ambition to strengthen its market leadership position further. Optimised customer service remains the starting point for Rabo Mobiel will be extended further. The local Rabobanks aim to maintain their market leadership position in the mortgage market and Obvion will expand its position in the broker market. Rabobank Group expects to strengthen its market position in consumer credits, under De Lage Landen s direction. Rabobank Group expects to grow its market share in the small and medium-sized enterprises sector and will focus on the entrepreneur in private as well as on start-up enterprises. This will be combined with strengthening its position in the large cities. In 2007, Rabobank will again be a leader in food & agri. This ambi- 34 Rabobank Group Annual Report 2006

39 tion is translated into devising new innovative solutions for clients, focus on young agricultural entrepreneurs and more research into clean energy. Rabobank, in close collaboration with Eureko/ Achmea, will expand its insurance services for clients. In response to the tightening of the margins on mortgages and corporate lending, there will be stronger focus on cost reduction in order to maintain future profitability. For more information Results (in EUR millions) change Interest 4,226 4,202 1% Fees and commission 1,259 1,205 4% Other income % Total income 5,551 5,431 2% Staff costs 2,118 1,990 6% Other administrative expenses 1,607 1,581 2% Depreciation % Operating expenses 3,877 3,735 4% Gross profit 1,674 1,696-1% Value adjustments % Operating profit before taxation 1,535 1,521 1% Taxation % Net profit 1,091 1,024 7% Risk-related costs (in basis points) % Efficiency ratio 69.8% 68.8% Balance sheet (in EUR billions) 31-Dec Dec-05 Total assets % Private sector lending % Savings % Risk-weighted assets % FTEs 29,375 28,909 2% Market share Mortgages 25.5% 23.0% Savings 39.3% 39.4% SME 38% 38% Lending by sector in EUR billions Food & agri TIS Private individuals Domestic retail banking 35

40 Rabobank International Wholesale banking and international retail banking With a 20% increase in net profit, Rabobank International - the wholesale banking and international retail banking operations - made a handsome contribution to the Group s results. Net profit went up by EUR 114 million to EUR 687 (573) million. Currently, 15% of Rabobank International s net profit is from international retail activities. 36 Rabobank Group Annual Report 2006

41 Sale-and-leaseback good for entrepreneurs Sustainable entrepreneurship is simply a must, not only for the environment but also because of the sky-high energy prices. I own an energy-producing greenhouse. This year, it should be able to produce the energy for both itself and part of the rest of my business. Thanks to Rabobank s sale-andleaseback construction, the initial investment pressure is far less than would normally be the case. That s good for entrepreneurs. Stef Huisman, tropical plant grower. The acquisition of Community Bank of Central California, in the United States, was completed in early At the end of 2006, Rabobank made an offer for Mid-State Bank & Trust. These US retail banks will give Rabobank International further access to the important food & agri market of California. In addition, the international retail activities were strengthened by the acquisition in January 2007 of Bank Haga and Bank Hagakita, in Indonesia. In the first half of 2006, Rabobank International also extended its Direct Banking activities by opening its third Internet bank abroad, in New Zealand. Strategy and targets Expansion of the retail activities through selective acquisitions and organic growth. Deepening the relations with existing clients through focus on cross-selling. Stronger growth of wholesale activities in Asia and in Trade & Commodity Finance. Strengthen the position in the Dutch corporate market. Deliver added value to clients through knowledge-driven solutions based on extensive food & agri research. - Annual net profit growth of 10 to 15%. - Long term, around half of net profit generated by international retail activities. Wholesale banking and international retail banking 37

42 Market and clients As in previous years, there was excess liquidity in the market for wholesale banking in This resulted in continuous pressure on interest margins and in longer loan maturities. Despite significant competition, Rabobank International showed strong growth in this segment in At the end of the year, the Big in green Greenhouse horticulture is an important contributor to both the economy and the image of the Netherlands. At the same time however, this sector has a significant impact on the environment: greenhouse heating and lighting take up a lot of energy. That is why the Government stimulates Green-labelled greenhouses. These are greenhouses that satisfy a set of strict environmental criteria. The great majority of Green-labelled greenhouses in the Netherlands are financed with green financing from Rabo Groen Bank, typically in the form of an innovative sale-and-leaseback construction. In total the Green-labelled greenhouses are covering more than 200 hectares, the equivalent of approximately 400 football pitches. Apart from financing Green-labelled greenhouses, Rabo Groen Bank also has solid positions in biological agriculture, agricultural nature management and wind power. growth rate was deliberately reduced and this policy will be continued in The present volume of the loan portfolio will be used to deepen the existing relations with clients by offering more tailored products and by increasing the cross-sell efforts for non-loan related products. Excess liquidity likewise affected Global Financial Markets and Corporate Finance. Because the markets have become more transparent in recent years and market volumes for complex products have grown faster than in the past, the profitability of the products offered decreased. Margins in the international retail banking business were virtually stable in An exception was the Australia region, where fierce competition mainly from local Australian banks put pressure on interest margins. In 2006, many farmers in Australia had to face the consequences of extreme drought. It is expected that the financing policy of past years will afford an adequate basis for sustained support to Australian clients in this difficult period and to limit credit losses. In consultation with our clients, Rabobank International tries to absorb the financial consequences of this drought. Its experience in the Netherlands, where conditions in the agricultural sector are different every year, provides a good framework in this respect. In addition, Rabobank International was confronted with a growing stream of new laws and regulations in As a business with international operations, Rabobank International must comply not only with Dutch regulations, but also with those in force in the countries where it has a presence. A great deal of effort was made in 2006 to ensure the timely and efficient compliance with changed regulations. 38 Rabobank Group Annual Report 2006

43 Organisation Rabobank International is set up as a matrix organisation. The aim of this is to combine commercially effective operations based on knowledge of local markets and clients with specific knowledge of client sectors and products that has been bundled on a global scale. The direction of Rabobank International s global activities is based on the various regions (Netherlands, Europe excluding the Netherlands, Americas, Australia & New Zealand and Asia). Besides the division by region, Rabobank International distinguishes a number of client sectors and product groups that are directed globally. These are: Global Financial Markets, Structured Finance, Leveraged Finance, Direct Banking, Trade & Commodity Finance and Participations. For the best possible service to the clients and markets, these regions and globally organised units work closely together. Global presence in food & agri It is Rabobank s ambition to be the word s best food & agri bank, with a strong presence in key countries. In order to leverage its knowledge on a global scale, the Food and Agri Research unit is established not only in the Netherlands but also in the United States and Australia, among others. Both clients and Rabobank Group itself benefit from this knowledge. Rabobank researches all important food & agri sectors where it operates and regularly issues publications. In 2006, subjects included the animal feed industry in Brazil and the dairy sector in China. For growth in food & agri, Rabobank International s primary focus is on extending its retail activities in traditional agricultural countries such as the United States and Australia. Another focus is on emerging countries with fast-growing food and agri sectors, such as in Central and Eastern Europe but also further abroad, in countries such as Indonesia, Brazil, China and India. Rabobank invests in Clean Tech Rabobank and Robeco are keen to invest in businesses that use clean energy production technologies (Clean Tech). This may take the form of loans or the development of products for investors. In 2006, Rabobank and Robeco launched the Robeco Clean Tech Certificate for private investors and the Robeco Clean Tech Private Equity II Fund for institutional investors. In order to gain greater knowledge of Clean Tech enterprises, a new Clean Tech Research department was set up within Food and Agri Research early in This department is to be the centre of expertise in clean technology within Rabobank and will research developments in the business sector and in enterprises that use clean technologies such as biofuels, biomass, fermentation and wind and solar power. Wholesale activities The wholesale activities grew strongly in 2006 and the aim is to consolidate this strong growth in 2007 and to try and make the existing relations stronger and more sustainable. In the Netherlands, Rabobank International not only serves its own client group, which comprises the large Dutch enterprises, but also supports the local Rabobanks in serving the corporate market. Abroad, the primary focus of the wholesale banking business is on the food & agri sector, with the emphasis on the food sector. In addition, Rabobank possesses specific expertise Acquisition of two SME banks in Indonesia In 2006, Rabobank signed an agreement to acquire Bank Haga and Bank Hagakita in Indonesia. Both banks focus on servicing small and midsize enterprises (SMEs) engaged in trade, manufacturing and business services, as well as individual clients. Consequently, Rabobank gets access to the SME and retail banking sector in Indonesia. Rabobank, through its subsidiary Rabobank International Indonesia, has successfully operated in Indonesia s corporate market for sixteen years. The acquisition of Bank Haga and Bank Hagakita complements its current services and fits Rabobank s ambition to be the world s leading lender to the food industry and the agricultural sector. Indonesia s economy is the largest in Southeast Asia, with food & agri playing an important part in the national economy. In addition, the country s SME sector is prospering and banking services to the retail market are showing strong growth. Wholesale banking and international retail banking 39

44 Leading in China We are delighted that the Chinese authorities invited us to be the first foreign bank to be given this opportunity and to take part in the modernisation process of rural credit cooperatives in China. We see this also as a great opportunity to further build our franchise in food & agri banking in China. By providing our technical banking and marketing knowledge, Rabobank will play a leading role in developing a show case example of a modern, sustainable best practise, rural bank in China. Fergus Murphy, regional manager at Rabobank International, Asian region. in Telecom Media & Internet and Trade & Commodity Finance. Telecom, Media & Internet is an important focus sector besides food & agri. It has been operating in the key markets, including Europe, North America and Asia, since 1996 and has recently expanded to Latin America. With its thorough knowledge of both the market and the sector, the global Telecom Media & Internet department is able to offer a broad package of financial and advisory services to clients in this segment. In its service provision, Telecom Media & Internet works closely with other departments within Rabobank International, including Global Financial Markets, Corporate Finance and Participations. With global operations, the Trade & Commodity Finance department focuses on clients that are active in the market for agricultural products as well as on clients in the metals and the energy markets. Its in-depth knowledge of these markets makes Rabobank International pre-eminently suited and able to support producers and traders of these commodities adequately, offering them tailored financing solutions. In addition, this department offers clients a broad range of export finance products. 40 Rabobank Group Annual Report 2006

45 Assistance to Chinese rural credit co-operative International retail activities Over the past years, Rabobank Group has extended its international retail activities through organic growth, acquisitions of local retail banks and new activities. The latter included activities in Brazil and Chile and the launch of new Internet banks. Retail activities are being developed in the regions Europe, Americas, Australia & New Zealand and Asia. In addition, clients are being served via three Internet banks, in Belgium, Ireland and New Zealand. Europe In Europe, Rabobank International develops its retail activities in Ireland via ACCBank and in Poland via its 35% minority interest in Bank Gospodarki Żywnościowej (BGZ). ACCBank traditionally has close links with the agricultural sector. In Poland, BGZ is an important bank in the agricultural and food processing sector. In view of its agricultural background, BGZ offers excellent prospects for further expansion of the international retail banking business. In 2006, BGZ started selling Robeco investment funds. Americas In the United States, Rabobank International, through Rabobank North America, performs retail activities in California. The offer made in October 2006 for the shares of the Mid-State Bank & Trust is aimed at further expanding our current market position in one of the chief agricultural areas in the USA. This acquisition will be completed in early 2007, bringing the number of Rabobank s branch offices in California from almost 50 to more than 90. In the year under review, Community Bank of Central California was integrated in the existing Rabobank North America organisation. In 2007, Rabobank will assist United Rural Cooperative Bank of Hangzhou (URCB) in its further development, having acquired a ten per cent interest in this Chinese bank in July As part of the same transaction, International Finance Corporation, a World Bank subsidiary, acquired a five per cent interest. Rabobank s investment was the first foreign equity participation in a Chinese rural co-operative bank and serves as a valuable precedent for the process of restructuring and reforming China s 35,000 rural credit co-operatives. Initiated by the Chinese government, reforming the rural credit co-operative system will have a profound impact on rural development and poverty alleviation in China. Besides funds, Rabobank is also deploying its expertise to help further corporatise and modernize URCB, including advising on strengthening the administration and management, business development, distribution policy, marketing, credit control, risk management and the development of IT systems. Our Chinese partners value Rabobank s co-operative principles as they correspond in many ways with their own co-operative banking system. Mid-State Bank & Trust will likewise be incorporated in the existing structure. In Brazil, the branch office network was expanded in 2006, with more than ten offices now operational outside São Paulo. Thanks in part to this expansion, lending grew significantly in Australia & New Zealand As is the case in the Americas region, the retail banking activities in Australia & New Zealand are focused on the food & agri sector. The key services offered are: granting loans to the primary agricultural sector, offering banking services to middle segment enterprises with Wholesale banking and international retail banking 41

46 a businesses affinity to the food & agri sector and offering complex financial products and services to large cooperatives and enterprises in the food & agri industry. Asia The announced acquisition of Bank Haga and Bank Hagakita, in Indonesia, marked the start in 2006 of the establishment of international retail activities in the Asia region. This acquisition has been finalised in early Both banks have extensive networks, with branch offices in Bali, Java and South Sumatra. This acquisition gives Rabobank access to the small and medium-sized enterprises sector in Indonesia. 2006, nearly 19,000 clients in New Zealand were using the RaboPlus Internet bank. Apart from New Zealand, Rabobank operates Internet banks in Belgium and Ireland. At 31 December 2006, the Direct Banking activities abroad had a total of 102,000 (51,000) clients. In the year under review, savings increased by 94% to EUR 3.1 (1.6) billion. Global product groups Global Financial Markets Global Financial Markets operates in the international financial markets. Besides customerfocused activities, this department handles Rabobank International made a handsome contribution to the Groups results. Rabobank aims at further professionalisation of the existing service provision by these banks and plans to offer new financial products through them. Besides the integration of the recently acquired retail banks, Rabobank International will focus on the further development of the commercial effectiveness of these activities in Direct Banking In early 2006, Rabobank extended its Direct Banking network by opening its third Internet bank abroad, in New Zealand. In addition, preparations were made to open a fourth Internet bank in early At 31 December 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. Examples include currency products, bonds and derivative products. In 2005, Global Financial Markets started trading in CO 2 emission rights. In 2006, this resulted in transactions with, among others, Enercon, a wind turbine manufacturer and manager of wind farms in India, and Agrosuper, Chile s largest pig-farming enterprise. In addition, Global Financial Markets offers capital market solutions by securitising or restructuring specific risks or cash flows of enterprises or financial institutions. For example, a perpetual Aegon bond was placed 42 Rabobank Group Annual Report 2006

47 with intermediaries and financial institutions. Increasingly, bonds and other Rabobank International products are offered to private clients of local Rabobanks. There is great interest in these products among clients. An important growth market for Global Financial Markets is the development and management of structures and investment vehicles. In the year under review, another broad range of guarantee products was launched, including the Rabo Europe Double Tracker, the Rabo Japan Double Tracker and the Rabo AEX High Yield Note III. Corporate Finance By structuring tailor-made products, Corporate Finance supports the operations of businesses and financial institutions. These products are aimed, for instance, at balance sheet optimisation and cash flow management and are supplemental to standard lending. In doing so, Corporate Finance works closely with the local Rabobanks and with other subsidiaries. Clients are served from the Structured Finance and Leveraged Finance product groups. Structured Finance offers client-tailored products aimed at both the asset and the liability side of the balance sheet. In 2006, there was great demand among clients for Rabobank s saleand-leaseback product for Green-labeled greenhouses. With this product, Rabobank gives more horticultural entrepreneurs access to these greenhouses. In 2006, Rabobank played a part in financing the construction and operation of the 120 MW Q7 offshore wind farm off the Dutch coast at IJmuiden. Leveraged Finance is internationally involved in financing private equity companies acquisitions that involve acquisition prices exceeding EUR 50 million. On a global level, it is a major player in the agricultural market, but it operates in other sectors as well. Leveraged Finance acted as a Mandated Lead Arranger in a large number of transactions. In 2006, its portfolio grew as a result of transactions with Heiploeg and MW Brands, among others. Participations The activities of Participations comprise Rabo Innovatiekapitaalfonds, Rabo Participaties and Rabo Capital. Rabo Innovatiekapitaalfonds invests in start-up enterprises that supply innovative and sustainable products. Here, amounts invested vary between EUR 125,000 and EUR 1.5 million. Rabo Participaties focuses on growing enterprises in the middle segment and invests between EUR 2 million and EUR 10 million per enterprise. In 2006, acquisitions by Rabo Participaties included a participating interest in the Luzac Holding training company. Rabo Capital focuses on acquiring minority interests in larger enterprises, investing between EUR 10 million and EUR 100 million per transaction. Besides these activities, Rabobank International has a number of participations in Gilde funds. Private sector lending up 38% Lending to the private sector increased by 38% in 2006 to EUR 74.7 (54.2) billion, despite the weakening of the US dollar, which fell by 10%. Lending to the food & agri sector increased by 15% to EUR 26.5 (23.1) billion and this sector now accounts for 36% of private sector lending. Loans to the trade, industry and services sector (TIS) increased by 57% to EUR 44.9 (28.5) billion. The increase in private sector lending was EUR 0.7 billion, with the total amounting to EUR 3.3 (2.6) billion. The greater part of lending was in America, at 35%. Of total lending, 13% was in the Netherlands, with Europe excluding the Netherlands accounting for 33%, Australia & New Zealand for 14% and Asia for 5%. The international retail banking business accounted for 24% of lending, with a 16% increase to EUR 18.2 (15.7) billion in Lending by the US retail activities grew by 85% to EUR 4.2 (2.3) billion. The loan portfolio contributed by Community Bank of Central California amounted to EUR 0.8 billion. Following three years of strong growth, lending by ACCBank declined by 4% to EUR 6.2 (6.5) billion in Lending by region, at year-end 2006 America 35% Europe excluding the Netherlands 33% Australia and New Zealand 14% Netherlands 13% Asia 5% Lending by sector, at year-end 2006 in EUR billions Food & agri TIS Private individuals Wholesale banking and international retail banking 43

