Interim Report Rabobank Group

Transcription

1 Interim Report 2011 Rabobank Group

2 Key figures Rabobank Group Loan portfolio in billions of euros ,000 1,500 1, Return on equity in % Amounts due to customers in billions of euros 2009 Net profit Tier 1 ratio in % Amounts in millions of euros 30-Jun Dec Jun Dec Jun-09 Volume of services Total assets 664, , , , ,361 Private sector loan portfolio 440, , , , ,239 Amounts due to customers 305, , , , ,908 Assets under management and held in custody for clients 269, , , , ,700 Financial position and solvency Equity 42,513 40,757 40,224 37,883 36,853 Tier 1 capital 37,304 34,461 33,120 32,152 31,178 Core tier 1 capital 29,251 27,735 26,330 25,579 24,982 Qualifying capital 38,299 35,734 34,261 32,973 32,273 Risk-weighted assets 229, , , , ,670 Profit and loss account Income 7,303 6,284 6,432 6,012 6,422 Operating expenses 4,357 4,290 3,906 4,178 3,860 Value adjustments ,119 Taxation Net profit 1,854 1,133 1, ,316 Ratios BIS ratio 16.7% 16.3% 15.4% 14.1% 13.5% Tier 1 ratio 16.2% 15.7% 14.8% 13.8% 13.0% Core tier 1 ratio 12.7% 12.6% 11.8% 11.0% 10.4% Equity capital ratio 14.0% 14.2% 13.4% 12.4% 11.8% Net profit growth 13.1% 27.0% 24.5% (21.8%) (18.4%) Return on equity 10.8% 6.8% 10.2% 5.7% 8.7% Efficiency ratio 59.7% 68.3% 60.7% 69.5% 60.1% Nearby Local Rabobanks Branches ,010 1,061 ATM's 2,956 2,963 2,986 3,063 3,079 Members (x 1,000) 1,827 1,801 1,784 1,762 1,731 Foreign places of business Market shares (in the Netherlands) Mortgages 29% 29% 31% 30% 30% Savings 39% 40% 39% 40% 40% Trade, industry and services 42% 43% 41% 41% 41% Ratings Standard & Poor's AAA AAA AAA AAA AAA Moody's Investor Service Aaa Aaa Aaa Aaa Aaa Fitch AA+ AA+ AA+ AA+ AA+ DBRS AAA AAA AAA AAA AAA Personnel data Number of employees (in FTEs) 59,380 58,714 58,419 59,311 60,490

3 Interim Report 2011 Chairman s foreword 2 Profile of Rabobank Group 4 Rabobank Group at a glance 6 Financial developments 8 Domestic retail banking 14 Wholesale banking and international retail banking 21 Asset management 27 Leasing 31 Real estate 35 Risk management 39 Working together towards a sustainable future 43 Interim financial information 46 Notes to the interim financial information 51 Statements 68 General note for readers Pages 1 to 45 of the Interim Report are unaudited or have not been subject to a limited review. The independent external auditor has issued a review report on the interim financial information on pages 46 to 67. 1

4 Chairman s foreword Solid earnings at a time of modest economic recovery In the first six months of 2011, the global economic recovery was modest. Increased global demand and growing exports meant that Dutch manufacturers started investing again, albeit on a limited scale. The economic sentiment, however, was squeezed by news of the public debt crisis in a number of European countries and the turmoil surrounding the federal debt ceiling in the US. In the Netherlands, this was exacerbated by the stagnant housing marking, all of which resulted in low consumer confidence. All in all, there was limited growth in lending and in amounts due to customers at Rabobank Group. The performance of most group entities was up compared to in the first half of The amount of bad debt costs remained largely unchanged. On balance, it has been a good half year. Net profit was up 13% to EUR 1,854 million, which was largely used to further strengthen our equity. Equity growth is needed to keep our buffers at a robust level. Only in this way can we ensure the continuity of our business, based on mutual trust and mindful of our cooperative business structure, and continue to sustainable serve our customers in the years ahead. The public debt problems in some European countries and in the US strongly affected sentiments in the financial markets. In the US, political parties wrangled for a long time before they reached an agreement on how the growth in the federal debt should be tempered. In the eurozone, the financial problems of Greece and some other Member States dominated the news in the first half of Here too, policymakers were slow to take action on lowering Greece s debt burden. The financial sector will now also have to bear some of the burden, as well as governments and citizens. At Rabobank, we too will be making our contribution which, given our limited exposure in Greece, is actually relatively limited. Financial stability in the eurozone is important for the Dutch economy, for the customers of Rabobank and for Rabobank itself. While the political leaders of Europe have at long last taken new measures to promote that stability, it will still be some time until all European countries have their public finances back in good order and the confidence in the markets returns. Rabobank believes the proposals under Basel III, which are aimed at bolstering capital buffers and improving liquidity, will contribute to increased financial stability. However, various other laws and regulations are on the cards as well. Expectations are that, taken together, these developments will weigh heavily on the future financial position of the Dutch banking industry. Care should be taken to ensure that this accumulation will not affect the Dutch banks ability to maintain adequate reserves and, hence, provide sufficient loans. This could hamper economic recovery. For this reason, it is imperative that the various policy proposals be consistent, that they be viewed in conjunction, and that they not jeopardise the financial system s stability and its ability to continue to provide loans. In the first half of 2011, Rabobank Group retained its leading positions in its key markets in the Netherlands. Across the Rabobank Group, considerable progress was achieved on the further integration of corporate social responsibility (CSR) into our core business. The local Rabobanks adapted their savings product range to meet customers needs for simplicity, convenience and 2 Interim Report 2011 Rabobank Group