48 Income by region in 2006 America 31% Europe excluding the Netherlands 30% Netherlands 24% Australia and New Zealand 9% Asia 6% Corporate social responsibility (CSR) embedded in service provision Rabobank International has embedded its CSR policy in its professional services. In 2006, guidelines were established with the aim to explicitly consider the CSR performance of corporate clients in the procedures for accepting new clients and lending. Implementation was started in Brazil, Indonesia and the Netherlands. The guidelines are a tool for account managers and credit analysts. Issues addressed include corruption, human rights, working conditions and the environment. This procedure will be implemented globally in 2007 with the aim to promote corporate social responsibility in consultation with our (potential) clients. Financial results Income up 18% Total income increased by 18% in 2006 to EUR 2,622 (2,226) million. The margin on lending by the wholesale banking business was under pressure. Partly as a result of this, interest income increased by only 12% to EUR 1,649 (1,477) million, despite strong growth in lending. Income from Global Financial Markets increased by 14%. Within Corporate Finance, Leveraged Finance made a strong contribution to results, thus offsetting the slight decline in income from Structured Finance. The growing demand for acquisition finance drove up income at Leveraged Finance by 31%. Income from Rabo Participaties and the Gilde funds were considerably higher thanks to improved results on exits and revaluations. This contributed to the growth in other income. The international retail banking business accounted for 19% of total income. Income from retail activities increased by 10% to EUR 506 (460) million. ACCBank s income was under pressure because of the fall in lending. Income from the other retail banking activities increased as a result of organic growth and the acquisition in the USA. Community Bank of Central California (CBCC) is consolidated in the figures as from February Operating expenses up 24% Operating expenses rose by 24% to EUR 1,586 (1,277) million. The expansion of activities caused the number of staff to increase by 12% in the year under review, to 6,684 (5,960) FTEs. Approximately 260 FTEs are from the former CBCC. The increase in the staffing level led to staff costs rising by 14% to EUR 867 (760) million. The integration of CBCC resulted in an additional charge in Also, more project costs were incurred for compliance with Basel II and in control projects. Partly owing to the acquisition of CBCC and the increase in regulations, other administrative expenses were EUR 191 million higher at EUR 668 (477) million. Depreciation of buildings and software was higher, causing depreciation charges to rise by EUR 11 million to EUR 51 (40) million. Value adjustments down 10% In 2006, value adjustments were 10% lower at EUR 234 (259) million as a result of healthy global economic growth and further quality improvement in the portfolio. The risk-related costs were 40 (56) basis points of the average risk-weighted assets, which means that expenses were below the long-term average of 60 basis points. Ambitions and outlook Within wholesale banking, Rabobank will focus on strengthening its position in the Asia region and expanding its Trade & Commodity Finance activities in Expansion in the Asia region should ensure sufficient scale for building a properly spread portfolio. Expectations for the economic potential in this region are high, 44 Rabobank Group Annual Report 2006

49 particularly for China and India. The activities of Trade & Commodity Finance in the food & agri sector will be intensified and will be expanded to include metals and energy in order to leverage the specific knowledge gained. Despite increased competition, Global Financial Markets expects to achieve further growth in As for the international retail banking business, 2007 will be characterised by further integration of the activities. Mid-State Bank & Trust will be consolidated with existing activities. Offering new products and attracting new clients will result in further growth of the retail banking network. Moreover, further expansion in both the number of clients and the product range, due in part to one or more new country entries, should result in continued growth of the Direct Banking activities this coming year. It is expected that significant efforts will also be required in 2007 to comply with new regulations. For more information Results (in EUR millions) change Interest 1,649 1,477 12% Fees and commission % Other income % Total income 2,622 2,226 18% Staff costs % Other administrative expenses % Depreciation % Operating expenses 1,586 1,277 24% Gross profit 1, % Value adjustments % Operating profit before taxation % Taxation % Net profit % Risk-related costs (in basis points) % Efficiency ratio 60.5% 57.4% Balance sheet (in EUR billions) 31-Dec Dec-05 Total assets % Private sector lending % Risk-weighted assets % FTEs 6,684 5,960 12% Wholesale banking and international retail banking 45

50 Robeco, Sarasin, Schretlen & Co and Alex Asset management and investment The asset management activities - Robeco Group, Sarasin, Schretlen & Co and Alex - achieved an increase in net profit of 28%, or EUR 223 (174) million. This significant increase is mainly due to a strong cash flow of EUR 6 billion and the positive investment climate during the year under review. Robeco s improved investment performance was an important contributor to the positive inflow of assets, part of which was from institutional clients in Europe. Apart from this, Harbor Capital Advisors, an American Robeco subsidiary, contributed a large part of cash flow. Strategy and targets Offer high-quality services to all types of investment clients. Strengthen Rabobank Group s position in the market for wealthy individuals. Consolidate the position and selective enlargement of the distribution network abroad. Broaden the range of innovative products and services. - 60% of the investment funds of Robeco Group to exceed the benchmark. - Annual net profit growth of 10 to 15%. With the interests acquired by Robeco in Analytic Investment Management, of Belgium, and - in the beginning of Sustainable Asset Management Group, of Switzerland, Robeco expanded its investment expertise further. Alex likewise had an excellent year 2006, in terms of growth in client numbers, number of orders handled and assets managed. Thanks in part to good collaboration with local Rabobanks, Schretlen & Co succeeded in producing strong growth of its customer base. By exercising its call option, Rabobank increased its voting share in Sarasin from 16% to 69% at the end of December Sarasin is a leading Swiss private bank and asset manager. 46 Rabobank Group Annual Report 2006

51 Market and clients At the end of 2006, the AEX index was 13% higher than at the beginning of the year. Many other European stock exchanges showed double-digit growth figures in In the US, the S&P500 index rose by 14%, although the increase expressed in euros was much smaller due to the depreciation of the US dollar. The Nikkei index showed a less pronounced increase of 7%. The rise in interest rates in the year under review resulted in lower prices for most bonds. Due to the stock exchange recovery, there was less interest in structured products among Robeco clients and the demand for this product type declined. There was fierce competition between providers of online investment services in 2006, which went hand in hand with even lower rates for investment orders handling. Clients of Alex and Rabo Direct Beleggen benefited from this. Similarly, clients of the new Younique need not pay any transaction costs if they invest in Robeco funds via the Internet. Service concepts Rabobank offers a very broad range of investment products and services to Dutch private and institutional investors via different channels. Alex and Rabo Direct Beleggen accommodate active, independent investors. In addition, Alex offers digital portfolio advice for private individuals with assets from EUR 25,000. Rabobank Private Banking focuses on private individuals with invested assets or income of EUR 80,000 or higher. With Robeco s Younique concept, Robeco Direct offers tailored asset advice and management to private individuals with invested assets of EUR 25,000 or higher. Schretlen & Co accommodates high net-worth private individuals with assets of EUR 500,000 or more and medium-sized institutional investors. The large institutional investors can turn to Robeco Asset Management. Traditionally, Robeco enables both institutional and private clients to invest in a broad range of investment funds. Rabobank also serves a large number of foreign investors. Robeco distributes funds through third parties in many countries and also has a few subsidiaries in the United States. In addition, Rabobank serves high net-worth individuals and institutional clients via its majority interest in Sarasin. This Swiss bank operates internationally from Basel. Expanded interest in Sarasin and cash flow contributed to growth in assets managed and held in custody The assets managed and held in custody by Rabobank Group grew by 28% in 2006 to EUR 286 (224) billion, of which EUR 72 (68) billion represents Rabobank s investment portfolio and EUR 214 (156) billion assets managed and held in custody for clients. Because Sarasin is consolidated in the figures as from 31 December 2006, assets managed and held in custody increased by EUR 41 billion. The consolidation of the Bouwfonds Asset Management activities also added EUR 4 billion to assets. The inflow of new assets made a positive contribution to asset development. In 2006, the gross cash flow amounted to EUR 6 billion, mainly attributable to asset inflows at Harbor Capital Advisors - an American subsidiary of Robeco - and at Robeco Asset Management. The favourable investment climate in the second half of 2006 yielded positive investment results, causing assets to increase by EUR 12 billion. The fall by 10% of the US dollar partly offset the effect of these positive Changes in assets managed and held in custody for clients in EUR billions Gross cash flow Exchange results Investment results Sarasin Rabo Bouwfonds Interest, dividends and other Asset management and investment 47

52 Operational course of affairs Assets managed and held in custody for clients, at year-end 2006 by investmenttype Assets managed and held in custody for clients, at year-end 2006 in EUR billions Equity 44% 150 Fixed income 32% 125 Alternatives 7% 100 Other 6% 75 Mixed 5% 50 Money market 4% 25 Real estate 2% investment results. Of total assets managed and held in custody for clients, 44% are in equities, 32% in fixed-income securities and 7% in structured products, hedge funds and private equity. The other categories, including real estate, mixed and money market investments, account for 17%. Significant rise in orders in 2006 In the year under review, the number of securities and in-house fund orders in the Netherlands grew to 8.6 (6.1) million. The local Rabobanks showed an increase in both the number of in-house fund orders (up 17%) and the number of securities orders (up 65%). Alex also reported a huge leap in the number of orders, the increase being 43%. Robeco Group Positive cash flow contributes to growth in assets managed In 2006, the inflow of new assets was EUR 5.8 billion. Besides cash flow, the investment results made a positive contribution to the 8% growth in assets managed to EUR (131.6) billion. Institutional clients account for nearly half of these assets. Investors provided a handsome inflow of assets in equity funds at the American subsidiary Harbor Capital Advisors. This cash flow was partly offset by an outflow of institutional equity capital at the American subsidiary Boston Partners. Third-party distribution - i.e. the sale of funds via third parties - performed well in 2006, with inflow mainly from the Netherlands, Belgium, Germany and Switzerland. In 2006, demand for structured products was lower among investors. Consequently, Robeco Alternative Investments introduced fewer new products and Robeco redeemed part of the structured products. A positive development was the inflow of assets in hedge fund investments at the Transtrend subsidiary and at Robeco-Sage. Robeco-Sage invests in hedge fund managers on behalf of clients and is therefore specialised in the selection of these managers. Expansion of activities In 2006, Robeco strengthened its institutional sales teams. In addition, the international collaboration within Rabobank Group was enhanced, which contributed to the attraction of the first mandates from Canadian, Norwegian and Italian clients. Also in 2006, Robeco extended its international funds distribution. Through collaboration with the Polish Bank BGZ, in which Rabobank has a minority interest, a start was made with the sale of investment funds. In Saudi Arabia, Robeco signed a collaboration agreement with Rana Investment Company. Robeco acquired a 40% interest in Analytic Investment Management (AIM) in the year under review. This Belgian hedge fund manager specialises in systematic intraday currency trading. From 2007, Robeco and Sustainable Asset Management (SAM) Group have bundled their knowledge in the area of sustainable investments. SAM Group, in which Robeco acquired a 64% interest in early 2007, is a leading asset manager in sustainable investments, with assets managed amounting to EUR 2.3 billion. Robeco expanded its expertise with these new investment strategies provided by AIM and SAM Group. Early in 2007, Robeco increased its interest in 48 Rabobank Group Annual Report 2006

53 Transtrend further, from 51% to 100%. The asset manager Transtrend is specialised in futures and options markets. It has an investment portfolio of EUR 2.8 billion which is hardly correlated with traditional investments such as equities and bonds. Robeco s overall performance shows upward trend 1 Measured over a three-year period, most equity investments outperform their benchmark. Although not all track records improved over the past year, Robeco can currently boast an excellent three-year history. Measured over a three-year period, 87% of all its equity investments outperformed the benchmark, against the target of 60%, with the percentage of each business unit exceeding 80%. In 2006, 60% of the assets invested in equity outperformed the benchmark. Flagship fund Robeco outperformed the benchmark by 0.2%, while Rolinco s outperformance was 2.8%. The Robeco Emerging Market equity fund lagged behind the benchmark. The Harbor International fund, with assets under management of USD 18.5 billion, did exceptionally well, outperforming the benchmark by 5.9%. The fixed-interest portfolios again performed well in 2006, with average yields outperforming the benchmark by 0.2%. In the year under review, 86% of assets under management invested in fixed-interest securities exceeded the benchmark. Measured over a three-year period, the percentage was 93%. In 2006, flagship funds Rorento and Lux-o-rente showed outperformances of 0.2% and 0.6%, respectively. The Harbor bond fund likewise outperformed the benchmark. The alternative investment products achieved mixed results. In 2006, the Hattrick bonds realised a 1.9% negative return, against a target positive return of 10%. Transtrend s futures program again realised a sound return in With its Enhanced Risk Diversified Risk Programme, Transtrend s return was 12.0% in 2006 and its annual return over the past three years averaged 10.2%. Robeco-Sage continued to perform well. Sage s return exceeded that of the reference group by 0.4%. Corporate social responsibility as a dominant strategy element Robeco embedded corporate social responsibility (CSR) to a high degree in its regular investment activities in 2006, with engagement as the strategy. Under engagement, Robeco enters an constructive dialogue with a large number of companies in which clients invest. This dialogue is not restricted to corporate governance, but also covers social and environmental issues. In 2006, CSR issues were discussed with approximately 80 enterprises. In around 40% of the cases, corporate governance was the subject of discussion, with social and environmental issues accounting for around 30%. Robeco is convinced of the importance of CSR in asset management, as is evidenced by the stake it has acquired in SAM Group. As a result of the expansion of its engagement services, Robeco s sustainably managed assets rose from EUR 0.4 billion to EUR 5.7 billion at the end of 2006, thereby increasing their proportion of total assets managed from 0.3% at the end of 2005 to 4% at the end of Investors bank Alex Thanks to the favourable stock exchange climate, Alex had an excellent year. The number of orders handled increased by 43% to 3.2 (2.2) million and the number of investor accounts reached the milestone of 100,000. Due to the higher number of clients and the positive sentiment in the stock markets, assets managed grew by 12% to EUR 3.7 (3.3) billion. In 2006, Alex continued its market leadership in the options market, with a market share of 23.9% (23.6%). In order to serve its clients in Spain better, Alex opened a branch office on the Costa del Sol in November Activities of this Alex Investor Centre include theme meetings, workshops and demonstrations. In 2006, Alex started its own television show for private investors on the RTL 7 channel and was awarded the title of Best Broker 2006 by Beurs.nl. The Alex Academy training institution was equally successful in 2006 and provided training to more than 3,300 private investors in 215 Academy training sessions. Schretlen & Co Schretlen & Co performed highly satisfactorily in Its client base grew by 19% to 5,200 (4,400) through close ties and good collaboration with the local Rabobanks and because it attracted new clients independently. Due to the growth in the number of clients and the positive stock exchange climate, assets managed by Schretlen & Co rose by 15% to EUR 7.5 (6.5) billion. 1) Returns are gross, before deduction of management fees, except for alternative investment products, whose returns are stated net. Asset management and investment 49

54 Financial results Income up 16% Total income rose by 16% to EUR 836 (718) million thanks to the growth in assets managed and held in custody. Interest income rose by EUR 25 million to EUR 86 (61) million and commission income increased by 8% to EUR 648 (600) million. At Robeco, the growth of assets managed and the shift towards equity funds both ensured higher management fees. As Robeco launched fewer alternative investment products in the year under review, the related income was down. Alex handled substantially more orders in 2006 than a year ago. The effect was a rise in commission income for Alex, despite a reduction in its fees. Other income increased by EUR 45 million to EUR 102 (57) million. Operating expenses up 18% Operating expenses were 18% higher at EUR 551 (468) million, mainly due to the increase in staff costs. At 31 December 2006, Sarasin employed approximately 1,120 FTEs. These additional staff, the expansion of activities and the increased deployment of staff in in control projects caused the staffing level to rise by 1,328 FTEs to 3,126 (1,798) FTEs. Results (in EUR millions) change Interest % Fees and commission % Other income % Total income % Staff costs % Other administrative expenses % Depreciation % Operating expenses % Gross profit % Value adjustments - - Operating profit before taxation % Taxation % Net profit % Number of orders in NL (in millions) % 31-Dec Dec-05 Assets managed and held in custody % (in EUR billions) For clients % Investment portfolio % FTEs 3,126 1,798 74% Staff costs rose by 19% to EUR 330 (278) million as a result of the growth in staff numbers, higher costs of external hires and standard salary increases. Higher marketing costs contributed to the 19% increase in other administrative expenses to EUR 210 (177) million. Depreciation charges fell by EUR 2 million to EUR 11 (13) million due to lower depreciation of buildings. Ambitions and outlook Robeco plans to expand its foreign institutional sales capacities and funds distribution further in Robeco s Younique investment concept is expected to contribute to further growth of the direct distribution channel in the Netherlands. Robeco may enter into new joint ventures or make acquisitions to increase its investment expertise or expand its distribution capacity. In line with the extension of third-party distribution, a lower margin on management fees is expected. As for new country entries, Robeco will follow Rabobank where possible. Robeco will invest in emerging markets to a limited degree only. Sarasin will continue its growth strategy and its independent operations in Alex expects that more investors will use the Internet for their investments in Although this offers sufficient perspectives for growth, Alex foresees continued fierce competition between providers of these online investment services. By deepening its relationship with the local Rabobanks and by attracting new high networth clients, Schretlen & Co expects to grow its customer base further. For more information Rabobank Group Annual Report 2006