5 Piet Moerland, Chairman of the Executive Board of Rabobank Nederland transparency. Thanks, in part, to the Rabo SpaarWijzer savings guide, which was introduced this spring, customers are now better placed to achieve their personal savings ambitions. Following the EHEC outbreak, Rabobank helped greenhouse growers in cases where it was justified. At the local Rabobanks, the CSR policy was further developed in close alignment with customer care and with a focus on transparency in the services we provide. The value chain policy was further rolled out in the lending process. Rabobank International committed itself to becoming the leading wholesale bank in the Netherlands, resulting in an improved market position. Rabobank International broadened its foreign retail branch network and was granted a banking licence in India, meaning that we can now further expand our activities in a key food and agri market. Due in part to the depreciation of the US dollar, total lending at Rabobank International recorded a slight fall. The asset management business made a robust recovery compared to the unusually modest performance in the first half of Robeco and Sarasin achieved positive cash flows. We are increasingly providing our customers with information on the CSR profile of their investments. De Lage Landen put in a strong half-yearly performance, thanks in part to an increase in interest income and lower bad debt costs. Rabo Real Estate Group recorded an increase in the number of residential property transactions, with lending showing modest growth. Progress was made in the real estate and leasing divisions on developing commercial opportunities that contribute to the increasing sustainability of value chains. An upturn in the housing market could give an important boost to the recovery of consumer confidence and a further economic upswing. With this in mind, Rabobank launched a comprehensive plan to reform the housing market. Responses from the press and from politics focused primarily on just one aspect of the plan: offering only annuity-based mortgages. Other aspects, in particular incentives for the first-time buyers market (which could set a moving house chain in motion), are equally important and should be viewed and judged in concert. The temporary cut in the property transfer tax rate as of 1 July may represent a good first step, but it is not enough to secure the continuing recovery of the housing market or to restore confidence. We therefore call upon all parties to come together to develop further structural measures. Where necessary and where able, Rabobank will also step up to its responsibilities. Despite a number of positive steps towards tackling the financial crisis in Greece, the US debt ceiling, and the property transfer tax cut, the Dutch economy will not see any abundant growth in the second half of 2011 either, and the uncertainties in the markets and shared by our clients remain sizeable. We expect growth in lending and in amounts due to customers to remain moderate. Despite the current turmoil in the financial markets, Rabobank is optimistic about the level of its profits for the full year In times like these, we are proud that we are able to report solid earnings. We use these, as we always do, to maintain our equity position at an appropriate level, so we can continue to put our customers first going forward. Piet Moerland, Chairman of the Executive Board of Rabobank Nederland 3 Chairman s foreword

6 Profile of Rabobank Group Rabobank Group is an international financial services provider operating on the basis of cooperative principles. It offers banking, asset management, leasing, insurance and real estate services. Focus is on broad financial services provision in the Netherlands and primarily on the food and agribusiness internationally. Rabobank Group is comprised of independent local Rabobanks plus Rabobank Nederland, their umbrella organisation, and a number of specialist subsidiaries. Overall, Rabobank Group has approximately 59,400 employees (in FTEs), who serve about 10 million customers in 48 countries. In terms of tier 1 capital, Rabobank Group is among the world s 30 largest financial institutions. Rabobank is consistently awarded a high rating by all rating agencies. About Rabobank Rabobank was established in the Netherlands towards the end of the nineteenth century by entrepreneurial people whose access to the capital market was virtually blocked. The bank s roots lie in the SME sector and in agriculture in particular. By operating as a cooperative, a financial institution emerged that allows its customers to achieve their financial ambitions. This is Rabobank Group s compass: the bank s objective is to let people and businesses participate in the economy as free and equal agents. Rabobank Group offers all the financial services needed by clients as they participate in a modern society. In the Netherlands, Rabobank Group has developed into a broad financial services provider whose services are continually adjusted and updated so that they always meet the needs of people and businesses, whether in the Netherlands or elsewhere. In Rabobank Group s opinion, the sustainable development of prosperity and welfare requires a careful approach to nature and the environment. The bank is fully committed to contributing to sustainability through its operations. Rabobank Group respects local culture and customs, and abides by them so long as they are not contrary to its objectives and core values. Maintaining the bank s excellent solvency and liquidity will always be a criterion in deciding whether to undertake or continue activities. Mission Rabobank Group s mission starts from, and is based on, the best interests of the customer. The goal is to create value for the customer by: - providing those financial services considered best and most appropriate by our customers; - ensuring continuity in the services with a view to protecting the long-term interests of our customers; - showing commitment to our customers and their environment, so that we can contribute to them achieving their ambitions. Core values Rabobank Group wants customers to recognise and acknowledge the bank as a champion of: - integrity: in its dealings, the bank wants to be fair, honest, conscientious and trustworthy; - respect: the bank s basis for collaboration is respect, appreciation and commitment; - professionalism: the bank serves its customers by offering high-level knowledge and facilities; - sustainability: the bank wants to help build a sustainable society by making contributions to economic, social and ecological areas. 4 Interim Report 2011 Rabobank Group

7 Structure The Netherlands The 141 local Rabobanks in the Netherlands are Rabobank Group s cooperative core business. Overall, the local Rabobanks employ about 27,200 FTEs. Committed, nearby and leading in their service offering, they serve about 6.8 million retail clients and 800,000 corporate clients in the Netherlands. With 892 branches, which operate 2,956 cash-dispensing machines, Rabobank forms the densest banking network in the Netherlands. The local Rabobanks seek to offer their clients the best possible services by leveraging different distribution channels, including the branch network, and online and telephone services. Rooted in the bank s cooperative structure, clients can become members of their local Rabobank. The local Rabobanks, for their part, are members and shareholders of Rabobank Nederland, the umbrella cooperative that supports their local service provision. Rabobank Nederland also monitors, on behalf of the Dutch Central Bank (DNB), the business practices, solvency and liquidity of the local Rabobanks, as well as acting as the holding company of a number of specialist subsidiaries, both in the Netherlands and abroad. Rabobank Nederland has an employee base of about 6,800 FTEs. Global structure Rabobank International plays a role in serving and connecting the entire food chain from primary production to the marketing of products by large multinationals. It serves wholesale clients in and outside the Netherlands, including continents far-away. Outside the Netherlands, Rabobank International focuses on clients in the food and agribusiness, and through the foreign branch network on Dutch clients operating internationally. Rabobank International also operates an international retail banking business. Boasting a network in 29 countries and 629 business locations, Rabobank International is a well-known player in the world s key markets. Counting the foreign subsidiaries, Rabobank International has an employee base of about 15,600 FTEs. Rabo Development supports the advancement of a banking infrastructure in seven developing countries by taking non-controlling interests in rural banks and offering them expertise and human capital. Rabobank Foundation helps vulnerable and underprivileged groups in and outside the Netherlands by contributing funds, human resources and knowledge. Subsidiaries and associates The subsidiaries and associates help to achieve Rabobank Group s mission of offering a comprehensive range of financial services. The group entities are specialists in their fields and seek to forge close ties in the customer s best interest. Rabobank Group Organisation chart Situation at 30 June million clients 1.8 million members 141 local Rabobanks 892 branches Rabobank Nederland Executive Board Supervisory Board Support of local Rabobanks Retail clients Corporate clients Private Banking Other support units Rabobank International Food & agribusiness Wholesale banking Rural & retail banking Direct Banking Rabo Development Corporate departments Rabobank Group Cooperation & Sustainability Rabobank Foundation Investor Relations Long Term Funding Other corporate departments Subsidiaries and associates Asset management Leasing Real estate Insurance Mortgages Business International retail Partner banks Robeco Schretlen & Co Sarasin (69%) De Lage Landen - Athlon Car Lease - Freo Rabo Real Estate Group - Bouwfonds Property Development - MAB Development - FGH Bank - Bouwfonds REIM - Fondsenbeheer Nederland Eureko (31%) - Interpolis Obvion (70%) Rembrandt Fusies & Overnames ACCBank Bank BGZ (59%) Banco Terra (31%) Banco Regional (40%) BPR (35%) NMB (35%) Zanaco (46%) URCB (9%) Banco Sicredi (25%) 5 Profile of Rabobank Group

8 Rabobank Group at a glance Rabobank Group Rabobank Group is an international financial services provider operating on the basis of cooperative principles. It offers retail banking, wholesale banking, asset management, leasing and real estate services. Rabobank s service offering is about delivering customer value. Focus is on achieving market leadership as an all-finance bank in the Netherlands and on building on the bank s leading position as a food and agri bank internationally. Rabobank Group is comprised of independent local Rabobanks plus Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank Nederland), their umbrella orga nisation, and its subsidiaries and associates. Rabobank Group s employee base numbers about 59,400 FTEs, whom are spread over 48 countries. in millions of euros 2,400 2,000 1,600 1, I 2011 I Net profit up EUR 215 million Loan portfolio up 1% in billions of euros Rabobank Group s private sector lending was up 1% in the first half of 2011, growing to EUR billion. Bad debt costs were more or less stable. Net profit increased thanks in particular to higher income from the asset management business and domestic retail banking. The tier 1 ratio was up 0.5 percentage points, reaching 16.2%, because of retained earnings and the issuing of hybrid financial instruments. Consumers continued to rack up savings and amounts due to customers rose by 2% to EUR billion. Domestic retail banking Rabobank Group is the largest mortgage lender, savings bank and insurance broker in the Netherlands. Rabobank is also market leader in the SME segment and in the food and agri sector. The 141 autonomous local Rabobanks have 892 branches, boasting 2,956 ATMs and an employee base of about 27,200 FTEs. They serve about 6.8 million retail clients and about 800,000 corporate clients in the Netherlands, offering a comprehensive range of financial services. Obvion, a mortgage lender working with independent mortgage brokers, also a part of the domestic retail banking division. in millions of euros 1,200 1, I 2011 I Net profit up EUR 126 million Loan portfolio up 2% in billions of euros The economy continued to recover gradually in the first half of 2011, which was a factor that contributed to the profit increase at domestic retail banking. Rabobank Group managed to hold on to its market shares in its key markets. Corporate clients were generally able to benefit from the ongoing economic recovery. As the largest mortgage lender in the Netherlands, Rabobank contributed to seeking solutions for kick-starting the stagnant housing market. To the extent, justified, Rabobank introduced schemes to help out customers who had been affected by the EHEC crisis. Rabobank continues to be the employer of choice for highly educated people. Wholesale banking and international retail banking Rabobank International is Rabobank Group s wholesale banking and international retail banking division. Within the Netherlands, this division targets all market sectors and gives priority, in close collaboration with the local Rabobanks, to providing the best possible services to the wholesale market. Outside the Netherlands, focus is on the food and agri sector. Rabobank International has a worldwide office network, with branches in 29 countries and an employee base of about 15,600 FTEs. Rabo Development helps banks in developing countries transform into modern financial institutions, and has noncontrolling interests in seven partner banks with a highly agricultural profile. in millions of euros I 2011 I in billions of euros Net profit down EUR 222 million Loan portfolio down 1% Rabobank International wants to be the leading Dutch wholesale bank. The progress made towards this ambition was reflected in the first half of 2011 in its increased share of the wholesale market. Total lending at Rabobank International fell marginally in the first six months of the year due in part to the depreciation of the US dollar. Favourable developments in the Direct Banking business led to a sharp rise in savings deposits. Profit for the first half of 2011 was down on that for the same period last year, which was attributable in part to a gain on the sale of part of the noncontrolling interest in Indian-based Yes Bank in Now that we have our own banking licence in India, we are well-placed further broaden our operations in this key food and agri market. 6 Interim Report 2011 Rabobank Group

9 Asset management Rabobank Group s asset management business is carried out by Robeco, Sarasin and Schretlen & Co. In addition, some client assets are managed by local Rabobanks; Rabo Real Estate Group specialises in investment property. Through these group entities, Rabobank allows its clients to invest in a large number of investment funds and offers them access to a broad range of asset management services. The asset management business employs approximately 3,100 FTEs in total. in millions of euros I 2011 I in billions of euros Net profit up EUR 134 million Stability in assets under management Despite positive cash flows, assets managed for clients were virtually stable in the first half of Growth in assets was largely cancelled out by the strong depreciation of the US dollar. Higher commissions from asset management contributed to an upswing in net profit. Where responsible investments are concerned, important steps were taken towards achieving two objectives: further alignment of investment services to the UN Principles for Responsible Investment and further integration of responsible investment practices across the investment product offering. Leasing De Lage Landen runs Rabobank Group s leasing activities. The Vendor Finance division helps manufacturers and distributors to generate sales in 35 countries. The Financial & Mobility Solutions division is active in nine European countries; it operates Athlon Car Lease, the international carleasing subsidiary. In the Netherlands, this division offers a broad range of leasing, trading and consumer finance products, for instance under the online Freo label. De Lage Landen has an employee base of approximately 4,900 FTEs. in millions of euros I 2011 I in billions of euros Netto profit up EUR 53 million Loan portfolio up 1% De Lage Landen achieved higher margins and managed to lower its bad debt costs. Net profit for the first half of 2011 was up 52%. The recovery of residual value gains also contributed to the increase in profit. Focus on the food and agribusiness led to this sector taking up a greater share of the loan portfolio. Due in part to the depreciation of the US dollar, lending at De Lage Landen grew to a limited extent only. The acquisition of a consumer credit portfolio from Achmea drove the increase in the consumer credit portfolio. The Clean Technology business unit, which was formed in 2010, stepped up its activities in the first half of Rabo Real Estate Group Rabo Real Estate Group is responsible for Rabobank Group s retail and corporate real estate operations. Its core areas are development of residential and commercial properties, property finance and service provision to property investors. Rabo Real Estate Group operates the labels Bouwfonds Property Development, MAB Development, FGH Bank, Bouwfonds REIM and Fondsenbeheer Nederland. With its headcount of about 1,600 FTEs, it operates mostly in Netherlands, but also has a presence in countries such as France and Germany. in millions of euros I 2011 I in billions of euros Net profit Rabo Real Estate Group up EUR 2 million Loan portfolio up 4% The number of residential property transactions was up 9% in the first half of 2011, rising to 3,567, while completed new commercial properties dropped by 4% to EUR 126 million. Lending rose by 4% to EUR 18.5 billion. Managed property assets increased by 1%, reaching EUR 7.3 billion. Despite the still difficult market, Rabo Real Estate Group saw a rise in its net profit by EUR 2 million to EUR 68 million. In order to take a unified approach to sustainable building, Rabo Real Estate defined principles for a group-wide approach within the divisions in the first half of Rabobank Group at a glance