55 De Lage Landen Leasing Despite a lower margin, the net profit of De Lage Landen, Rabobank Group s leasing subsidiary, grew by 16% in 2006 to EUR 206 (178) million, with the good collaboration with local Rabobanks and Rabobank International clearly contributing to the result. Partly as a result of the acquisition of Athlon, which was added to the existing activities from the second half of 2006, the lease portfolio grew by 23%. Thanks to continued growth of its lease portfolio, De Lage Landen expanded its solid position in Europe and the United States. After the acquisition of Athlon, the combination with Translease is the number two in the Dutch car lease market. In addition, a strong position was created for the further development of the existing car lease activities in Europe and the establishment of car lease activities in Central Eastern Europe. company. Economic conditions in Argentina improved, enabling De Lage Landen to restart activities in that country. Organisation adjusted to new activities The acquisition of Athlon constituted a significant expansion of the car lease activities. Within Rabobank Group, it was decided that De Lage Landen was to be the centre of competence in the area of consumer credit. In addition, De Lage Landen aims at strengthening its position as Rabobank s factoring specialist. De Lage Landen now has four core activities, each in a separate organisational entity: Vendor Finance, Car Leasing, Consumer Finance and Factoring. Vendor Finance offers Strategy and targets Market and clients Despite much stronger competition and a high liquidity volume in the market, both of which put pressure on interest margins, De Lage Landen succeeded in maintaining growth in its activities in It extended its network to Russia with the acquisition of a small, Moscow-based lease Offering financing solutions world-wide for producers and/or distributors of capital assets, for example via international collaborative ventures. Be the most client-centred car lease business in Europe. Be a centre of competence in consumer credit within Rabobank Group. Serve local Rabobanks and Rabobank International with a broad range of leasing and factoring products. - Annual net profit growth of 10 to 15%. Leasing 51

56 sales support to producers and distributors of capital assets through financing solutions for their clients. Strong organic growth of the lease portfolio In 2006, De Lage Landen s portfolio grew by 23% to EUR 18.9 (15.4) billion. At 31 December 2006, the volume of the consumer credit portfolio was EUR 0.7 billion. The car lease portfolio grew by EUR 1.9 billion to EUR 2.5 (0.6) billion. The portfolio contributed by Athlon amounted to EUR 1.8 billion. The new consumer credit portfolio and the Athlon portfolio together were largely responsible for the growth of the European portfolio by 46% to EUR 11.0 (7.5) billion. The growth of the US lease portfolio was offset by the depreciation of the US dollar, which fell by 10%. The volume of the US lease portfolio was EUR 7.6 (7.6) billion. The activities in the Asia-Pacific region developed according to expectations, showing 24% growth. Vendor Finance De Lage Landen offers financing solutions that meet the needs of both vendors and their clients. Thus, Vendor Finance operates on the interface between sellers and/or distributors of capital assets and their clients. Its many years of international experience in Vendor Finance make De Lage Landen a recognised expert in this area. De Lage Landen has a long track record in establishing and Lease portfolio, at year-end 2006 in EUR billions Lease portfolio by sector, at year-end Office equipment 20% 0 Food & agri 19% Financial services 17% Asia-Pacific Car leasing 13% America Europe Materials handling & construction equipment 12% Healthcare 8% Technology finance 5% Trucks & trailers 3% managing joint ventures with global operations and is a leader in e-commerce applications. De Lage Landen has in-depth knowledge of accountancy regulations and Basel II guidelines and knows how to translate these into new lease products for its clients and into sophisticated risk modelling systems. For the best possible service to its clients, De Lage Landen has a global network. In 2006, De Lage Landen signed an agreement with Philips to grant loans to clients of Philips Medical Systems in the Asia/ Pacific region. To Medtronic clients, De Lage Landen offers a broad range of flexible financing solutions in a large number of European countries. Clients with global operations, such as Philips and Medtronic, require global, uniform servicing. Accordingly, De Lage Landen took further steps to standardise and globalise its business processes and systems in Car leasing De Lage Landen s car lease activities were expanded in 2006 as a result of the acquisition of Athlon Holding N.V. As a result, De Lage Landen gained a prominent position in the Dutch car lease market. Since Athlon has operations also in Belgium, Luxembourg, Germany, France and Spain, De Lage Landen obtained an advantageous position for international expansion of its car lease activities. The CARe car repair activities, which were acquired together with Athlon, have meanwhile been sold. Late in 2006, a start was made with the integration of Athlon Car Lease Nederland and Translease. Annually, Heliview research agency measures customer satisfaction among Dutch car lease users, who make up Athlon s biggest market. Translease and Athlon were second and fifth, respectively, on the list. Consumer Finance Rabobank has decided to combine all consumer credit activities in a newly established centre of competence within De Lage Landen. The Consumer Finance unit has been operational since the end of 2006 and provides all marketing, sales and operational management services in the area of consumer credit. Besides distribution via local Rabobanks under the Rabobank brand, Consumer Finance will operate various different brands in other distribution channels, including the direct channel and points of sale. The portfolios of a large part of the local Rabobanks as well as the Amsterdam-based Crediam consumer credit business were acquired in that context late in The consumer credit portfolio will show substantial further growth in the beginning of 2007, partly as a result of the further acquisition of portfolios of local Rabobanks. Other 3% 52 Rabobank Group Annual Report 2006

57 Factoring In mid-2006, a strategic reorientation of De Lage Landen s factoring activities took place. The Factoring unit will be given more prominence as Rabobank s factoring specialist. The activities, processes and systems will be arranged so as to be able to service clients smoothly and quickly. By offering services in account management, portfolio monitoring and marketing, De Lage Landen is to support Rabobank in its offer of complementary banking products. Financial results Income up 17% The 17% increase in income to EUR 842 (719) million was mainly attributable to the growth in other income. Interest margins were depressed by the higher short-term interest rate, causing interest income to decline by 1% to 507 (514) million. Commission income was virtually unchanged at EUR 49 (47) million. A significant part of income from car lease activities is accounted for under other income. The acquisition of Athlon particularly contributed to the 81% increase in other income to EUR 286 (158) million. Operating expenses up 26% The increase in regulations required a lot of effort and involved high expenses in Operating expenses increased by 26% to EUR 494 (392) million, largely due to higher staff costs. The staffing level rose, particularly as a result of the acquisition of Athlon - approximately 790 FTEs, excluding CARe - as well as organic growth of the activities and the increase in regulation. The staffing level grew by 36% to 4,128 (3,045) FTEs, with staff costs rising by 25% to EUR 305 (244) million saw additional marketing expenses related to the start-up of the Consumer Finance activities, which contributed to the 26% increase in other administrative expenses to EUR 168 (133) million. Depreciation charges were EUR 6 million higher at EUR 21 (15) million, mainly due to higher software depreciation. Value adjustments down 16% The improved economic conditions and the ongoing improvement in risk control resulted in lower value adjustments, which fell by 16% to EUR 77 (92) million. Compared to 2005, risk-related costs declined to 45 (65) basis points of the average lease portfolio, which is below the long-term average of approximately 70 basis points. Ambitions and outlook De Lage Landen is optimistic about further growth of its activities in Although the pressure on margins is expected to continue, so should the growth of the lease portfolio. De Lage Landen is looking at opportunities for further international expansion of its leasing activities. As a result of the acquisition of Athlon, the car lease activities will account for a larger proportion of total net profit in Synergies will be leveraged further. Consumer Finance is still in its early phase and its contribution to net profit will be limited for the foreseeable future. Likewise, Factoring s contribution to the result is expected to be modest. For more information Results (in EUR millions) change Interest % Fees and commission % Other income % Total income % Staff costs % Other administrative expenses % Depreciation % Operating expenses % Gross profit % Value adjustments % Operating profit before taxation % Taxation % Net profit % Risk-related costs (in basis points) % Efficiency ratio 58.7% 54.5% 31-Dec Dec-05 Lease porfolio (in EUR billions) % Europe % America % Asia-Pacific % FTEs 4,128 3,045 36% Leasing 53

58 Innovative and energy efficient Sustainability in construction begins with the demolition: almost 98 per cent of the materials from the old building will be re-used. The new building will incorporate countless innovative and energy conservation features. For example, we use underground energy storage for heating and cooling and the lighting level depends on the amount of light entering the building from outside and on the presence of people. The building s Energy Performance Coefficient is 0.66, against normal values of around The lower this coefficient, the higher a building s energy efficiency. Jan de Graaf, project director for Rabobank Nederland s new office building. 54 Rabobank Group Annual Report 2006

59 Office as meeting place Rabobank Nederland s new corporate centre is being erected on Croeselaan, in the city of Utrecht. From 2009, around 6,300 staff will be working there. In the office building, Rabobank is implementing a new way of working where staff no longer have a fixed place to work. Instead, they decide themselves where they work, depending on the activity they are performing at a particular moment. This flexibility will change the office s function: apart from a place to work, it will be an important meeting place. The 105-metre tower will be one of the Netherlands most sustainably built office buildings, with the use of transparent materials giving it an open character. For example, the building s glass façade will enhance its semi-public function and its interaction with the surrounding area. Real estate 55

60 Rabo Bouwfonds Real estate Favourable market conditions resulted in a strong organic growth in both sales and profit for the real estate organisation. In accordance with the strategy as formulated earlier, the activities were significantly expanded on 1 December 2006 by the acquisition of parts of Bouwfonds. As a result, Rabobank gained a leading position in project development in the Netherlands and a prominent position in real estate investment management. The financing activities were expanded by the acquisition of Rijnlandse Bank, which, like Nederlandse Hypotheekbank, specialises in servicing the middle segment of the real estate market. Net profit of Rabo Bouwfonds increased by 33% in 2006 to EUR 104 (78) million, with Bouwfonds contributing EUR 17 million. Rabo Bouwfonds is the market leader in owneroccupied housing projects in the Netherlands. Strategy and targets Maintain and strengthen the leading position in the Dutch market for owner-occupied houses and commercial real estate, respecting a sustainable living environment. Selective expansion of the development of houses and commercial real estate in other European countries. Maintain a dominant position in commercial real estate financing in the Netherlands. Leverage Rabobank s distribution strength and increase investment management knowledge and expertise to grow assets managed further. - Annual net profit growth of 10 to 15%. Market and clients Despite the rise in interest rates, market conditions favoured the real estate sector in Owner-occupied houses were in continued high demand and this produced good results for the development business. There was a strong economic upturn in 2006 and it is anticipated that the economy will achieve significant growth in 2007 as well. This growth set the market for commercial real estate in motion, which is reflected in the volume of 56 Rabobank Group Annual Report 2006

61 New dimension uptake and recovery in the construction of new properties. The vacancy rate, particularly in the office market, remains high on the other hand, although there are signs that the situation will improve. The increased dynamics in the real estate market are therefore reflected mainly in the financing activities. The Finance division granted more loans. As for the investment activities, there is structural growth in the demand for real estate related investments. Due to the boom and the much stronger competition in this specialised market, profitability is under significant pressure, however. Rabo Bouwfonds The acquisition of Bouwfonds resulted in a new structure of the real estate organisation. The newly created Rabo Bouwfonds organisation develops its activities via the Development, Finance and Investment Management divisions and via Bouwfonds Fund Management. The acquisition of part of Bouwfonds meant significant strengthening of Rabobank s capacities for real estate service provision. As a result, Rabobank gained a leading position in project development and a prominent position in real estate investment management. The activities of Rijnlandse Bank dovetail seamlessly with those of Nederlandse Hypotheekbank, a subsidiary of FGH Bank. The Development Division Bouwfonds Property Development and Rabo Vastgoed are responsible for real estate development. The Development division focuses on the development of housing areas, retail projects and multifunctional projects. Growth in the market for inner-city redevelopment is one of the main spearheads for the future. With ODE, Amsterdam gains more than 200,000 square meters of urban functions in a single stroke. Its construction is a complicated affair due to its compactness, location in the old city right next to the railway and the complex subsoil structure. But I have no doubt that the result will be worth it: a diverse and multifunctional area that includes the Netherlands biggest hotel and Europe s largest public library. ODE will give a new dimension to living, working, leisure and culture. Cees van Boven, managing director of Bouwfonds MAB. Real estate 57

62 Bouwfonds Property Development is among the largest developers of owner-occupied houses and commercial real estate in Europe. Together, Bouwfonds Property Development and Rabo Vastgoed make up the uncontested leader in the market for owner-occupied housing projects in the Netherlands. In addition, they occupy a leading position in inner-city redevelopment. Most of the development activities are steered from the Netherlands. In addition, Bouwfonds Property Development has a prominent position in France, through Bouwfonds Marignan and Bouwfonds MAB, as well as in Germany and a number of other European countries. The country and regional offices operate largely independently and this local management results in close ties with their surroundings. This strong local autonomy has several benefits, including: a good feeling for the market, the potential to respond to local opportunities and knowledge of national regulations. Significant expansion of order portfolio At 31 December 2006, the Development division s residential construction portfolio had a potential of 134 thousand houses, of which 119 thousand are to be built in the Netherlands and 15 thousand abroad. The commercial real estate order portfolio was 323 thousand m2, of which 44% is retail space, 39% is space for mixed use and 17% is office space. However, at 31 December 2006 there was substantial surplus capacity, particularly in obsolete office buildings. This is why Rabo Bouwfonds operates a selective policy for office 58 Rabobank Group Annual Report 2006

63 A city in itself Springing up on Oosterdokseiland, in the heart of Amsterdam, in its historical centre adjacent to Central Station, is ODE, a joint venture project between Bouwfonds MAB and Meyer Bergman. The scale of the plan is unprecedented by Dutch and even European standards and comprises six surface lots. From mid-2007, these will be occupied by houses in the most diverse styles, a hotel and congress centre, shops and catering establishments, offices, cultural attractions, an Asian trade centre, a library and a college of music. Below ground, there will be plenty of parking space for cars as well as bicycles. ODE will practically be a city in itself, with all the bustle and multitude of functions typical of a world city such as Amsterdam. The project is a good example of modern inner-city redevelopment at a time when space is scarce and users are increasingly demanding as many functions as possible be included in that space. development and restructuring. In 2006, Rabo Bouwfonds sold 14,073 houses. The number of houses sold by Rabo Vastgoed was 2,691 (1,767). Finance division FGH Bank, Nederlandse Hypotheekbank and Rijnlandse Bank are responsible for real estate financing. FGH Bank specialises in commercial real estate financing and focuses on the corporate professional market. Besides loans, FGH Bank provides real estate advice services through its subsidiary FGH Vastgoed Expertise. FGH Vastgoed Expertise s service range includes real estate advice in the form of appraisals, portfolio analysis, market research and legal support. Both Nederlandse Hypotheekbank and Rijnlandse Bank - each with their own customer approach - service the small business segment, partly in collaboration with intermediaries. A new dimension to living, working, leisure and culture. Real estate 59

64 Number of houses sold by country in 2006 The Netherlands 10,794 France 2,510 Germany 542 Other 227 Loan portfolio, at year-end 2006 in EUR billions Strong development in lending The loan portfolio grew by 31% in 2006 to EUR 10.3 (7.8) billion. The portfolio contributed by Rijnlandse Bank had a volume of EUR 0.8 billion. New production at FGH Bank amounted to EUR 4.1 billion, partly as a result from the good collaboration with the local Rabobanks and Rabobank International. The repayments amounted to EUR 1.8 billion. The greater part of the portfolio relates to investment financing. Investment Management division Bouwfonds Asset Management and FGH Asset Management operate in real estate investments and focus their activities on building, structuring and managing real estate portfolios. This involves unlisted funds for private and institutional investors both at home and abroad. High interest in real estate funds Private investors increasingly focused on real estate in This was reflected by the successful launch of Bouwfonds Germany Residential Fund III CV. Earlier in the year, Bouwfonds had placed Bouwfonds Germany Residential Fund CV and Bouwfonds Germany Residential Fund II CV with investors. The Leyenburg Woningfonds CV likewise attracted a great deal of interest. The Bouwfonds US Residential Fund was set up for international institutional investors. The volume of assets managed at 31 December 2006 was EUR 4.2 billion, the greater part of which was from Bouwfonds. Social real estate Bouwfonds Fondsenbeheer manages four public/private funds in the areas of nature development, listed buildings, urban renovation and industrial heritage in the Netherlands. During 2006, these four funds grew from EUR 1.7 billion to EUR 2.0 billion. Financial results Income up 63% Total income was EUR 94 million higher at EUR 244 (150) million. The growth of the loan portfolio caused interest income to rise by 2% to EUR 98 (96) million, despite pressure on margins. Commission income was unchanged at EUR 1 (1) million. In December 2006, the parts acquired from Bouwfonds contributed to the EUR 92 million increase in other income to EUR 145 (53) million. Operating expenses up 146% Total operating expenses rose by EUR 60 million to EUR 101 (41) million. In 2006, the staffing level grew by approximately 1,250 FTEs as a result of the acquisition of parts of Bouwfonds. Organic growth of activities required additional staff. Total employee numbers increased by 1,323 FTEs to 1,654 (331) FTEs, causing staff costs to rise by EUR 30 million to EUR 55 (25) million. Due to organic growth and the acquisition, other administrative expenses were EUR 28 million higher at EUR 43 (15) million. Depreciation charges rose to EUR 3 (1) million. 60 Rabobank Group Annual Report 2006