10 Financial developments Net profit growth and improved capital ratios Although there was more uncertainty about the debts of several countries, the first half of 2011 was characterised by ongoing economic recovery in the Netherlands. Exports were up because of a rise in global demand and the Dutch economy grew slowly but surely. Businesses showed a tentative tendency towards resuming their capital expenditures. Total private sector lending was up 1% to EUR billion as a result. As consumers continued to deposit savings, amounts due to customers increased by 2% to EUR billion at group level. Fuelled by higher interest income and a rise in other income, Rabobank Group s net profit increased by 13% in the first half of 2011, to EUR 1,854 million. Return on equity stood at 10.8%. The tier 1 ratio was up 0.5 percentage points, reaching 16.2%, because of retained earnings and the issuing of hybrid capital. Bad debt costs saw a moderate increase; as a percentage of average lending, these were virtually stable at 29 basis points of average lending. The net profit growth caused RAROC to rise by 2.0 percentage points to 16.8%. The efficiency ratio stood at 59.7% and equity was up 4%, rising to EUR 42.5 billion. 1 Return on equity is calculated by expressing net profit as a percentage of tier 1 capital as at the end of the previous financial year. 2 For page 8 to 45, the amounts in brackets ( ) are the comparative figures. Where income is concerned, these are the figures for the first half of 2010; where the financial position is concerned, these are the figures at year-end The comparative figures have been restated to reflect the insights gained since their preparation. 3 The core tier 1 ratio is calculated by relating the tier 1 capital, excluding hybrid capital, to risk-weighted assets. Financial targets achieved Rabobank Group has three financial targets: a tier 1 ratio of 12.5% or more, a return on equity¹ of at least 8%, and an increase in net profit by no less than 10%. The tier 1 ratio was up 0.5 percentage points to 16.2% (15.7%²) in the first half of the year. Retained earnings and the issuing of hybrid financial instruments contributed to the rise in tier 1 capital by 8% to EUR 37.3 (34.5) billion. Riskweighted assets increased by 5% to EUR (219.6) billion. The core tier 1 ratio3 stood at 12.7% (12.6%) and the equity capital ratio at 14.0% (14.2%). Return on equity was up 0.6 percentage points to 10.8% (10.2%). Group profit for the period increased by 13% to EUR 1,854 (1,639) million. Growth in lending at local Rabobanks in particular Economic growth resulted in an improved investment climate in the Netherlands. Exports increased and Dutch businesses tentatively resumed their capital expenditures. The mortgage portfolio also showed limited growth. Thanks in part to higher corporate loans and private individual loans, Rabobank Group s private sector lending was up 1% in the first half of 2011, growing to EUR (436.3) billion. This private sector loan portfolio is recognised within loans to customers, which item rose by EUR 4.2 billion to EUR (455.9) billion. The loans to customers also comprises EUR 9.4 (7.8) billion in securities transactions due from private sector lending EUR 4.6 (6.2) billion in interest rate hedges and EUR 5.2 (5.6) billion in public sector lending. 8 Interim Report 2011 Rabobank Group

11 Loan portfolio by sector in billions of euros Loan portfolio by group entity mid-2011 Food and agri TIS Private individuals Domestic retail banking 66% Wholesale banking and international retail banking 22% Leasing 6% Real estate 4% Other 2% Of the increase in lending, EUR 4.4 billion which is virtually the entire amount was attributable to the local Rabobanks and Obvion. Fuelled by the depreciation of foreign currencies, including the US dollar, lending at Rabobank International was down and De Lage Landen posted only a modest increase in lending. Of the private sector lending, 48% was made up of loans to private individuals, 34% of loans to the trade, industry and services (TIS) sector, and 18% of loans to the food and agri sector. Loan portfolio TIS by industry mid-2011 Loan portfolio food and agri by industry mid-2011 Rental property 20% Finance and insurance (not banks) 17% Wholesale 11% Construction 6% Industry 6% Transport and warehousing 5% Activities related to real estate 5% Health care 4% Professional services 3% Retail non food 3% Other TIS 20% Dairy 19% Grain and oil seeds 19% Animail protein 17% Fruit and vegetables 11% Farm inputs 6% Food retail and food service 6% Flowers 4% Beverages 4% Other food and agri 14% Loans to private individuals were up 2% to EUR (208.0) billion. This portfolio is virtually entirely comprised of mortgage loans and consumer loans. At group level, the TIS portfolio grew by 1% to EUR (147.7) billion. Lending to the healthcare sector and financial institutions (not including banks) saw particular increases. Loans to the food and agri sector were stable at EUR 80.4 (80.6) billion, EUR 55.8 (55.6) billion of which was issued to the primary agricultural sector. Of private sector loans, 74% were issued in the Netherlands, 11% in the US, 9% in European countries other than the Netherlands, 4% in Australia and New Zealand, and 2% elsewhere. Increase in amounts due to customers Amounts due to customers have always been an important source of funding for lending at Rabobank. Customer deposits have become even more important under Basel III. Amounts due to customers saw a 2% increase at Rabobank Group in the first six months of 2011, rising to EUR (298.8) billion. Most of these amounts were deposited with local Rabobanks, which posted a 3% increase in amounts due to customers to EUR (192.8) billion. At the wholesale banking and international retail banking division, amounts due to customers were up too, rising by 1% to EUR 89.0 (88.3) billion. The increase in amounts due to customers at the asset management business was 5%, pushing this item to EUR 17.5 (16.7) billion. 9 Financial developments

12 Breakdown of amounts due to customers in billions of euros Amounts due to customers by group entity mid-2011 Other Corporate time desposits Current accounts/ settlements accounts Saving desposits Domestic retail banking 65% Wholesale banking and international retail banking 29% Asset management and investment 6% The key component of amounts due to customers are savings deposits by private individuals, which rose by 5% to EUR (130.9) billion in the first half of the year. Of savings deposits, 83% were generated by domestic retail banking, 13% by wholesale banking and international retail banking, and 4% by the asset management business. Savings deposits from Direct Banking activities in Belgium, Ireland, Australia and New Zealand again showed considerable growth, increasing by 22% to EUR 14.2 (11.6) billion in the first six months of The number of clients using these foreign online banks was 395,000 (362,000) at 30 June Equity in billions of euros Other non-controling interests Hybrid capital Rabobank Member Certificates Reserves and retained earning Capital requirements Increase in equity thanks to retained earnings Rabobank Group s equity increased by 4%, reaching EUR 42.5 (40.8) billion in the first half of This rise was attributable to retained earnings and the USD 2 billion of hybrid financial instruments. Hybrid capital was up because of the issuing of hybrid financial instruments to the tone of USD 2 billion. Of equity, 60% is comprised of retained earnings and other reserves, 15% of Rabobank Member Certificates, 18% of hybrid capital and 7% of other non-controlling interests. External capital requirement Rabobank Group s external capital requirement amounted to EUR 18.4 (17.6) billion at 30 June This increase was due mainly to adjustments to the internal risk weightings. Of the total capital requirement, 91% relates to credit and transfer risk, 8% to operational risk and 1% to market risk. in billions of euros, mid-2011 Other risks Operational and business risk Interest rate and market risk Credit and transfer risk Economic capital External capital requirements Qualifying capital Rabobank Group uses the Advanced Internal Rating Based Approach, which has been approved by the Dutch Central Bank, to calculate the external capital requirement for credit risk for virtually the entire loan portfolio. The standardized approach is applied, in dialogue with the Dutch Central Bank, to portfolios with relatively limited exposure and to a few smaller foreign portfolios that are not yet subject to the Advanced Internal Rating Based Approach. Operational risk is determined using the regulator-approved internal model based on the Advanced Measurement Approach. Where market risk is concerned, Rabobank has permission to calculate the general and specific position risk using its own internal Value at Risk (VaR) models, based on the rules of CAD II (Capital Adequacy Directive). 10 Interim Report 2011 Rabobank Group

13 Economic capital by group entity mid-2011 Economic capital by risk type mid-2011 Domestic retail banking 36% Wholesale banking and international retail 32% Real estate 8% Leasing 5% Asset management and investment 4% Other 15% Credit and transfer risk 64% Operational and business risk 17% Interest rate and market risk 12% Other risks 7% Economic capital as an internal capital requirement Over and above the external capital requirement, Rabobank Group calculates the internal capital requirement based on an economic capital framework. The key difference with the external capital requirement is that allowance is made for any material risks and for Rabobank s creditworthiness. Rabobank applies a higher confidence level for economic capital (99.99%) than imposed by the external capital requirement (99.90%). A broad spectrum of risks is measured consistently to gain a more complete understanding of risks and to allow a more accurate weighing of risk and return. A series of models has been developed to weigh the risks incurred by Rabobank Group. These are credit, transfer, operational, business, interest rate and market risk. Market risk breaks down into trading book, private equity, currency, property and residual value risk. A separate risk model is used for the equity interest in Eureko. Economic capital was stable at EUR 22.3 (22.3) billion during the first half of Total economic capital is well below the available qualifying capital of EUR 38.3 (35.7) billion that is held to cover any potential losses. This sizeable buffer underscores the solidity of Rabobank Group. 11 Financial developments

14 Financial results of Rabobank Group Results (in millions of euros) 2011-I 2010-I Change Interest 4,507 4,347 4% Commission 1,513 1,413 7% Other results 1, % Total income 7,303 6,432 14% Staff costs 2,596 2,362 10% Other administrative expenses 1,471 1,278 15% Depreciation and amortisation % Total operating expenses 4,357 3,906 12% Gross result 2,946 2,526 17% Value adjustments % Operating profit before taxation 2,328 1,957 19% Taxation % Net profit 1,854 1,639 13% Bad debt costs (in basis points) % Ratios Efficiency ratio 59.7% 60.7% Return on equity 10.8% 10.2% RAROC 16.8% 14.8% Balance sheet (in billions of euros) 30- Jun Dec-10 Total assets % Private sector loan portfolio % Amounts due to customers % Capital requirements (in billions of euros) Capital requirement % Economic capital Capital ratios Tier 1 ratio 16.2% 15.7% Core tier 1 ratio 12.7% 12.6% Number of employees (in FTEs) 59,380 58,714 1% Notes to financial results of Rabobank Group Income up 14% At Rabobank Group, total income rose by 14% in the first half of 2011 to reach EUR 7,303 (6,432) million. Interest income was up 4% to EUR 4,507 (4,347) million. The local Rabobanks in particular issued more loans and saw their customer deposits increase. Commission income was up 7% to EUR 1,513 (1,413) million, mainly as a result of a rise in commissions from asset management activities. Higher income from Global Financial Markets and Professional Products, an improvement in trading income at Sarasin, and an increase in residual value gains at De Lage Landen were factors in the rise in other income. In combination with favourable developments in the yield curve, with rates rising and the curve steepening, this resulted in a 91% increase in other income to EUR 1,283 (672) million in the first half of Interim Report 2011 Rabobank Group