65 Ambitions and outlook The ambition is for all activities to achieve leading positions in the Dutch real estate market. In addition, there are operations in a few West European countries. In 2007, the organisation of the Real Estate division will be improved to perfection. A great deal of attention will be paid to further integration of the various activities so that the envisaged synergies will yield maximum benefit. In the Netherlands, Bouwfonds Property Development will work closely with Rabo Vastgoed and the local Rabobanks. In addition, the distribution network and the selling power of the local Rabobanks will be leveraged in the coming year to increase the assets managed as part of the investment management activities. In other areas too, will be searched for opportunities for intensified collaboration with the local Rabobanks and other Rabobank Group units. For more information Results (in EUR millions) change Interest % Fees and commission 1 1 0% Other income % Total income % Staff costs % Other administrative expenses % Depreciation % Operating expenses % Gross profit % Value adjustments (1) 1-200% Operating profit before taxation % Taxation % Net profit % Number of houses sold 14,073 1, % 31-Dec Dec-05 Other information (in EUR billions) Loan portfolio % Assets managed and held in custody 4.2 FTEs 1, % Real estate 61

66 Corporate governance Over the past years, Rabobank Group has paid a great deal of attention to its corporate governance. The desire for optimum implementation of corporate governance within Rabobank Group naturally implies that it closely follows the global debate on this subject. As it is, financial institutions such as Rabobank Group have been familiar for years with many of the latest governance principles. After all, the financial sector has always been subject to strict regulation because of its social and economic role. Given its firm roots in Dutch society and its prominence in the international capital markets, Rabobank Group endorses the principles of the Dutch Corporate Governance Code. However, Rabobank Group is not directly subject to this code, as its structure is based on cooperative principles and it is not listed on the stock exchange. Nevertheless, it will apply the majority of the code s elements. Strategy and targets Rabobank Group endorses the principles of the Dutch corporate governance code. Members influence is embedded in the cooperative structure. Cross-guarantee system 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 12 of the Act on the Supervision of the Credit System 1992 (currently 62 Rabobank Group Annual Report 2006

67 Section 3:111 of the Financial Supervision Act, as implemented on 1 January 2007). 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. Corporate governance Rabobank Nederland Executive Board The Executive Board 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 the Group, compliance with all relevant laws and regulations, the management of business risks and the financing of Rabobank Group. The Executive Board reports on all these aspects to the Supervisory Board, the Central Delegates Assembly (the organisation s parliament, which is authorised to take decisions on behalf of the local Rabobanks) and the General Meeting of Rabobank Nederland, which is formed by the members, i.e. the local Rabobanks. The management of Rabobank Group is also based on the interrelationship between risk, return and reserves. The Financial Supervision Act (Wft) and the subordinate legislation based thereon, as well as regulations imposed by the supervisory authorities - 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 (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 five-year period, but their contracts of employment are for an indefinite period. They 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 performs the supervisory role within Rabobank Nederland. This means that 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 the 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. 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 both of the collective body s performance and that of its individual members. Initiatives are developed regularly in order to keep 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. The Supervisory Board has five committees: the Cooperative Issues Committee, the Audit & Compliance Committee, the Appointment Committee, the Remuneration Committee and the Appeals Committee. Member influence An important precondition for good corporate governance at Rabobank Group is an open culture with clear accountability for the management and supervision. Without proper Corporate governance 63

68 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 (direct or indirect) representation in two bodies: the Central Delegates Assembly (CKV) and the General Meeting. In addition, the local Rabobanks are Rabobank Nederland shareholders. Central Delegates Assembly As from 1 January 2007, the local Rabobanks are organised geographically in 12 regions. The Boards of the Regional Delegates Assemblies form the Central Delegates Assembly. Through the representation of the local management and supervisory bodies in the Regional Delegates Assemblies, the members/clients of the local Rabobanks are represented in the Central Delegates Assembly. 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 company to its shareholders. Because of the special relationship between Rabobank Nederland and its members, the Central Delegates Assembly enjoys very high attendance. In order to operate effectively, the Central Delegates Assembly has appointed committees, which are charged with special duties. They are: the Committee on Confidential Matters (advises on appointments in the Supervisory Board, fixes the Supervisory Board s remuneration and assesses the Supervisory Board s application of the remuneration policy), the Central Delegates Assembly Co-ordination Committee (draws up the agenda of the Central Delegates Assembly and subjects items for the agenda to formality compliance tests) and the Committee on Urgent Matters (acts on behalf of the Central Delegates Assembly in urgent cases). Members influence is embedded in the cooperative structure. The powers of the Central Delegates Assembly include the establishment of rules that all local Rabobanks must comply with. The Central Delegates Assembly also approves the Strategic Framework, the annual plan and the budget of the local Rabobanks. The outcome can influence Rabobank Group s policy. Furthermore, the Central Delegates Assembly has substantive discussions, which mainly concern the business of the local Rabobanks. These discussions are held not only as part of the Central Delegates Assembly s specific duties and powers, but also with the aim of encouraging commitment and consensus between the local Rabobanks and Rabobank Nederland. In order to maintain maximum effectiveness of the Central Delegates Assembly, an internal committee was established in the year under review whose task is to advise on the Central Delegates Assembly s desired future size and composition. This advice is expected in the beginning of 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, granting discharge, amendments to the 64 Rabobank Group Annual Report 2006

69 Articles of Association and regulations, 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. The local Rabobanks have voting rights in the General Meeting in proportion to their balance sheet total. Because of the special relationship between Rabobank Nederland and its members, the General Meeting enjoys virtually full attendance. Employee influence In 2005, a new employee representative body was created: the Group Staff Council of Member Banks (GOR AB), which acts as a discussion partner to the manager on issues that concern the social policy of all local Rabobanks. The creation of the GOR AB does not affect the position of Rabobank Nederland s Works Council or the existing Works Councils of the local Rabobanks. As a result, they continue to act in full as employee representative bodies within the meaning of the 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 (Wft) 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 integrity of ) their operations, solvency and liquidity. In addition, under the conduct supervision part of the Wft, 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 Since June 2004, two governance models are possible for the local Rabobanks. The introduction of a second governance model - the executive model - besides the existing partnership model was prompted at the time by the wish to respond to internal and external changes, for example, the local scaling up, which was well on the way by then, a changing market, and increasing legislation and regulations. Both governance models focus on ensuring effective management as well as professional and independent supervision. They will continue to exist alongside each other in the coming years as equally valid alternatives. The effectiveness 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 will continue to be carried out both adequately and professionally in the future, but also in a way that benefits their cooperative character. The members of all the local Rabobanks have important powers, for instance to adopt the financial statements, to amend the Articles of Association, to appoint members of the Supervisory Board and to grant discharge from liability. 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 (formerly the Board of Supervisors). The managing director is primarily concerned with the day-today management of the bank s operations. The Supervisory Board supervises the management. 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 managers are elected by the members from their ranks, as is the case in the partnership model. Member council 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. Many 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. The General Meeting Corporate governance 65

70 continues to exist, but decides only on major issues that impact the bank s continued existence. Investor relations Besides good communication with its members, Rabobank Nederland also attaches great importance to good communication with institutional investors and other providers of professional funds. The Investor Relations department informs this target audience on developments at Rabobank Group via a dedicated website and an electronic newsletter. This department is also responsible for supplying and explaining all relevant information requested by investors. In addition, institutional investors and other providers of professional funds are informed, through presentations or face-to-face, about the financial developments at Rabobank Group. Communication with the local Rabobanks A closed Internet connection created specifically for the local Rabobanks gives them swift access to useful information and fosters a high level of commitment to Rabobank Nederland. Corporate governance information on the Internet Rabobank Group has placed information on its corporate governance and activities on its public Internet site, including a full explanation of the areas in which Rabobank Group deviates from the Dutch Corporate Governance Code. While Rabobank Group endorses the Code s principles and implements the majority of its elements, it does not implement a number of principles and best practice provisions on account of its cooperative structure. 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. Rabobank 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 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 Section 404 of the United States Sarbanes Oxley Act of 2002 (SOX 404), even though Rabobank Group is not a registrant with the United States Securities and Exchange Commission and, thus, is not subject to the SOX Act or related regulations and oversight. Rabobank took into account the further explanation by regulators (following the debate on high efforts and costs for many US companies) about the way SOX 404 is meant to be applied. We believe that Rabobank Group s review of internal controls over financial reporting has increased the effectiveness of those controls, including improving our ability to identify and to remediate control deficiencies and providing greater transparency for all stakeholders into the quality of Rabobank Group s financial reporting process. Also as a result of our review, Rabobank Group has identified areas to improve certain of our business processes. Rabobank Group has established and maintains a comprehensive system of internal control measures designed to ensure transactions are executed as authorised, financial reporting is accurate and reliable, and assets are safeguarded. We 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. We have 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 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 authorizations of management; and - provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements. 66 Rabobank Group Annual Report 2006

71 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 included in the financial statements, the Executive Board concluded that Rabobank Group s internal control over financial reporting is adequate and effective, consistent with the principles established by COSO. Risk management The management of Rabobank Group is based on its strategic principles and, by extension, on the interrelationship between risk, return and reserves. Both the Dutch Central Bank 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 Dutch Central Bank 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. For further information, please refer to the relevant sections in this Annual Report, and in particular to the section above on Control over financial reporting, which addresses risks relating to financial reporting, and the Risk management chapter, which includes a description of control systems relating to the most important other risks identified by Rabobank Group. For more information Corporate governance 67

72 Risk management Banking means deliberately taking well-considered risks. Rabobank Group pursues a prudent risk policy which entails a modest risk profile. In 2006, great progress was made in the further implementation of the new Basel II accord, which is to come into force for the Rabobank Group on 1 January In addition to these external capital requirements, the internal capital requirement, economic capital, will be the principal indicator in terms of risk management and capital allocation. Risk management organisation Risk management is performed at various levels within Rabobank Group. Under the supervision of the Supervisory Board and advised by the Balance sheet and Risk Management Committee Rabobank Group (BRMC-RG) as well as the Credit Policy Committee Rabobank Group (KBC-RG), the Executive Board determines the risk strategy, policy principles and limits. The Supervisory Board regularly reviews the exposure of Rabobank Group s activities and portfolio. The Chief Financial Officer, who is also a member of the Executive Board, is responsible for the implementation of the risk policy within the Group. Risk management at Rabobank Group is performed especially within the Group Risk Management and Credit Risk Management directorates. Group Risk Management is responsible for the policy regarding interest rate, liquidity, market, 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. In addition, independent risk control departments within the Group entities monitor the risks that are relevant for the entity in question. Principles of risk management The primary objective of risk management is to protect Rabobank Group s financial strength. Risk management is based on the following principles: - Protecting the Group s financial strength: Rabobank Group controls risks in order to limit the impact of potential adverse events on both its capital and its financial results. The risk appetite must be proportional to the available capital. An economic capital framework has been developed to quantify this. - Protecting the Group s reputation: reputation is essential for the proper performance of a banker s profession and needs to be diligently preserved. 68 Rabobank Group Annual Report 2006

73 - Risk transparency: for a good insight into the bank s positions, it is vital to identify all risks. Risks must always be considered as accurately as possible in order to be able to make sound commercial decisions. - Management responsibility: Rabobank Group s business entities are individually responsible for their results as well as 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 The three pillars of Basel II of identifying, measuring, monitoring and reporting risks. In order to ensure integrity, the risk control departments operate independently of the commercial activities. Risk policy within Rabobank Group has been embedded Pillar 1 Pillar 2 Pillar 3 according to these principles. An extensive system of limits and controls has been put in place within Rabobank Group to manage all the different risks. Minimum capital requirements Supervisors Market discipline Internal and external capital requirements Basel II regulation The new accord on capital adequacy ( Basel II ), which is to come into force for Rabobank Group on 1 January 2008, represents an integrated framework for the supervision of banks and is founded on three pillars. In pillar 1, minimum capital requirements are set for all banks for credit risk, market risk and operational risk. These requirements apply to all banks. Within each risk category, banks can choose from a number of approaches, which vary from simple to advanced. Moreover, regulatory bodies can set additional capital requirements and quality standards for other risk categories. In pillar 2, the supervisory authority stimulates banks to manage their capital adequacy themselves. In this context, developing an economic capital framework is an important tool for Rabobank Group to calculate the required financial buffers. It is important in this context that all relevant risks, i.e. not only pillar 1 risks, are measured and managed adequately. Under the rules in pillar 2, Rabobank Group also looks at the interest rate risk in the banking book and at the business risk. The supervisory authority assesses this internal capital adequacy process and discusses its outcomes. Finally, pillar 3 addresses market discipline, requiring banks to publish sufficient risk information with a view to stimulating market forces. Minimum capital requirements for credit risk, market risk and operational risk Quality assessment of risk management, risk models and their application within the organisation The Basel II accord was used in 2005 by the European Commission as a basis for preparing the Capital Requirement Directive (CRD). The CRD was adopted by the European Parliament in mid The Dutch government incorporated the CRD in the new Financial Supervision Act, which was implemented on 1 January The new Basel II-based regulation will be implemented on 1 January 2008 for banks opting for the more advanced methods, among which is Rabobank Group. Pillar 1: external capital requirement In the first pillar, banks are allowed, subject to specific conditions, to use their internal models for determining the amount of capital to be held. Within the Basel II framework, Rabobank Group has opted for the most advanced methodologies. For credit risk, Rabobank has chosen for the Advanced Internal Ratings Based (AIRB) approach. A large number of models have been developed for allocating, on the basis of the probability of default (PD), a Rabobank Risk Risk profile and risk management techniques published Risk management 69

74 Rating to counterparties, for calculating the LGD (Loss Given Default), i.e. the best estimate of the actual loss at the time of a counterparty s defaulting, and for calculating the EAD (Exposure at Default). PD, LGD and EAD are needed for the calculation of both external and internal capital requirements for credit risk. For operational risk, Rabobank Group has chosen the Advanced Measurement Approach, for which it has also developed models according to the supervisory authority s directives. Rabobank Group s relatively low risk profile, as appears from the outcome of Rabobank Group s preliminary calculations, is reflected in much lower capital requirements and hence a significantly improved solvency ratio under the Basel IIregulation. Current prospects are that the Basel II capital requirement will be approximately 30% to 40% lower than the present Basel I capital requirement. Under the new regime, the capital requirement for credit risk will be nearly halved for the Rabobank Group, thanks mainly to the large mortgage portfolio. Under Basel II, the average capital requirement for the mortgage portfolio will fall by more than threequarters. In addition, the solvency requirement for corporate lending as well as for leasing will be significantly lower because, unlike Basel I, Basel II takes the collateral obtained into account. The requirement for these portfolios will be reduced by more than 50%. However, Basel II has a separate operational risk capital requirement for banks. For Rabobank Group, the capital requirement for operational risk will be around 10% of the total capital requirement under Basel II. Under Basel I, the Tier I ratio at 31 December 2006 was over 10%. Using the internal calculation for the Basel II requirement, this ratio is over 16%. Until the start of the Basel II regime on 1 January 2008, Rabobank Group is to report three more times to the Dutch Central Bank on capital requirements under the present Basel I accord and the new Basel II accord. In addition, the official request for the use of the internal risk models for the capital requirement calculation will be submitted in In 2008 and 2009, Rabobank Group will calculate the solvency requirement according to both Basel I regulation and Basel II regulation. In those years the Basel II capital requirement is subject to a floor of respectively 90% and 80% of Basel I capital. Pillar 2: internal capital requirement Rabobank Group has a robust internal process for capital adequacy assessment. For the time being, it is based mainly on the current Basel I risk numbers, with a minimum Tier I ratio of 10% as an important financial target of Rabobank Group. In order to increase the risk sensitivity of the internal capital adequacy assessment, Rabobank Group, as one of the key targets of its Basel II/RAROC programme, introduced its own economic capital framework. This created an internal capital requirement, economic capital, besides the external, regulator-based capital requirement. Economic capital is defined as the amount of capital to be held by the bank to absorb unexpected losses, based on a one-year period and a confidence level set by Rabobank Group. Consistent with its triple-a ambition, Rabobank Group applies a confidence interval of 99.99% (insufficient capital anticipated once in every 10,000 years). It is noteworthy that the supervisory authorities themselves use a 99.9% confidence interval (once in every 1,000 years). Rabobank Group uses advanced statistical methods to determine the amount of economic capital to be held. Risk diversification also plays an important role in the calculation of economic capital. Better diversification means that less economic capital is required, as the probability of unexpected losses occurring simultaneously within different risk categories is by definition lower. Rabobank Group will improve these models further in the future based on gained experience. Rabobank Group s economic capital framework will give better insight in the interrelationship between risk and return and will enhance its capability to take pricing decisions and to support activities such as portfolio management. Rabobank Group s total economic capital for 2006 has been calculated at EUR 16.9 (14.9) billion. The increase compared to 2005 was due to the growth in Rabobank Group s activities and to model refinements. This includes the development of a new model to determine economic capital for the minority interests. Also the economic capital for the other assets was modelled. The economic capital is well below the available Tier I capital (core capital) of EUR 26.4 (24.9) billion. This large capital buffer illustrates Rabobank Group s solid financial position. 70 Rabobank Group Annual Report 2006