15 Operating expenses up 12% At Rabobank Group, total operating expenses rose by 12% in the first half of 2011 to reach EUR 4,357 (3,906) million. The rise in insourced staff at the local Rabobanks and Rabobank Nederland as well as higher pension costs contributed to the 10% upsurge in staff costs to EUR 2,596 (2,362) million at group level. Fuelled by higher other administrative expenses at Rabobank International and De Lage Landen, these expenses swelled by 15% to EUR 1,471 (1,278) million at group level. Higher amounts were written down on buildings, fixtures and fittings, and software, resulting in an increase in depreciation and amortisation charges by 9% to EUR 290 (266) million. Bad debt costs at 29 basis points Despite the economic recovery, which had a positive effect on developments in value adjustments, various factors nevertheless fuelled a limited increase in bad debt costs. The continuingly poor property market, for instance, caused an increase in value adjustments at the real estate activities and the local Rabobanks recognised an additional provision for greenhouse vegetable growers as a result of the EHEC crisis. At Rabobank International, value adjustments continued to be high because of the Irish-based ACCBank. For the first six months of 2011, value adjustments at group level stood at EUR 618 (569) million. As a measure of average lending, bad debt costs were virtually stable at 29 (27) basis points, which is slightly above the long-term average of 24 basis points. Net profit up 13% Rabobank Group s net profit increased by 13%, reaching EUR 1,854 (1,639) million in the first half of The tax expense was EUR 474 (318) million, which corresponds to an effective tax rate of 20.4% (16.2%). Most of the profit originates in countries with a high tax burden. Net of noncontrolling interests and payments on Rabobank Member Certificates and hybrid financial instruments, an amount of EUR 1,340 (1,176) million remains. This was used to strengthen equity. RAROC up 2 percentage points Risk Adjusted Return On Capital (RAROC) is used as a measure whereby profitability is consistently weighed against risk. The RAROC ratio is used also for pricing at transaction level and in the loan approval process. Thanks to the increase in net profit, Rabobank Group s RAROC after taxation amounted to 16.8% (14.8%) in the first half of 2011, which represents a rise by 2 percentage points on the same period last year. 13 Financial developments

16 Domestic retail banking Share in net profit Rabobank Group 2011-I Domestic retail banking 57% Robust performance driven by economic recovery An increase in global demand powered moderate economic recovery in the first six months of Many customers were able to reap the benefits. At domestic retail banking, this led to a limited 2% growth in private sector lending to EUR billion. Amounts due to customers increased by 3% to EUR billion. Rabobank managed to retain its market shares in its key markets. Bad debt costs showed a limited rise in the first half of 2011, however, despite the economic recovery, one of the reasons being the EHEC crisis in greenhouse vegetable horticulture. Value adjustments increased by EUR 41 million to EUR 218 million, which corresponds to bad debt costs of 15 basis points of average lending. Net profit of the domestic retail banking division was up 14% in the first half of 2011 to EUR 1,058 million. The efficiency ratio improved by 2.6 percentage points, landing to 55.7%. For years now, Rabobank has put the customer first and we are fully committed to stepping up to our responsibility. Rabobank has made an appeal for a full-scale reform of the housing market to pull it out of its slump. On 1 July, the Dutch Cabinet decided to temporarily reduce the property transfer tax rate to 2%, which Rabobank sees as an important first step. In addition, Rabobank supported greenhouse horticulture businesses by being flexible with customers in that sector offering them extended repayment options or temporary reduced-rate loans. Appeal to reform the housing market In June 2011, Rabobank made an appeal for a full-scale reform of the Dutch housing market, which has stagnated because of the credit crunch and stricter mortgage rules, among other factors. One of the elements of Rabobank s proposal is the annuity-based mortgage. Kickstarting the first-time buyers market, for instance by deferring the repayment obligation or by offering scope for customised mortgages sets the market in motion, which will restore trust. Repayments on this mortgage will reduce the national mortgage debt, which will benefit the country s financial stability. Formalising all measures in an agreement will build the trust and stability that the consumer needs. The proposal has opened the door to a debate about the problems in the housing market with all relevant stakeholders. On 1 July, the Dutch Cabinet decided to reduce the property transfer tax rate to 2% for a period of one year, which Rabobank sees as an important first step towards shaking the housing market into motion. In response, Rabobank has decided to lower the threshold for first-time home buyers; any mortgage they take out before 31 December 2011 will be interest-free for the first four months. Employer of choice for highly educated people Intermediair, a Dutch weekly, has named Rabobank as the employer of choice in the Netherlands. In its annual survey of highly educated people, it polled what company they would most like to work for. Respondents mentioned Rabobank most often for the third consecutive time. Interesting positions, an excellent pay and benefit package, growth opportunities and an appealing corporate culture were cited as the reasons. They also appreciated that Rabobank makes clear choices and sticks with them consistently. 14 Interim Report 2011 Rabobank Group

17 Fighting for mortgage customers Competition in the mortgage market is heating up. Being the market leader in this segment is not self-evident. The competition is winning back the trust of the customer and is focusing more than ever on the long-term interests of customers. In this market, Rabobank was particularly concerned with customers who wanted to refinance their mortgage or whose mortgage was up for interest revision. It should not automatically be assumed that these customers will stay loyal to the bank. We rely on our advisers to make the difference in retaining our customers. Customers are advised a suitable and appropriate product on the basis of interviews with our advisers. In a survey held by the Dutch Consumers Association, the Rabo OpbouwHypotheek was ranked first as the best mortgage product. The Consumers Association s survey looked at 27 mortgage lenders and their products; the terms and conditions of the Rabo OpbouwHypotheek received the best ratings. Late in May, the Dutch Competition Authority (NMa) concluded that the competition on the mortgage market is adequate and that margins on mortgages are back to where they were before the credit crunch. Stable market shares Two of the focus areas of the domestic retail banking division in 2011 are better client services and profitable market leadership. Rabobank s leading position is reflected in our sizable shares of the mortgage market, the savings market, the trade, industry and services (TIS) market, and the food and agri sector. The total volume of the mortgage market over the first six months of 2011 was relatively limited despite growth in that market. This market after all has contracted considerably over the past few years. At 29.0% (29.3%), Rabobank Group s share of the mortgage market was more or less stable in the first half of the year. The local Rabobanks achieved a market share of 25.7% and Obvion of 3.3%. The Dutch savings market grew by 4% to EUR billion in the first half of Rabobank Group s share of this market was virtually stable at 39.4% (39.7%). The market share of the local Rabobanks was 38.0% (38.2%) and that of Robeco Direct stood at 1.4% (1.5%). Rabobank Group also more or less managed to maintain its position in the TIS market, the share of which was 42% (43%). Rabobank Group s share of the agricultural market stood at 84% at year-end Market shares in % Mortgages Savings Trade, industry and services Teaching financial literacy to children Rabobank wants to help children become financially literate. With the help of Rabobank, a school TV channel developed the Financial Literacy teaching module for primary schools, which was awarded the Gold Comenius EduMedia Award The award is presented annually for the best European educational software and web application. Sharper customer focus at mortgage lender Obvion Obvion is increasingly gearing its products and services to the needs of consumers and customers. In 2011, Obvion s own product approval committee, which was formed late in 2010, started to review all Obvion products from the perspective of the company s strategy, its CSR policy and the outcomes of customer surveys. In addition, Obvion developed the website (know your mortgage) for consumers. In recent years, there has been a lot of debate in the mortgage market about quality improvements in terms of service provision, products, advice and fees. But not enough attention 15 Domestic retail banking