75 Allocation of economic capital The concept of economic capital enables the bank to quantify, analyse and subsequently manage the various risks it is exposed to. Over the past years, Rabobank Group has developed various models for the different types of risk. Credit risk remains the largest risk category, with more than half of economic capital. Twenty per cent of the economic capital is necessary for operational risk and business risk. Interest rate risk and market risk together account for 13% of the economic capital. The other risks, which include country risk and the risk arising from minority interests, account for the remaining 11% of economic capital. The share of credit risk in the total risk increased, mainly as a result of further growth of the loan portfolio but also due to model improvements. The models were refined further in the year under review. The models will be extended and improved further in The economic capital model for operational risk was improved as well. Together with Rabobank Group s organic growth, this resulted in a higher economic capital. Rabobank Group determines the economic capital for all business units, including the activities performed at Group level. Viewed by business unit, domestic retail banking accounts for 46% of the economic capital required. Wholesale banking and international retail banking account for 29% of total economic capital, with 9% for the participations. Part of economic capital is not allocated to Group units. Credit risk Credit policy The favourable risk profile of Rabobank Group s loan portfolio is partly due to the bank s prudent policy for accepting new clients. 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 requested financing determining the committee level. The Executive Board itself decides on the largest financing applications. A new structure for policy credit committees (Policy CC) was created in 2006, which comprises the Policy Credit Committee Rabobank Group and the Policy Credit Committees Wholesale and Retail. Policy CC Rabobank Group is responsible for credit risk policy and credit management of all Group units involved in credit. The Group policy as established by the Policy CC Rabobank Group constitutes the framework for all Group entities. Within this framework entities may define and operate their own credit policy for individual counterparties. The Policy CC Retail operates in a similar way for domestic retail banking and the Policy CC Wholesale for wholesale banking and international retail banking. In the Policy CC Breakdown of economic capital, Breakdown of economic capital, at year-end 2006 by type of risk at year-end 2006 by business units RAROC: 14% For its financial control and assessment, Rabobank Group used the RAROC (Risk Adjusted Return on Capital) concept. This concept provides insight in the profitability of the bank s various units and products, taking the risk exposure into account. The RAROC is calculated by relating the profit realised on a particular activity to the capital required for that activity. RAROC (after tax) realised by Rabobank Group in 2006 was 14%. In 2005, RAROC (after tax) was 14%. Credit risk 56% Operational and business risk 20% Interest and market risk 13% Other risks 11% Domestic retail banking 46% Wholesale banking and international retail banking 29% Unallocated 16% Participations 9% Risk management 71

76 Rabobank Group, which is chaired by the CFO, the Executive Board is represented by three members. The CFO is also chairman of both Policy CC Wholesale and Policy CC Retail. 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 of which the management, including its integrity and expertise, is known to the bank. In addition, the bank is familiar with the industry in which a client operates and can adequately assess its clients financial performance. Development of the loan portfolio 51% of Rabobank Group s private sector lending consists of loans to private individuals, mainly based on residential mortgages, of which losses are historically very low. Furthermore 33% of Rabobank Group s loan portfolio consists of loans to the trade, industry and services sector and 16% of loans to the food & agri sector. The graph below illustrates the distribution by main industries of Rabobank Group s food & agri portfolio and illustrates diversification of this portfolio. In turn, these main sectors are subdivided in a large number of subindustries. In its financing approval process, Rabobank Group uses the Rabobank Risk Rating, which reflects the counterparty s probability of default (PD) over a one-year period. The counterparties have been assigned to one of the 25 rating classes, including four default ratings. The table below shows a distribution of the Rabobank Risk Rating and the exposure at default (EAD), which is an estimate of the bank s total exposure at the time of a counterparty s defaulting. It concerns all loans granted to private individuals and to large and small enterprises. As the table illustrates, the main part of the loans across the Rabobank Risk Rating is in the category R11-R14. This leads to a loans-weighted average probability of default (PD) of 1.34%. For 1% of this portfolio, the commitments are not being fully met and an adequate allowance has been made for this part of the portfolio. It should be noted that this table indicates only the extent to which the bank expects that clients can or cannot meet their commitments. In many cases, the bank has obtained adequate collateral that can be enforced if clients would no longer meet their commitments, ensuring that the loan is eventually fully or partly repaid. It can be concluded that Rabobank Group has a healthy loan portfolio. Lending food & agri by industry, at year-end 2006 Once a loan has been granted, ongoing credit management takes place while reference is made to new information, both financial and non-financial. The bank monitors if the client meets all obligations and can be expected to do so in the future. If the client does not fulfil its obligations or if it is expected that they will not be met, credit management will be intensified, with a higher monitoring frequency and more strict limit monitoring. If necessary, new agreements Dairy 20% Animal protein 17% Fruit and vegetables 11% Other food & agri 11% Grains and oil seeds 10% Other crops 9% Food retail 7% Farm inputs 6% Flowers 5% Beverages 2% Sugar 2% Distribution of Rabobank Risk Rating Rating PD (in basis points) Description Loans in % of total R0 0-0 No risk 0% R Exceptionally strong 1% R2-R Very strong 2% R5-R Strong 6% R8-R Adequate 31% R11-R Acceptable 42% R15-R ,600 Vulnerable - commitments are being met 17% R20 1,600-10,000 Very weak 0% D1-D4 10,000 Impaired loan - commitments are not 1% being met Total 100% 72 Rabobank Group Annual Report 2006

77 will be made with the client. Guidance is given by a special unit within Rabobank Group particularly in case of larger and more complex loans with a going-concern threat. If it is likely that the debtor is unable to fulfill all contractual obligations, this is a matter of impairment and an allowance is made which is charged to income if and to the extent that the exposure vis-à-vis the client exceeds the discounted value of future cash flows to be received. These loans, for which an allowance has been taken, are impaired loans and amounted to EUR 4,355 (4,814) million at 31 December The allowance for credit losses at 31 December 2006 was EUR 2,333 (2,438) million, corresponding to 54% (50%) coverage. It is to be noted that Rabobank Group identifies impairments 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 in the form of, for example, collateral. At 31 December 2006, impaired loans as a percentage of private sector lending amounted to 1.3% (1.7%). Lending and bad debt expenses Strong economic growth, in the Netherlands as well as abroad, resulted in a significant increase in lending by Rabobank Group to numerous industry sectors in Private sector lending increased by 17% to EUR 324 (278) billion, partly as a result of the fast-growing economy. The risk profile of Rabobank Group s loan portfolio continued to be favourable in This is reflected in bad debt expenses of only 15 (20) basis points of average private sector lending in 2006, which is considerably lower than the 5-year average of 22 basis points for the period In 2006, Rabobank Group s bad debt expenses, expressed in basis points, reached their lowest level in 25 years. For domestic retail banking, bad debt expenses decreased further to 7 basis points. More than 70% of the domestic retail banking loan portfolio comprises financing to private individuals, mainly on the basis of residential mortgages, which historically have very limited credit losses. In addition, the development of the domestic economy in 2006 was favourable to practically all industry sectors, causing bad debt expenses to decline further. Likewise, favourable global economic developments caused lower bad debt expenses for wholesale banking and international retail banking as well as leasing. 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 the transfer risk and to monitor the collective debtor risk for all countries. After careful review, relevant countries get an internal country risk rating, after which transfer limits and a general indicator are established. Impaired loans and allowances (in EUR millions) Impaired Allowances Coverage Impaired Allowances Coverage loans loans Domestic retail banking 2,617 1,228 47% 2,706 1,204 44% Wholesale banking and international retail banking 1, % 1, % Leasing % % Other Rabobank Group 4,355 2,333 54% 4,814 2,438 51% Risk management 73

78 Bad debt expenses by business unit (in EUR millions) change Domestic retail banking % Wholesale banking and international retail banking % Leasing % Other - (10) Rabobank Group % Bad debt expenses by business unit (in basis points of average private sector lending) Domestic retail banking 7 9 Wholesale banking and international retail banking Leasing Rabobank Group 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 Dutch Central Bank guidelines and concerns high-risk countries. At 31 December 2006, the net transfer risk before provisions for non-oecd countries was 1.0% (0.8%) of total assets. Interest rate risk Beside market risk in the trading environment, Rabobank Group is exposed to a structural interest rate risk in its balance sheet. Interest rate risk means that the bank s financial result and/or economic value - given its balance sheet structure - may decline as a result of unfavourable developments in the money and capital markets. Interest rate risk results mainly from mismatches between maturities of assets and liabilities. If interest rates increase, the rate for the liabilities, such as deposits, will be adjusted immediately, whereas the interest rate for the assets on the balance sheet can only be adjusted until later. Many assets, such as mortgages, have longer fixed-interest terms and the rate for these loans cannot be adjusted until the next interest rate reset date. In addition, client behaviour affects the interest rate risk position. For example, clients may repay their loans prematurely and may withdraw their savings earlier than expected. Basis point sensitivity (BPV), Equity at risk (EatR) and Income at risk (IatR) are important indicators used in the management and control of the interest rate risk at Rabobank Group level. They indicate the potential loss of financial results and value and are explained below: - BPV is the absolute loss of market value of equity when interest rates rise parallel with 1 basis point. In the year 74 Rabobank Group Annual Report 2006

79 Risk in non-oecd countries (in EUR millions) in Latin in Asia- in % of Regions in Europe in Africa America Pacific Total balance total Economic country risk (excluding derivatives) 1 1, ,615 6,008 13, % Risk-reducing components - loans in local currency 5 1 2,062 1,909 3,977 - third party coverage of country risk , ,117 - deduction for transactions with lower risk ,524 Net country risk before provisions ,851 2,982 5, % in % of total provisions Total provisions for economic country risk % 1 ) total assets, plus guarantees issued and unused committed credit facilities under review, the BPV never exceeded EUR 20 million. - EatR indicates the percentage by which the market value of equity will decline if interest rates increase parallel with 1 percentage point. Equity at Risk is an indication of the sensitivity of the market value of equity to interest rate fluctuations. Equity at Risk is determined by the absolute interest rate risk position on the one hand and the size of the buffer (the market value of equity) on the other hand. In the year under review, Equity at Risk never exceeded 7%. - 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. During 2006, the Income at Risk did not exceed EUR 200 million. Additionally, scenario analyses are performed on a monthly basis, which include client behaviour modelling. In savings modelling for example, the replicating portfolio is used. This is a method based on long-term developments to mirror interest rate movements and client behaviour in relation to the variable savings, using a portfolio of both money market and capital market products. Also the economic capital and the RAROC for interest rate risk are reported at Group level. The economic capital to be held for interest rate risk is based on market value losses resulting from unexpected and extreme interest rate fluctuations. Funding and liquidity risk Liquidity risk is the risk that the bank is unable to meet all of its (re)payment obligations, as well as the risk that it is unable to fund increases in assets at reasonable prices or at all. This could happen if clients or other professional counterparties suddenly withdraw more funding than expected, which cannot be met by the bank s cash resources or by selling or pledging assets or by borrowing funds from third parties. Several methods have been developed to measure and control this risk. Methods used within Rabobank include the CA/CL method (Core Asset / 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 (and unused facilities) and liabilities that will probably still be or come on the balance sheet after assumed and closely defined stress scenarios have occurred. These remaining assets and liabilities are referred to as the core assets and core liabilities respectively. The ratio between core assets and core liabilities is the liquidity ratio. Given the highly conservative weightings used, a ratio of below 1.2 is considered adequate. In the year under review, this was the case for the scenarios used. Risk management 75

80 To manage the short-term liquidity risk, the bank measures and reports on a daily basis which incoming and outgoing cash flows are to be expected over the next thirty days and how much collateral is available in which location. In addition, limits have been set for such outgoing cash flows for each currency. In order to be prepared for unexpected crises, detailed contingency plans are in place, formulating the procedures to be followed. Rabobank Group s funding policy 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 funding instruments and active investor relations play an important role. Rabobank Group has been assigned the highest possible credit rating by leading rating agencies. This top rating enables Rabobank Group to raise funds at a relatively low cost. The supervisory authority also has extensive guidelines for measuring and reporting the Group s liquidity position. The liquidity position of the Group as a whole, measured according to the guidelines of the supervisory authority, is more than adequate, with the available liquidity exceeding the requirement by on average 8%. Rabobank Group s comfortable liquidity position is reflected in the balance sheet by the substantial asset items Financial assets available for sale, Trading financial assets and Other financial assets carried at fair value through profit or loss, together totalling EUR 107 (105) billion. In principle, these assets are directly available to create liquidity. In 2006, over EUR 25 billion of long-term funding was raised in the international financial markets. The Investor Relations unit is in place to provide full information to investors in Rabobank paper about the bank s risk profile and financial and strategic developments. In addition, alternative sources for long-term funding are increasingly being used. For example, in 2006 EUR 2.5 billion of Rabohypotheekbank s centrally available mortgages portfolio was securitised internally for liquidity purposes. Herewith non-liquid mortgages have been converted into liquid (tradable) bonds. Long-term funding in 2006, by currency Euro 44% US dollar 26% Other 7% Swiss franc 5% Pound sterling 5% Japanese yen 5% Australian dollar 4% Canadian dollar 4% Market risk Market risk relates to changes in the value of the trading portfolio as a result of price movements in the market. Price changes include prices of interest rate products (interest rate), equities, 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 units that calculate and report market risk exposure on a daily basis. An appropriate system of limits and trading controls has been developed for the control of this risk. At a consolidated level, the exposure is measured by the Value at Risk. This measure, based on historic market developments, indicates the maximum loss that Rabobank Group can suffer 76 Rabobank Group Annual Report 2006

81 subject to a certain confidence level and in normal market conditions. The level of the Value at Risk reflects market developments and the positions taken by the bank itself. In order to understand the risks of abnormal market conditions as well, the effect of certain extreme events ( event risk ) on the value of the portfolios is calculated. To this end, both actual scenarios, e.g. the stock market crash of 1987, and hypothetical scenarios, e.g. an assumed steep rise of all interest rates, are analysed. Sensitivity analyses are also used. Limits have been set for this event risk, which, if exceeded, warrant management action. The graph shows the development of the Value at Risk at the end of each month of the year under review. In 2006, the Value at Risk fluctuated between EUR 18.6 million and EUR 30.2 million, with an average of EUR 23.8 million. For 2006, this means that, at a confidence level of 97.5% and under normal circumstances, potential losses on any one day would not have exceeded EUR 30.2 million. Breakdown Value at Risk (in EUR millions) At 31 December Credit spread 17.4 Interest rate 4.0 Equities 3.1 Foreign currency 0.2 Diversification (6.1) Total 18.6 Operational risk Operational risk has become a recognised concept in the banking industry. Obviously, it is no news that these nonfinancial risks must be controlled as well. The Basel II capital requirement has resulted in additional efforts and increased focus on operational risk. Rabobank Group has opted for the highest ambition level (Advanced Measurement Approach - AMA), under which a model developed by Value at Risk, at month-end in EUR millions Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec As the table shows, Value at Risk for the trading portfolios can be subdivided in a number of components. The value of the trading portfolios is sensitive mainly to changes in credit spreads, interest rates and equity prices. 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 2006, the consolidated Value at Risk was EUR 18.6 (22.1) million. This is a relatively limited position, as is also evident from the fact that only a small part of total economic capital is held for market risks from the trading activities. Rabobank itself is used for the calculation of the amount in capital to be held. As a result, the capital to be held for operational risks is aligned with Rabobank Group s situation. Also, a great deal of attention is paid to losses from operational risk at other institutions, so that the bank can learn from them. In organisational terms, Rabobank Group has decided to place the responsibility for operational risk management as close to the source as possible. Each entity within Rabobank Group is responsible for the adequate organisation Risk management 77

82 of operational risk management. Group Risk Management coordinates and supports local management, for example with frameworks, best practice methods and other tools. The quality of the risk management function in the line organisation is monitored closely by the Group function, using a system of incentives that is linked to the internal allocation of the capital requirements. 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 and non-trading books. In the trading books, currency risk is part of market risk and is controlled using Value at Risk limits, just as other market risks. In the nontrading books, there is only the translation risk on capital invested in foreign activities and issues of Trust Preferred Securities not denominated in euros. To monitor and control the translation risk, Rabobank Group uses an interrelated two-track approach to protect the bank s capital position against currency exchange rate movements. On the one hand, the hedging strategy hedges reserves invested in foreign currencies abroad, while on the other hand it immunises the BIS ratio against the effects of currency exchange rate movements. The latter is done via the components of the Tier I and Tier II capital that do not form part of the reserves, in particular Trust Preferred Securities. In 2003 and 2004, these were issued in selected foreign currencies and in such a way as to ensure that the currency composition of the total of Tier I and Tier II capital corresponded with that of the risk-weighted assets. This natural hedge was realised by issuing the Trust Preferred Securities, which form part of the Tier I capital, in US dollars (USD 3,250 million), Australian dollars (AUD 500 million) and pounds sterling (GBP 350 million). 78 Rabobank Group Annual Report 2006

83 Customer value Creating the highest possible customer value - having and keeping satisfied customers - is one of Rabobank s core objectives. Customer value comprises a combination of customer satisfaction and customer loyalty. Rabobank is always open to constructive feedback and is keen to learn from clients what it does well and what could be improved. Customer satisfaction and customer loyalty are measured through market surveys and compared with those for competing banks. In 2006, customer satisfaction among private individuals rose further, from 7.4 to 7.5, which meets Rabobank s own ambitious long-term target: customer satisfaction of at least 7.5. Rabobank organises annual surveys of customer satisfaction and loyalty among thousands of private and corporate clients of the local Rabobanks, Robeco and Alex. The survey target is to gain insight into and to monitor customer satisfaction and loyalty. The feedback received from clients is essential for continued improvement of the services. Customer satisfaction among private individuals The survey shows Rabobank s high score for customer satisfaction. In 2006, customer satisfaction among private individuals rose further, from 7.4 to 7.5. In addition, the bank s ambitious long-term target of at least 7.5 was met for the first time using the new measuring methodology, which was introduced in Compared with the competition, Rabobank scores high on such aspects as availability by telephone, quick access to the right person, staff expertise and Internet banking. Additionally, the surveys show that Rabobank often makes offers at a time that suits the clients and that it gives good advice when the client really needs it. In the year under review, the scores on fast and smooth problem solving, clear answering to questions and ease of Internet banking were clearly improved. Nevertheless, clients would like Rabobank to work on greater transparency in its costs and charges. Customer value 79

84 Likewise, customer satisfaction among private banking clients was higher in Clients appreciated the bank s reliability, speed and ease of action and accuracy. According to clients, customer satisfaction could improve even further if the local Rabobanks would be more effective, addressing the right subject at the right time. The high customer satisfaction was confirmed by a survey conducted by Incompany business magazine, in which Rabobank Private Banking ranked highest. The subsidiaries within Rabobank Group traditionally perform well in comparison with their closest competitors. As in 2005, customer satisfaction among Alex clients remained high in According to clients, Alex strengths included its innovative product range, the quality of its Service desk, its client site and its order handling. Its rates are also considered good, although clients indicate that they expect rates to remain in line with the market in the future. Robeco Direct s customer satisfaction was stable as well. The introduction of the new Younique investment concept was successful. Clients appreciated their contacts with advisors, the transparent rates and the high degree in which commitments are met. Customer satisfaction among corporate clients Customer satisfaction among corporate clients declined slightly, with some pressure on the traditionally very high customer satisfaction in the agricultural sector. Nevertheless, satisfaction remained very high, also in comparison with the competition. Agricultural clients would like to see more tailored solutions that align better with their specific situation. In addition, there is a need of greater transparency in costs and rates. In the small and medium-sized enterprises sector, Rabobank traditionally scored high as well. Clients in this sector appreciate the fact that bank affairs can be handled at moments that suit them. Additionally, they highly value the quality of Internet banking and are positive about the accuracy in handling bank affairs. Nevertheless, clients indicate that both account managers and advisors should gain more knowledge of what goes on in their business and sector. Customer satisfaction among smaller enterprises is lower than among larger enterprises. All in all, the surveys showed that customer satisfaction among corporate clients is above average, compared with the competition. Customer loyalty The survey shows that customer loyalty is high and that client identification with their own local Rabobank is strong. Obviously, customer loyalty among members is higher due to their greater commitment to local Rabobanks. After a decrease in customer loyalty among private individuals over the two preceding years, it showed a sharp rise in 2006, to its highest level in the past six years. The loyalty rating for corporate clients likewise showed an increase. Rabobank s score in the agricultural sector is traditionally high. This was reflected in the loyalty level, which was again higher in In the small and medium-sized enterprises sector, there is a clear difference between loyalty among smaller enterprises and the larger corporate clients, as was the case for customer satisfaction. Loyalty among smaller enterprises is significantly lower than among larger enterprises. This is partly due to the fact that larger enterprises are offered more tailored products, whereas smaller enterprises have to rely more on standard products. Consequently, the products cannot be tailored to their individual needs to a similar extent. Brand values Rabobank wants to be seen as a bank that is near-you, committed and leading. These are Rabobank s brand values. These values are measured using a brand value monitor, in which private individuals and businesses (both clients and non-clients) are asked with which of the five large banks they most associate these brand values. In 2006, Rabobank again scored highest by far on all three aspects, among both private individuals and businesses. Among private individuals, there was an increase in the leading brand value. The near-you and committed brand values were virtually unchanged. Among businesses, there was a slight decrease in near-you. Committed and leading were virtually unchanged. With these scores, Rabobank may justifiably again be called the most committed and leading bank near-you in the Netherlands. 80 Rabobank Group Annual Report 2006

85 The following table shows the percentage of survey participants stating that the three characteristics best applied to Rabobank Complaints management Instances may occur where a client is dissatisfied with a particular product or service. It is precisely such circumstances that enable the bank to show what service means. Taking complaints seriously and respecting the client s feelings opens the way to reaching a solution together. Sound complaints management is essential to an organisation that focuses on excellent service to its clients. It is important to be clear about the complaints handling process, i.e. what the client is entitled to expect and what the bank is doing about his/her complaint. Serious investigations can then reveal what the problem really is and where a solution could be found. Finding the solution together strengthens both the relationship and mutual appreciation. The local Rabobank is the client s first point of contact. If the client and the bank are unable to find a solution together or if the solution is not satisfactory to the client, he/she can submit the complaint to the Complaints Service of Rabobank Nederland. The Complaints Service sends monthly reports on the data recorded by it to the departments involved and submits relevant improvement proposals based on an analysis of the complaints. The top 5 of subjects giving rise to complaints in 2006 was as follows: 1. disputed withdrawals from cash dispensing machines (e.g. with lost bankcards, or short payment) on a total of 680 million withdrawals at home and abroad; 503 complaints (2005: 508 complaints in 629 million withdrawals) ; 2. electronic banking; 257 complaints; (2005: 237); 3. staff advice; 160 complaints; (2005: 127); 4. protests against entries in the incident register; 99 complaints; (2005: 122); 5. payments processing; 97 complaints; (2005: 87). On the whole, the conclusion is that, thanks to its careful approach, Rabobank has succeeded in minimising the number of complaints on the total number of client contacts. Nevertheless, each complaint is one too many and the bank continues its work on bringing its services and service provision to further perfection. In 2006, the Complaints Service received 2,950 (2,906) complaints. Having shown increases for some years, the number of complaints stabilised over the past two years. The number of clients appealing to the Disputes Committee for the Banking Industry declined by around a quarter in In addition, clients are becoming familiar with new forms of service, for example Internet banking. Increasingly, information on banking services is accessible via the Internet. Clear information reduces the number of misunderstandings. The Complaints Service expressly involves the local Rabobanks in complaints handling. More than one third of complaints submitted to the Complaints Service was subsequently still dealt with in the first line, i.e. at the local Rabobanks, with the Complaints Service providing support where necessary or desired. Question: With which of the five large banks do you most associate the following characteristics? Brand values % Ranking Rabobank % Ranking Rabobank Private individuals Near-you Committed Leading Businesses Near-you Committed Leading Source: Rabobank Communicatie Monitor (TNS NIPO) Customer value 81

86 Membership policy For many years, attracting new members has been high on the agenda of Rabobank s membership policy. Together, the local Rabobanks currently have over 1.6 million members. In recent years, the focus has been shifted to actually engaging members in the activities of local Rabobanks. Member influence and control were assured in recent years, partly by the establishment of member councils. Despite the scaling up on a local level, new initiatives have ensured that the bank has remained committed and near to the local community. Strategy and targets And indeed, this will be taken further. The goal now is to deepen this social engagement even further, towards actual embedment in society through cooperative dividend, as Rabobank calls it. A great deal was achieved in this area in 2006 and in this way, Rabobank gives substance to its drive to be leading in its sector. Enhance member engagement further. Optimise member influence. Support social initiatives in the community where a local Rabobank operates. In recent years, extensive research was done as to whether members should be offered benefits individually through a member benefit system. Although members have enjoyed the benefit of the Member certificates for a number of years, the emphasis until recently was on offers of a non-banking nature. Since 2005 however, more offers in the areas of insurance and savings have become open to members. Thus, members are eligible for discounts on the Interpolis Zorg Actief policy. This resulted in more than 100,000 new insurance policies in Members also receive extra interest on the Rabo Levensloop Sparen, life-span leave arrangement, which was launched late in Rabobank Group Annual Report 2006

87 We want to make people aware Rabocard with climate contribution In September 2006, it was announced that Rabobank, together with World Wildlife Fund, would convert all its credit cards for members into credit cards with a climate contribution. For each transaction, the bank reserves an amount to fund climate improvement projects with. The credit card has been introduced in the spring of Member participation and cooperative awareness Members can be elected board members, members of the member councils or members of the Supervisory Board. In addition, they can participate in member panels and soundingboard groups on such subjects as the bank s strategic course and the further profiling of membership, but also on social issues such as support of community projects. In former times, the bank was by its nature embedded in the local society of smaller communities. However, the present scaling up towards larger banks requires the creation of different ways of remaining near-you and member participation. A distinctive factor is that nowadays, the cooperative message and cooperative awareness are communicated directly to local members and clients via new means, including a local member magazine, ings, Internet sites, as well as television commercials and Rabo-TV banking. WWF wants to make people aware of the consequences of climate change for both man and nature and to show that the solution to the climate problem is not exclusively in the hands of government leaders. Through Rabobank, we can reach a lot of people. The climate function credit card gives them a unique and tangible way to contribute to the protection of nature. Our expectations are therefore high. Johan van de Gronden, director of World Wildlife Fund s Dutch branch. Membership policy 83

88 We want to make people aware. Growing number of member councils In recent years, many local Rabobanks have put a great deal of effort into improving the dialogue with their members, for example by introducing member councils. A member council consists of 30 to 50 members and is a cross-section of the member base. The member council has assumed the majority of the powers of the former general meeting of members and meets regularly during the year. The member council and the board discuss topics including the bank s strategic direction, the distribution policy and the service to clients. In addition, the member council is involved in the selection of and the grants to local community projects: the collective cooperative dividend. All banks that have opted for the executive model, with a professional management and an elected Supervisory Board, automatically have member councils. At 31 December 2006, 68 out of the 188 (248) local Rabobanks used the executive model. Cooperative dividend Each year, Rabobanks invest tens of millions of euros in the improvement of their local economic, social and cultural environment. This includes research into the vitality of local industrial areas, but also support of weekend schools for disadvantaged young people and all kinds of sports and cultural events. On a national level, self-help, self-organisation and innovative entrepreneurship are stimulated 84 Rabobank Group Annual Report 2006

89 through the Rabobank Foundation, the Projects fund and the Herman Wijffels Innovation award. The aim for the coming years is to invest a great deal more in the local network around the members and their banks. Local communities - people - are increasingly benefiting from the preconditions created by Rabobank to enable people to realise their initiatives. 2007, an intensive member campaign was organised in order to profile the member programme by means of national and local examples. For more information New member magazine: Dichterbij In order to stimulate member involvement even further, a new member magazine was launched: the Dichterbij magazine, which succeeds the successful U magazine. What is special about the new magazine is that more general financial information items and banking and non-banking offers are interspersed with backgrounds of clients, members, the local community and their banks. Consequently, the magazine no longer appears as a single issue, but is tailor-made in more than 180 versions for the 1.6 million members. Virtually all local Rabobanks now have their own member magazine. Preview of future membership policy Due to the scaling up to larger banks, local Rabobanks are still in the process of improving and deepening member involvement and creating embedment in their new local communities. Embedding member influence and control and recruiting engaged members are core policy elements. The growth in the number of banks using an executive model will result in the installation of more and more member councils, while more and more banks that retain their partnership model are nevertheless installing member councils as well. These councils will increasingly function as committed and essential local bottom up sounding board to boards of directors, management and members of the Supervisory Board. In addition, the diversity of initiatives in the area of cooperative dividend will be made more visible by raising members awareness of these initiatives through campaigns. In early For members: Rabocard with climate contribution Practically everything that man produces and consumes results in emissions of the CO 2 greenhouse gas. Excess CO 2 is one of the main causes of global warming: in the past century, the average temperature has risen by 0.6 degrees centigrade and scientists think it will rise by at least another 1.5 degrees centigrade over the next hundred years. This has serious consequences for nature: coral reefs are dying because the seawater is warming up and the North Pole ice, habitat of the polar bear, is melting. Rabobank and World Wildlife Fund s Dutch branch have joined forces to counteract climate change. The first result were made available in spring 2007, when private credit card holders who are bank members are able to choose for a card with a climate contribution. It concerns clients, and Rabobank will compensate the CO 2 emissions associated with their purchases. Using a specially developed formula, the total CO 2 emission of a purchase is converted into a cash amount, which is invested by Rabobank in sustainable energy projects, particularly in developing countries. Membership policy 85

90 The people at Rabobank Rabobank is developing. Societal developments, changing customer needs, heightened competition, as well as a further decrease in government involvement require constant innovation, both in our thinking and in our actions. For that reason, Rabobank has refocused its ambitions, partly in light of a stronger focus on international growth. All this puts demands on human resources policy. Within Rabobank Group s strategic focus, the emphasis of human resources policy is on attracting and developing talent, broadening its management, improving the flow of staff and ongoing investment in knowledge, skills and experience. Strategy and targets Attracting and developing talent. Broadening of management. Improve staff flow. Ongoing investment in knowledge, skills and experience. Based on its Strategic Framework, Rabobank focused its activities in 2006 on talent development, diversity and inclusiveness, conditions of employment, performance management and the development of a human resources vision for Rabobank Group. Its policy for 2007 and beyond will expressly take long-term trends in society into account as well. 86 Rabobank Group Annual Report 2006

91 Surprising effect The Rabobank study into future labour relations entitled De WERKelijkheid van morgen (Tomorrow s working reality) distinguishes seven trends that will affect work and labour in coming years: more digital, more cross-border, more diverse, more uncertain, more accountable, more vital and more entrepreneurial. The trends are described in a book published by Rabobank: The WERKelijkheid van morgen. In a large number of meetings with supervisors, HR managers and Works Councils, the link was made between the bank s Strategic Framework and the trends, and the consequences for human resources policy. The results from these meetings formed the basis for the updated vision on Rabobank s human resources policy: People make the bank - even better. Aspects covered by this vision include smarter working, being more entrepreneurial and flexible, and different leadership, but also career development, talent, being and remaining vigorous longer and the use and necessity of dealing with differences between people. Sharing this vision with the local organisation forms the springboard for discussions as to how to address HRM. This approach confirms the central position employees, according to The was sent to Rabobank Private Banking s staff, requesting them to forward it to suitable candidates. After all, they re the ambassadors and know who we need. Partly due to the surprising effect of video and telephone, more than 4,000 candidates did the test on the Internet. In the end, we succeeded in filling over sixty vacancies, nearly all with external candidates - a good result. Jacqueline van den Brink, commercial director Rabobank Nederland Private Banking The people at Rabobank 87