18 had been paid to actively educating customers about products. This website, which was initiated by Obvion and Dukers & Baelemans, an institute of learning, is meant to provide background information to customers. Obvion introduced the Startgerusthypotheek mortgage with an interest rate rebate for first-time home owners. The rebate scheme was developed in collaboration with such parties as the Dutch Home Owners Association. The scheme makes it easier for housing associations to sell homes to their tenants by prefinancing an interest rate rebate of 20%. This facility, in combination with the Obvion mortgage and the mortgage advisory services of the Dutch Home Owners Association, bring purchasing a home within reach for a group of consumers. Reduction in tax relief for socially responsible investments Rabo Groen Bank has not issued any loans since October 2010 because of the Cabinet s decision to scale down the tax relief for private investors from 2.5% in 2010 to 1.2% in It does, however, still issue new short-term green bonds to fund loans granted in the past. The Dutch green banks and green funds have been involved in an intensive dialogue with the Cabinet since this decision was taken, the goal being to explore whether the planned spending cuts in the scheme might be achieved such that the banks would still be able to continue this environmental financing, which is often innovative in nature. Expectations are that we will know the outcome of the debate in the autumn. Dutch greenhouse horticulture struck by EHEC A few sectors, including greenhouse horticulture, are still suffering heavily. In dialogue with these sectors, Rabobank stepped up and will step up to its responsibility to help businesses that were affected by the crisis by meeting with other stakeholders in and outside the value chain in question in order to work out effective solutions. Rabobank is the largest financier of greenhouse horticulture in the Netherlands. In the spring of 2011, food crop horticulture was hit by the effects of the EHEC crisis. The EHEC bacteria outbreak in Germany for a short time caused a complete standstill in Dutch exports of fresh vegetables to Germany, one of largest importers of Dutch greenhouse vegetables. This was a major setback for Dutch greenhouse horticulture businesses. Rabobank felt that sound businesses should not fall victim to this temporary slump in demand. For this reason, these growers were offered support where justified in the form of flexibility in credit lines and extended repayments on loans with extended maturities. Low-interest bridging loans were made available to businesses with additional liquidity deficits. Supporting corporate clients To help corporate clients realise their plans, the local Rabobanks used Rabo Stimuleringskapitaal (incentive capital), which was introduced late in These subordinated loans are proving to be a powerful instrument, particularly for fast-growing, innovative businesses and for business transfers. The scheme offers promising businesses a subordinated loan at an attractive rate but with a risk-bearing component. In the first half of 2011, Rabobank made the best possible use of guarantee schemes of the Dutch Ministry of Economic Affairs, Agriculture & Innovation if the customer was unable to independently obtain a bank loan. With a market share of over 50% in such schemes as Borgstelling MKB Kredieten (guarantee scheme for loans to SMEs) and Garantie Ondernemingsfinancieringsregeling (guarantee scheme for business finance), the bank managed to help customers get loans. Rabobank is a preferred partner of Port4Growth, a platform for fast-growing companies. They meet regularly teaming up with each other and with expert partners to work on revenue growth. Not seldom does it involve growth spurts from a few million to, say, EUR 20 million over a timespan of a couple of years. Over the past six months, 120 fast-growing companies have helped Rabobank develop the financial growth model. Other fast-growing companies and bank experts offer appropriate advice on the issues underlying this model. By collaborating with Stichting Ondernemersklankbord (a feedback group for businesses), Rabobank offers entrepreneurs access to experienced business advisers. All relevant of services are being provided to SMEs and agricultural businesses, from starting up a business to terminating it. 16 Interim Report 2011 Rabobank Group

19 Data submission via SBR By fulfilling an active, pioneering and driving role in the Standard Business Reporting (SBR) project, Rabobank helped shape the standard submission of business data to banks and government bodies. In the first half of 2011, the government decided to designate SBR as the exclusive channel by which to submit annual figures and other accounting information of businesses to the government. Rabobank has already facilitated data submission via SBR since April The use of a standard submission protocol and standard data will reduce the administrative burden on businesses. Focus on the customer Customer focus has been a key area of attention over the past six months. One of the issues in this regard was the corporate social responsibility (CSR) framework that was adopted in June Starting from a number of principles, it combines customer focus, commercial considerations and CSR aspects into a coherent standard for service provision. In addition, the product development process was improved and the product approval process given further structure. Food security and sustainability in value chains The Dutch food and agribusiness is not only important to the Netherlands and production capacity in North-West Europe, but it also plays an important role in spreading knowledge and base products across the globe. Because of its position as market leader, Rabobank expects to have to get even more actively involved over the next few years in discussions about food security and creating a more sustainable supply chain. Rabobank is capitalising on these developments by defining an integrated vision of themes such as the bio-based economy, water, energy and crop protection, supply chain integration, scale increases and food supply. Better labour relations in the mushroom sector On Rabobank s initiative and in dialogue with the mushroom sector, an agreement was reached with all stakeholders in the chain about introducing responsible labour relations and working conditions. Focus is on certification of the employment conditions of foreign workers in the Dutch mushroom sector. Rabobank takes the view that businesses not qualifying for certification will not be issued loans going forward. Policy for livestock farming Based, in part, on its own Food & Agribusiness Principles, Rabobank formulated a new policy for livestock farming in the Livestock Farming Position Paper. This policy has been narrowed down to livestock farming in the Netherlands. Other countries will follow in the course of This is how Rabobank puts its ambition to make livestock farming more sustainable into practice. Up-to-date CSR expertise available to account managers Starting this year, the bank s account managers have had access to specific, up-to-date CSR expertise about all SME sectors and 25 sub-sectors. Rabobank wants CSR to be a key topic in interviews between account managers and customers or potential customers. Loan application officers are also informed of developments in CSR because sustainability is an important aspect in reviewing customer loan applications. CSR is also discussed extensively in the bank s external publications. It is one of the main themes of the report entitled Visie op de Groothandel (vision of the wholesale trade), which was published recently. Later this year, the bank will publish a study entitled Industrie (industry), which delves into CSR practices in the manufacturing industry. Tentative growth in lending Total private sector lending at domestic retail banking increased by 2% in the first half of the year, rising to EUR (286.9) billion, which kept growth at about the same level as in the first six months of Of loans, most were issued to private individuals (69%), 21% to the TIS sector, and 10% to the food and agri sector. Loans to the TIS sector were up 2% to EUR 62.7% (61.1) billion. In addition, loans to private individuals, which are comprised almost entirely of mortgage loans, rose by 2% to EUR (196.8) billion. Loans to the food and agri sector were virtually stable at EUR 28.9 (29.1) billion. Within this portfolio, lending to the meat sector grew by with lending to the diary sector contracting. 17 Domestic retail banking