92 Innovation in recruitment In 2005, Rabobank introduced a totally new form of private banking, free from thrills and hype, but with personal, expert and clear advice. Clients value this no-nonsense approach, which is reflected in Rabobank Private Banking s strong growth since. In turn, this has resulted in many vacancies at local Rabobanks. An innovative recruitment campaign has enabled Rabobank to attract many commercial colleagues in A video was distributed by , showing one of the bank s account managers getting a call from an acquaintance who refers the manager to a good candidate, i.e. the viewer of the video. At that moment, the viewer s mobile phone rings: it is the account manager, who refers him/her to the special action site: ( do you understand our clients ). Here, videos are available in which three private banking clients and a Rabobank account manager enter into a dialogue with the visitor. On that basis, the visitor can determine if Rabobank Private Banking would suit him/her. The can then find out straightaway where the vacancies are, and either apply online or first obtain more information on Rabobank Private Banking. Rabobank s vision, occupy in the development of the organisation and the achievement of its ambitions. Individual responsibility Being more entrepreneurial requires trust and space. New office accommodation concepts respond to this need. In preparation of Rabobank Nederland s new office building, a flexible work concept is applied that should contribute to working differently, improved effectiveness and cost savings. In consultation with supervisors, employees will be given individual responsibility in this respect. With the client coming in first place, employees determine individually where and when the work is done and are accountable for their individual performance and effectiveness in teamwork. In addition, all employees are responsible for setting their personal targets in relation to those of Rabobank and thereby for their own personal development plan. The freedom of choice contributes to a sound work/life balance. Diversity and inclusiveness Greater diversity in age and cultural background, and more women in senior functions are conditional to the achievement of the Strategic Framework s targets. In 2006, Rabobank worked on raising awareness of diversity and inclusiveness through training and seminars on subjects including recruitment and selection, and the use of other recruitment channels, such as websites, magazines and universities and colleges with large, multicultural student populations. The number of trainees from multicultural backgrounds grew significantly in The diversity scan, which was introduced in Rabobank Nederland in 2006, provides a good picture of the workforce composition (male/female and indigenous/ ethnic minorities ratios). The results of the scan were discussed with the management of the various departments. Rabobank Group aims for more women in senior positions. The percentage of women in senior management positions within our organisation grew from 4% in 2000 to 7% in Conditions of employment, remuneration policy and performance management New legislation, together with the changes in the Rabobank Collective Labour Agreement (CLA) for 2005, resulted in renewals in the conditions of employment. Apart from the introduction of the new Healthcare Insurance Act and the life-span leave arrangement, renewals included the incorporation of personal budgets in the employment conditions package, a thorough revision of the pension scheme and the introduction of complementary pension saving through Flexioen. Rabobank s starting point is that employees are the directors of their own future. In the Make your own choices brochure, employees were informed about making the choices created by the renewals. In their remuneration policy and performance management, all Rabobank entities use a performance-related remuneration system. Since 2005, Rabobank employees and supervisors who are subject to the collective labour agreement have set their individual performance and competence targets as well as collective targets under this system. A survey has shown that the percentage of employees who think remuneration is related to the performance in the previous year has grown from 43% to 70%. Employees find the system transparent and it results in greater clarity around what is expected from employees. CSR targets embedded in Performance Management Rabobank has decided to embed corporate social responsibility (CSR) in all aspects of its day-to-day business. In 2006, the executive 88 Rabobank Group Annual Report 2006

93 management of Rabobank Nederland and its related entities was obliged for the first time to include one CSR target as a minimum in its Performance Management. As from 2007, all employees engaged in Rabobank s performance management system can include CSR targets in their individual competence targets. In 2006, a new competence was developed for this purpose: corporate social action. Mobility, employability and development The tightening labour market, the ageing of the population and Rabobank s higher demands on employees all require extra focus on the inflow, development and throughflow of Rabobank employees. Talent retention and development deserve special attention. Rabobank therefore fosters and develops its The people at Rabobank 89

94 own talent, with recruitment, mobility, longer employability and employee development as central elements. Employees must grow, both in their current jobs and towards their next job. Indeed, they must grow throughout their career - and that career will span more years in the future. Future employees The recovery in the labour market and the growing number of vacancies at Rabobank led to the establishment of a labour market department at Rabobank Nederland in early Its task is to contribute to the inflow of new employees. In a new and developing labour market proposition, Rabobank wishes to enhance its image as an attractive commercial employer with plenty of career opportunities. In order to strengthen its profile in the labour market, it participated in various national and regional career events. In addition, a number of national recruitment campaigns were initiated, including one where candidates for jobs at local Rabobanks were recruited at a central point. In an external annual brand survey of employer popularity in the Netherlands by Intermediair magazine, Rabobank was the best employer in the banking sector, ranking third overall, behind Philips and Shell. Rabobank is the most popular employer among highly educated women. Internal mobility and management development Internal mobility, including mobility between the units, is essential for the retention and development of talent. Employees should be made more aware of the fact that Rabobank Group is a single organisation where they can build a career. Rabobank s decentralised structure has no central management of internal mobility, as a result of which there is too little flow of employees between Group units. In 2006, a number of steps were taken to promote internal mobility. To this end, a Group-wide programme for talent identification and development was set up. Ultimately, this should result in added value for both employees and Rabobank Group, and, in the long term, will provide for a significant need for management. A separate Management and Talent Development department was established for this purpose. In addition, the vacancy bank was improved in 2006, with intensified communication about mobility and the part the employees themselves have to play in this respect. Finally, under the Talent for Development Program, Rabo Exchange and Rabobank International, Rabobank Group enhanced the development and management of its employees international mobility. Breakdown of staff numbers at Rabobank Group Netherlands Abroad Total 2006 Total 2005 Domestic retail banking 34,222-34,222 33,797 Wholesale banking and international retail banking 1,629 5,106 6,735 5,989 Asset management and investment 1,581 1,692 3,273 1,962 Leasing 1,346 2,981 4,327 3,143 Real estate 1, , Support units and other 5,892-5,892 5,761 Rabobank Group 45,941 10,268 56,209 50,988 Absenteeism 3.6% 3.7% Employee satisfaction 87% 81% Training investments (in EUR millions) Rabobank Group Annual Report 2006

95 Employability A preliminary study into the improvement of staff employability, which was held in conjunction with the Works Councils and the relevant Unions in 2006, indicated that most managers and employees do not (yet) consider their employability as a great problem, but expect its importance to grow in the future. The necessity of ongoing personal growth and self-development was stressed. The study also showed that instruments for working on employability are not used to their utmost yet. In 2007, employees will be given the opportunity to estimate their own employability by means of a self-scan. Another subject for investigation will be the question if and how the mobility of older employees could be improved by reducing financial mobility impediments. Individual and professional development is important for employees to keep enjoying their work and remain valuable to the bank. To this end, employees prepare personal development plans in consultation with their supervisors. Practical aids are available to both employees and managers. Training Central elements in the bank s employee training policy are individual development, career and the training that is required for optimum job performance. In 2006, work was done on an electronic training file for all employees at Rabobank Nederland and the local Rabobanks. By linking a personal training file to the training requirements of the job concerned, it can be quickly assessed whether an employee has the desired degree of expertise. In annual reviews, it is decided which training efforts an employee should make in order to ensure a high level of expertise. Employees satisfied with working at Rabobank Employee satisfaction is essential for the achievement of the organisation s targets. Internal surveys held periodically among the employees demonstrate that overall satisfaction with working conditions was maintained at a high level in At 87% (81%), Rabobank s performance on this aspect is significantly better than the external benchmark, which comprises forty large Dutch enterprises (73%). High satisfaction with working conditions is also reflected in the low absenteeism due to illness, which declined further in 2006, from 3.7% to 3.6%. In addition, an external survey by Incompany business magazine showed that Rabobank was in the top three of enterprises with the highest employee satisfaction. Rabobank s own employees give an average rating of 7.5 for employment conditions, career, culture and job. Staff numbers Compared with 2005, Rabobank Group s total workforce grew by 5,221 to 56,209 (50,988), which is largely due to Rabobank s acquisitions during the year under review. This is reflected in an increase in the number of staff in wholesale banking and international retail banking, asset management and investment, leasing and the Real Estate division. In 2006, the number of employees in domestic retail banking grew as well. For more information The people at Rabobank 91

96 Corporate social responsibility Following the preparatory work of 2005, Rabobank achieved a great deal in the area of corporate social responsibility (CSR) in A lot of attention was given to the integration of CSR in lending. Clear choices were made in the prioritisation of both targets and key performance indicators. The focus is on those CSR activities with the biggest positive impact on both society and our services. 92 Rabobank Group Annual Report 2006

97 Unknown risks in development at sea Issue management with various stakeholders was held, including 2006 was characterised by the shaping of issue eighteen in-depth interviews with stakeholders management, i.e. identifying and dealing in properly with social trends. Rabobank used the trends and issues identified to formulate Focus on financial services targets, establish key performance indicators Nearly all of Rabobank s stakeholders in the and assign new focus areas in its CSR policy. In area of CSR consider embedding sustainable order to do this properly, a proactive dialogue development in financial services as the most Strategy and targets Further strengthening of Rabobank s identity and reputation as a cooperative bank that is highly committed and focuses on sustainability. Stronger market orientation of corporate social responsibility (CSR) through accelerated integration of CSR criteria in the lending process. - Sales growth in CSR products and services. - Further expansion of the Rabobank Development Program. - Further reduction of the environmental impact by actions. The development of sea wind farms entails unknown risks because construction conditions at sea are less predictable than on the mainland. It s good then to have non-recoursefinancing, although one of the logical consequences is that you can apply only proven technologies. We cannot use the latest state-of-the-art but as yet unproven wind turbines because the bank insists on security. One thing is for sure though: this transaction will speed up the further development of offshore wind farms in Western Europe. Jaap Groenhof, director Energy Investments Holding BV. Corporate social responsibility 93

98 Innovative financing for wind farm Offshore from IJmuiden, a large wind farm is being constructed with the capacity to meet the energy needs of some 125,000 Dutch homes starting in The project is being financed by Rabobank together with BNP Paribas, Dexia and Eksport Kredit Fonden and fits Rabobank s policy of active participation in the realisation of sustainable energy projects. It is the world s first offshore wind farm under non-recourse project financing. This means that, during the construction phase - the project phase with the highest risk - the financiers share the exposure to risks such as cost overruns and delays. For earlier wind farms, these risks were fully borne by the investors. International developers have long been looking forward to nonrecourse financing facilities. important field of policy. Rabobank Group is aware that, with its services, it has a strong, guiding influence on economic, social and ecological processes in a great variety of sectors. Since the number of CSR activities within Rabobank grows every year, it is necessary to focus on the operational areas in which CSR has the biggest impact. In coming years, the focus will be on the following two targets: - Further CSR implementation in Rabobank Group s core processes, focusing on lending, leasing and investing. - Marketing new products and services that promote clean technologies and sustainable investments. Targets for other policy areas have been formulated as well. Prioritisation is done by reference to 22 key performance indicators. Further CSR implementation Great progress was made in 2006 with the integration of CSR in the organisation. From the beginning of 2006, all business units and subsidiaries as well as most local Rabobanks have been setting CSR targets, with progress reported on a regular basis. Of the local Rabobanks, 86% has incorporated CSR in their policy cycles and 80% participates in CSR monitoring. Externally, the effect of CSR on client assessment in lending is becoming more and more visible. CSR thinking was given a recognisable position in the real estate activities as well and has been embedded in all project development plans. CSR in lending In 2006, Rabobank Group started the development of a CSR implementation manual, which is an appendix to the Rabobank Group Credit Manual. The CSR manual helps employees apply the principles and guidelines Rabobank has set out for itself in their business services. The manual allows the various Group units to apply this to their own situation in a way that Rabobank not only gives financial support, but also shows genuine commitment to addressing low literacy From the very beginning, it was important to the Reading & Writing Foundation to engage leading businesses such as Rabobank in addressing low literacy. Not just for their financial support, but for their genuine commitment. Rabobank was one of the first businesses to deliver that. With Rabobank funding, we developed specific communication activities. We financed a television documentary, developed a special web site for low-literates and we are supporting an educational television series on illiteracy. HRH Princess Laurentien of the Netherlands, chair of the Reading & Writing Foundation in an interview in Dichterbij. 94 Rabobank Group Annual Report 2006

99 does justice to their specific markets. For example, the European real estate market, where the real estate organisation operates, has issues that differ from those for Rabobank International clients in the sugar industry. The manual became formally effective in February New climate related products and services Rabobank Group believes that the climate market offers business enterprises an opportunity to meet the statutory requirements for reduced CO 2 emissions in a flexible and cost effective way. Rabobank focuses on leveraging the opportunities this market offers to sustainably operating businesses. In the year under review, a lot of effort was put into the development of new products and services for both corporate and private clients. At the end of 2006, Robeco placed the Robeco Clean Tech Certificate and the Robeco Clean Tech Fund II with investors. Early in 2007, Rabobank, together with World Wildlife Fund, launched a new credit card featuring a climate contribution. By being more energy efficient, Rabobank Group responds to the drive to reduce CO 2 emissions, also on a local level. For example, Rabobank West-Groningen developed a special mortgage for a new housing project. Clients buying a house there can turn to this local Rabobank and get an interest-rate discount if their house has energy-conscious features. The higher the energy efficiency of the house, the lower the interest rate. New participations in banks in developing countries It is Rabobank s ambition to make financial services more accessible to people in developing countries. To this end, the Rabo Development Program was established in Rabobank s target to invest in a few rural banks in developing countries was achieved in Tools for low-literates An estimated 1.5 million Dutch have trouble reading and writing. The Reading & Writing Foundation (Stichting Lezen & Schrijven) is committed to creating broad awareness of this social problem. Rabobank is one of its active founders and has helped construct the mijnabc.nl web site. It also collaborates on the documentary Ongeletterd (Illiterate), which contributes to greater openness on illiteracy and low literacy. In addition, Rabobank supports an educational multimedia project to improve the reading and writing skills of adults. In its banking services, Rabobank is also mindful of clients that have difficulty reading. In 2006, three tools were developed: a spotting guide enabling bank employees to recognise and assist low-literate clients, the Stap voor stap bankieren customer brochure explaining the banking services in simple terms, and a Readspeaker on that reads aloud texts on the site. This has made Rabobank the first bank in the Netherlands to equip its site with an audio reader function. Corporate social responsibility 95

100 Microcredits help alleviate poverty Microcredits were in the spotlight in 2006, when the Nobel Peace Prize was awarded to Mohammed Yunus, the founder of the microcredit concept in Bangladesh. By extending microcredits, the Rabobank Foundation has been contributing to cooperatives in third-world countries for over 30 years. Microcredits are small loans that enable people to invest in a better existence. In this way, the Rabobank Foundation reaches more than 3.2 million members of cooperatives worldwide, half of whom are on or below the poverty line. Between 2001 and 2006, 399 organisations relied on contributions from the Rabobank Foundation. A review has shown that these cooperatives are growing fast: their membership shows an average annual increase of 15%. At the end of 2006, Rabobank acquired 49% of the shares in Zambia National Commercial Bank. Rabo Development provides the management and has committed itself to a three-year Technical Assistance programme. In addition, an agreement was signed with United Rural Co-operative Bank of Hangzhou (URCB) in China for the acquisition of a 10% share in this Chinese bank. Also in 2006, the Tanzanian National Microfinance Bank (NMB), in which Rabobank has had a 35% interest since 2005, expanded its network by adding a number of branch offices and upgraded it, for example by taking the first cash dispensing machines into operation. Operations Rabobank Group s policy of sustainable operations focuses on reducing the amounts of materials and energy required, for example by energy savings and sustainable car lease. In parallel, it works to improve the quality or sustainability of both input (including the procurement of green power and FSC paper) and output (e.g. soot filters on diesel cars and waste management). For more information 96 Rabobank Group Annual Report 2006

101 Annual figures Consolidated balance sheet Consolidated profit and loss account Consolidated statement of changes in equity Consolidated cash flow statement Business segments Auditors report Annual figures 97

102 Consolidated balance sheet At 31 December In millions of euros Assets Cash and cash equivalents 1,630 2,923 Due from other banks 49,086 53,065 Trading financial assets 36,789 39,011 Other financial assets at fair value through profit and loss 21,468 17,449 Derivative financial instruments 18,992 24,135 Loans to customers 354, ,451 Available-for-sale financial assets 48,961 48,644 Held-to-maturity financial assets 1,489 1,908 Investments in associates 3,250 2,971 Goodwill and other intangible assets 1, Property and equipment 5,022 3,115 Investment properties 1, Current tax credits Deferred tax assets 1,477 1,575 Other assets 10,009 6,096 Total assets 556, , Rabobank Group Annual Report 2006

103 At 31 December In millions of euros Liabilities Due to other banks 113, ,749 Due to customers 215, ,427 Debt securities in issue ,992 Derivative financial instruments and other trade liabilities 26,694 31,182 Other debts 10,649 7,066 Other financial liabilities at fair value through profit and loss 26,270 23,844 Provisions 1, Current tax liabilities Deferred tax liabilities Employee benefits 1,223 1,437 Subordinated debt 2,450 2,645 Total liabilities 527, ,224 Equity Equity of Rabobank Nederland and local Rabobanks 17,426 15,450 Rabobank Member Certificates issued by group companies 5,808 5,811 23,234 21,261 Trust Preferred Securities III to VI issued by group companies 1,959 2,092 Minority interests 4,184 2,996 Total equity 29,377 26,349 Total equity and liabilities 556, ,573 Annual figures 99

104 Consolidated profit and loss account For the year ended 31 December In millions of euros Interest income 25,059 19,716 Interest expense 18,587 13,455 Interest 6,472 6,261 Fee and commission income 2,741 2,482 Fee and commission expense Fees and commission 2,296 2,060 Income from associates Net income from financial assets and liabilities at fair value through profit and loss 246 (146) Gains on available-for-sale financial assets 7 38 Other Income 10,049 9,363 Staff costs 4,117 3,880 Other administrative expenses 2,429 2,031 Depreciation and amortisation Operating expenses 6,887 6,242 Value adjustments Operating profit before taxation 2,712 2,604 Taxation Net profit 2,345 2,083 Of which attributable to Rabobank Nederland and local Rabobanks 1,757 1,577 Of which attributable to holders of Rabobank Member Certificates Of which attributable to Trust Preferred Securities III to VI Of which attributable to minority interests Net profit for the year 2,345 2, Rabobank Group Annual Report 2006

105 Consolidated statement of changes in equity Equity of Rabobank Nederland and Rabobank Member Trust Preferred In millions of euros Local Rabobanks Certificates Securities III to VI Minority interests Total equity At 1 January ,018 3,840 1,877 3,269 23,004 Arising in the period (after taxation): Net fair value changes available-for-sale financial assets (174) (174) Net fair value changes cash flow hedges Other changes Currency translation differences Reclassified to net profit for the year available-for-sale financial assets (132) (132) Total income and expense for the year recognised directly in equity (271) Net profit for the year 1, ,083 Total income and expense 1, ,355 Issue of Rabobank Member Certificates and Trust Preferred Securities III to VI - 1, ,971 Payment on Rabobank Member Certificates and Trust Preferred Securities III to VI - (211) (111) - (322) Other (785) (659) At 31 December ,450 5,811 2,092 2,996 26,349 At 1 January ,450 5,811 2,092 2,996 26,349 Arising in the period (after taxation): Net fair value changes available-for-sale financial assets (277) (277) Net fair value changes associates Net fair value changes cash flow hedges (16) (16) Other changes Currency translation differences (14) - (133) (191) (338) Reclassified to net profit for the year available-for-sale financial assets Total income and expense for the year recognised directly in equity 93 - (133) (191) (231) Net profit for the year 1, ,345 Total income and expense 1, (23) 10 2,114 Payment on Rabobank Member Certificates and Trust Preferred Securities III to VI - (277) (110) - (387) Other 126 (3) - 1,178 1,301 At 31 December ,426 5,808 1,959 4,184 29,377 Annual figures 101

106 Consolidated cash flow statement For the year ended 31 December In millions of euros Cash flow from operating activities Operating profit before taxation 2,712 2,604 Adjusted for: Non-cash items recognised in profit and loss Depreciation and amortisation Value adjustments (Gain)/loss on sale of property and equipment (14) (12) Share of (profit) of associates and (gain)/loss on sale of subsidiary (527) (218) Fair value (gains)/losses on investment properties 2 1 Fair value (gains)/losses on financial assets and liabilities at fair value through profit and loss (246) 146 Net (gain)/loss on available-for-sale financial assets (7) (38) 2,711 3,346 Net changes in operating assets Due from other banks 7,874 1,387 Trading financial assets 2,222 (5,741) Derivative financial instruments 5,143 7,900 Net changes in non-trading financial assets at fair value through profit and loss (4,019) 25,219 Loans to customers (50,473) (30,337) Net changes in liabilities relating to operating activities Derivative financial instruments and other trade liabilities (4,488) (11,090) Due to customers 29,472 8,956 Debt securities in issue 12,074 18,472 Other debts 3,583 (291) Income tax paid (809) (634) Other changes (2005: mainly attributable to disposal of Interpolis) (2,285) (18,681) Net cash flow from operating activities 1,005 (1,494) Cash flows from investing activities Acquisition of subsidiaries net of cash and cash equivalents acquired 1,714 (21) Disposal of subsidiaries net of cash and cash equivalents acquired 3 2 Acquisition of property, equipment and investment properties (646) (456) Proceeds from sale of property and equipment Acquisition of available-for-sale financial assets and held-to-maturity financial assets (16,160) (14,885) Proceeds from sale and repayment of available-for-sale financial assets and held-to-maturity financial assets 12,861 10,286 Net cash flow from investing activities (1,898) (4,756) Cash flows from financing activities Proceeds from issue of Rabobank Member Certificates - 2,000 Proceeds from issue of subordinated debt instruments - 1,000 Payment on Rabobank Member Certificates and Trust Preferred Securities III to VI (387) (322) Repayment of subordinated debt (13) (774) Net cash flow from financing activities (400) 1,904 Net changes in cash and cash equivalents (1,293) (4,346) Cash and cash equivalents at beginning of year 2,923 7,269 Cash and cash equivalents at end of year 1,630 2,923 The cash flows from interest are included in the net cash flow from operating activities Interest income 24,675 19,730 Interest expense 17,740 13, Rabobank Group Annual Report 2006

107 Business segments In millions of euros Domestic retail banking Wholesale banking and international retail banking Asset management and investment Leasing Real estate Other* Total For the year ended 31 December 2006 External income 7,731 1, , (1,954) 10,049 Income from other segments (2,180) 1,040 (58) (462) (248) 1,908 - Total income 5,551 2, (46) 10,049 Segment expense 4,016 1, ,337 Operating profit before tax 1, (325) 2,712 Income tax expense (359) 367 Net profit 1, ,345 Business unit assets 242, ,554 18,894 24,765 17,069 (153,457) 553,205 Investments in associates ,700 3,250 Total assets 242, ,014 18,905 24,776 17,125 (150,757) 556,455 Business unit liabilities 226, ,688 17,238 22,670 16,377 (150,447) 527,078 Total liabilities 226, ,688 17,238 22,670 16,377 (150,447) 527,078 Additions to property and equipment , ,260 Depreciation and amortisation including amortisation of software Value adjustments (1) For the year ended 31 December 2005 External income 7,719 1, , (1,914) 9,363 Income from other segments (2,288) 827 (66) (354) (152) 2,033 - Total income 5,431 2, ,363 Segment expense 3,910 1, ,759 Operating profit before tax 1, (200) 2,604 Income tax expense (256) 521 Net profit 1, ,083 Business unit assets 219, ,147 14,179 20,757 9,101 (128,359) 503,602 Investments in associates ,565 2,971 Total assets 219, ,362 14,333 20,761 9,119 (125,794) 506,573 Business unit liabilities 205, ,787 13,546 19,262 8,496 (126,008) 480,224 Total liabilities 205, ,787 13,546 19,262 8,496 (126,008) 480,224 Additions to property and equipment Depreciation and amortisation including amortisation of software Value adjustments (10) 517 * Including elimination between segments for profit and loss account. Annual figures 103

108 Auditors report In our opinion, the consolidated balance sheet, profit and loss account, statement of changes in equity, business segments and cash flow statement including the comparative data for the year 2005, as set out on pages 98 to 103 of this annual report, -hereafter financial statements - are consistent, in all material respects, with the consolidated financial statements 2006 of Rabobank Group 1, of which these financial statements are a part of. On 5 March 2007 we issued an unqualified auditors report to these consolidated financial statements. For a better understanding of Rabobank Group s financial position and results and for an adequate understanding of the scope of our audit, the financial statements should be read in conjunction with the consolidated financial statements 2006 from which they have been derived, as well as our auditors report thereon. Utrecht, 5 March 2007 for Ernst & Young Accountants G.H.C. de Meris 1) Rabobank Group consist of Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. in Amsterdam, its affiliated Rabobanks, Robeco Group N.V. in Rotterdam, De Lage Landen International B.V. in Eindhoven, Schretlen & Co N.V. in Amsterdam, FGH Bank N.V. in Utrecht, Rabohypotheekbank N.V. in Amsterdam, Onderlinge Waarborgmaatschappij Rabobanken B.A. in Amsterdam, Rabo Bouwfonds Holding N.V. in Utrecht, Bank Sarasin & Cie AG in Basel, Switzerland and their group companies. 104 Rabobank Group Annual Report 2006

109 Information of persons of the Rabobank Group Directors of the Rabobank Group 1 Cor Broekhuyse (C.F.) Ralf Dekker (R.J.) Jan Dijkstra (J.D.) Tjalling Halbertsma (T.B.) André van Iersel (A.A.J.M.) Rob ten Heggeler (R.H.L.) Jos van Lange (J.H.P.M.) Harold Knebel (H.A.J.M.) Hans van der Linden (J.A.M.) Bert Mertens (H.H.J.) Monika Milz (M.R.) Rik Op den Brouw (H.) Thomas van Rijckevorsel (T.C.A.M.) Harry de Roo (J.H.) Karel Schellens (C.A.C.M.) Rutger Schellens (R.V.C.) Ronald Slaats (R.A.M.) Jaap Slotema (J.) Rinus van der Struis (M.) Sheldon Sussman (S.) Jan van Veenendaal (J.) Directors and management of Group entities 1 Alex Beleggersbank René Frijters (R.J.A.), Chairman De Lage Landen International BV Karel Schellens (C.A.C.M.), Chairman Philip Schneck Jr. (P.W.) Ronald Slaats (R.A.M.) Rolf Westmijse (R.) Obvion NV Roy van Diem (R.), Chairman John Smulders (J.I.A.) Rabo Bouwfonds Holding NV Tjalling Halbertsma (T.B.), Chairman Peter Keur (P.C.) Jean Klijnen (J.L.M.J.) Jos van Lange (J.H.P.M.) Henk van Zandvoort (H.J.M.) Robeco Groep NV George Möller (G.A.), Chairman Leni Boeren (L.M.T.) Sander van Eijkern (S.) Constant Korthout (C.T.L.) Frank Kusse (F.L.) Niek Molenaar (N.F.) Sarasin Joachim Straehle (J.H.), Chairman Fidelis Goetz (F.M.) Matthias Hassels (M.) Andreas Sarasin (A.R.) Eric Sarasin (E.G.) Marco Weber (M.) Franz von Meyenburg (F.K.) Schretlen & Co NV 2 Gerbert Mos (G.A.), Chairman Peter Ligtvoet (P.G.) Mark Rosenberg (M.H.) 1) As of 1 March ) As of 1 April 2007 Information of persons of the Rabobank Group 105

110 Rabobank Group all over the world North America Europe Italy Asia Australia Canada Austria Luxembourg Bahrain Australia United States Belgium The Netherlands China New Zealand Latin America Czech Republic Denmark Norway Poland India Indonesia Argentina Germany Russia Japan Brazil Finland Slovakia Korea Chile France Spain Malaysia Curaçao Great Britain Turkey Singapore For more information on our offices, including Cayman Islands Guernsey Sweden Thailand location and contact details, please visit Mexico Hungary Switzerland United Arab Emirates Ireland 106 Rabobank Group Annual Report 2006

111 Colophon Published by Rabobank Nederland Communications Editors Andries van der Bruggen, Geoffrey van Diessen, Smink, Van der Ploeg & Jongsma en Marc van der Ven Art direction and design Eden Design & Communication, Amsterdam Borghouts Design, Haarlem Photographs Tjeerd Fonk, Amsterdam Edwin Walvisch, Heemstede English translation Ernst & Young Translation Bureau, The Hague Internet Info.nl, Amsterdam SiteManagement C&F Report Amsterdam Production co-ordination Kobalt BV, Amstelveen Prepress NEROC VGM, Amsterdam Printers Thieme, Amsterdam Materials used This document was printed using environmentally friendly materials. The ink was mineral oil-free Novavit Easy Mix Bio and the paper 250 gram and 130 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 Rabobank Group Consolidated Financial Statements 2006, financial statements, 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 2006, the Financial Statements 2006 and other information will be filed at the offices of the Trade Registry of the Chamber of Commerce and Industries under number Annual Reports Rabobank Group publishes the following Annual Reports: Annual Report 2006 (in Dutch and English); Consolidated Financial Statements 2006 (in Dutch and English); Annual Sustainability Report 2006 (in Dutch and English); Interim Report 2007 (in Dutch and English, to be published in September 2007). For copies of these reports please contact Rabobank Nederland, Communications. Croeselaan 18, 3521 CB Utrecht, The Netherlands P.O. Box 17100, 3500 HG Utrecht, The Netherlands Telephone +31 (0) Fax +31 (0) [email protected] All Annual Reports are also available on the internet: Colophon 107

112 Rabobank Group structure 9 million clients 1.64 million members 188 member banks Rabobank Nederland Wholesale banking and international retail banking Rabobank International Corporate Clients Nederland Market support domestic retail banking Private individuals SME Private Banking Group departments Audit, Supervision, ICT, Finance, Communications, Personnel, Co-operative and Management, Credit control, Shared Services & Facilities Other corporate departments and services Asset management Investment Leasing Real estate Insurance Mortgages Robeco Group Schretlen & Co Alex Sarasin De Lage Landen Rabo Bouwfonds Eureko (38%) Obvion 108 Rabobank Group Annual Report 2006

113 Profiles Rabobank Group Rabobank Group is a full-range financial services provider founded on cooperative principles. The Group is comprised of 188 independent local Rabobanks in the Netherlands, Rabobank Nederland and a large number of specialised subsidiaries. The Group s core objective is to generate the highest possible customer value. To this end, the organisation offers its clients all financial products and services they require. Rabobank Group provides services to more than half of the Dutch population (16 million) and Dutch companies. In the Netherlands, Rabobank has dominant market positions in almost all financial services areas: home mortgages, savings, small and medium-sized businesses, and the food & agri sector. It has also significantly strengthened its position in the large corporate market. Throughout the world, Rabobank Group, through Rabobank International, focuses primarily on financing the international food & agri business, a niche market in which it has a leading position. Rabobank Group has been awarded the highest credit rating (Triple A), and has 330 offices in 41 countries outside the Netherlands. Rabo Bouwfonds is an international real estate company with three core activities focused on real estate: development, finance and investment management. Rabo Bouwfonds operates in the private and corporate markets and is one of Europe's largest real estate companies. At year-end 2006, Rabo Bouwfonds had around 1,900 employees, with almost 500 working abroad. Bouwfonds Property Development and Rabo Vastgoed are responsible for real estate development. FGH Bank and its brands Nederlandse Hypotheekbank and Rijnlandse Bank perform the real estate finance activity. Bouwfonds Asset Management and FGH Asset Management operate in real estate investment. Alex has evolved from a sophisticated trading system to a digital investors bank. Alex Beleggersbank, which now has over 100,000 investor accounts, started life in 1999 and leads the market in the field of on-line investing. It is also the largest source of orders from private individuals on both the Euronext stock exchange and the Euronext derivatives exchange. Alex aims to provide the best possible services to a growing number of investors who prefer to invest in line with their own individual objectives, either wholly independently or relying on advice. In addition, Alex offers a whole range of support and educational services, including professional analyses, news reports, investment specialists, seminars and the Alex Academy training institution, which was recently accredited by Maastricht University. De Lage Landen offers high-quality programmes in the area of asset financing in the international market. De Lage Landen has branches and collaborative ventures in more than 25 countries in Europe, North and South America, Southeast Asia, Australia and New Zealand. It is an international specialist in asset financing and Vendor Finance, focusing on the Food & Agri, Healthcare, Office Equipment, Information Technology, Telecommunications, Financial Institutions, Trucks & Trailers, Public Finance and Materials Handling & Construction Equipment sectors. In the Netherlands, it offers a broad range of leasing and trade financing products, including equipment lease, car lease (both commercial and noncommercial vehicles), ICT lease, consumer finance and trade finance. Athlon Carlease joined De Lage Landen Group in

114 Obvion is a provider of mortgages and simple financial products, operating through selected, high-quality independent agents. Obvion offers attractively priced products, high-quality product options and support for independent agents. In addition, Obvion has opted for fast and smooth processing, with reliability as a key element. The cohesion between these aspects makes Obvion stand out in the market. Obvion is the largest moneylender that exclusively serves the broker channel. Since its beginnings in 2002 as a joint venture between Rabobank and ABP (the Dutch civil service pension fund), Obvion's market share has more than doubled, to 5.2% in Obvion has its head office in Heerlen, the Netherlands. A leading Swiss private bank, Bank Sarasin was founded in Its sustained success is based on trust, discretion, expertise and dedication. Bank Sarasin's core activities comprise investment advice and asset management services to both private and institutional clients, as well as investment funds. Corporate finance, brokerage and financial analysis complete its range of services and products. Sarasin has more than 1,100 employees. The Sarasin Group has its headquarters in Basel and its other Swiss offices are in Zurich, Geneva and Lugano. Internationally, the Sarasin Group has offices in Dubai, Guernsey, Hong Kong, London, Luxembourg, Munich, Paris and Singapore. Bank Sarasin is listed at the Swiss stock exchange SWX. Founded in 1929, Robeco is a thoroughbred asset manager. Worldwide, Robeco provides investment products and services to approximately 700 institutional clients and some 1.5 million private individuals. The services to private individuals are provided both through banks and other distribution partners, and through direct channels. Robeco s product range includes fixed-interest and equity investments, as well as alternative investments. In addition to its home markets in the Benelux and the US, Robeco also has branch offices in France, Switzerland, Germany, Spain, Poland, the Middle East and Japan. Assets managed amount to some EUR 142 billion (at year-end 2006). Robeco has approximately 2,000 employees worldwide, spread over ten countries. Schretlen & Co is the asset management specialist within Rabobank Group. Its mission is to support high net-worth individuals in achieving their ambitions in terms of managing their assets. Schretlen & Co focuses in particular on (very) high net-worth individuals and medium-sized institutional investors. Its core activities are asset management and advice, combined with asset planning. Its close contacts and collaboration with local Rabobanks have resulted in activities including Rabobank Beheerd Beleggen and Rabobank Effecten Advies Desk, both of which are joint ventures between Schretlen & Co and local Rabobanks in the area of securities services. In addition to its head office in Amsterdam, Schretlen & Co has branches in Apeldoorn, Heerenveen, Maastricht, Rotterdam and Waalre, all located in the Netherlands.

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