20 Loan portfolio by sector in billions of euros Food and agri TIS Private individuals Simplification of savings products and introduction of Rabo SpaarWijzer Early in 2010, it was decided to change the range of personal savings products to meet customer needs for simplicity, convenience and transparency. In May 2010, we took a first step by combining the Rabo TeleSparen and Rabo RendementRekening savings accounts into a simple product for traditional savings customers: Rabo SpaarRekening. On 1 February 2011, the Rabo InternetBonusSparen and Rabo InternetLoyaalSparen online savings accounts were merged into Rabo InternetSparen, a new online savings account with three classes of account balances. The spring of 2011 saw the launch of Rabo SpaarWijzer, an online savings guide, which was introduced in support of the savings campaign. This campaign was developed on the basis that customers who know what they are saving for reach their goals sooner. Rabo SpaarWijzer is an online tool to help customers gain an understanding of the savings product that is best suited to their goal. With it, Rabobank wants to take on the role of a financial partner to assist customers in achieving their personal ambitions. Rabobank also simplified its offering of business savings products in 2011, reducing them to three: a freely accessible account (without notice), an account with a quarterly bonus and a time deposit. Domestic retail banking saw its amounts due to customers increase by 3%, rising to EUR (192.8) billion in the first half of Savings deposited by private individuals, which is the largest category of amounts due to customers, were up 2% to EUR (112.6) billion. Introduction of new current accounts In 2010, Rabobank started to introduce four new current accounts. That year, over 3.3 million customers were migrated to a new account. Another more than 1.3 million customers were offered a new account in the first half of As a result of this large-scale operation, which should be completed by the end of 2011, all customers have been assigned the account that best suits their needs. Customers pay only for what they need and their payment transactions are more efficient thanks to a growing spectrum of online features. Transparent insurance commissions and change in calculation method Interpolis, a leading insurer in the Netherlands, is a subsidiary of Eureko. Rabobank Group has a 31% equity interest in Eureko. The local Rabobanks sell Interpolis insurance policies. Being the insurance provider, Interpolis pays a brokerage fee to Rabobank. Interpolis and Rabobank plan to disclose the amount of this fee with all their retail customers. By doing so, Rabobank goes a step further than the government proposal, which tells banks to disclose the amount of the fee only to customers who ask. The method for calculating commissions will also be changed. Whereas commissions used to be based on a percentage of the insurance premium, the fee will now be a fixed amount for each policy. Starting this November, all Alles in één Polis policyholders will receive a new certificate of insurance stating the amount of the fee. By the end of 2012, all retail customers will have insight into this new commission structure. Reduction in paper consumption In tandem with Interpolis and other insurers, Rabobank is working towards reducing its paper flows. The ZekerVanJeZaak business policy, for instance, offers corporate clients the option to update their details in a fully online environment, so that they are guaranteed not to be underinsured. This creates more customer-friendly and efficient processes, and reduces paper consumption. As more and more customers rely on online banking for their daily banking needs, we are also reducing the number of paper-based bank statements. 18 Interim Report 2011 Rabobank Group

21 Increase in number of Interpolis insurance policies Interpolis operates in different markets, offering a broad range of products, including Alles in één Polis package insurance for private individuals, ZorgActief Polis health insurance, and the ZekerVanJeZaak Polis and Bedrijven Compact Polis business insurance policies. The number of Alles in één Polis policies arranged by the local Rabobanks was more or less stable at about 1,320,000 (1,321,000) in the first half of 2011, while the percentage of customers with three or more insurance products under an Alles in één Polis policy increased by 0.5 percentage points to 57.5% (57.0%). Interpolis also sold more health insurance policies, with the number of ZorgActief Polis policyholders rising by 7% to 191,000 (179,000) in the first half of the year. The increase in ZekerVanJeZaak Polis policies sold (a 22% rise to 38,000 (31,000)) largely comes at the expense of the Bedrijven Compact Polis policy (a 5% drop to 172,000 (181,000)). Financial results domestic retail banking Results (in millions of euros) 2011-I 2010-I Change Interest 2,576 2,483 4% Commission % Other results Total income 3,511 3,254 8% Staff costs 1,103 1,049 5% Other administrative expenses Depreciation and amortisation Total operating expenses 1,954 1,897 3% Gross result 1,557 1,357 15% Value adjustments % Operating profit before taxation 1,339 1,180 13% Taxation % Net profit 1, % Bad debt costs (in basis points) % Ratios Efficiency ratio 55.7% 58.3% RAROC 26.7% 24.5% Balance sheet (in billions of euros) 30- Jun Dec-10 Total assets % Private sector loan portfolio % Amounts due to customers % Capital requirements (in billions of euros) Capital requirement % Economic capital % Number of employees (in FTEs) 27,199 27, Domestic retail banking

22 Notes to financial results of domestic retail banking Income up 8% Total income at the domestic retail banking division rose by 8% to EUR 3,511 (3,254) million in the first half of Interest income was up 4% to EUR 2,576 (2,483) million in line with the average increase in assets. The drop in insurance commissions contributed to the 2% fall in commission income to EUR 673 (685) million. Insurance commissions at the local Rabobanks amounted to EUR 156 (185) million. Thanks, in part, to higher dividend distributions by Rabobank Nederland, other income soared to EUR 262 (86) million. Operating expenses up 3% Domestic retail banking saw its total operating expenses increase by 3% to EUR 1,954 (1,897) million in the first half of Staff costs were up 5%, reaching EUR 1,103 (1,049) million, due mainly to a higher number of insourced staff contracted, for instance, for temporarily filling vacancies and carrying out projects. The headcount of permanent staff dropped to 27,199 (27,322) FTEs. At EUR 792 (789) million, other administrative expenses were more or less the same as in the first half of Depreciation and amortisation charges were stable at EUR 59 (59) million. Bad debt costs at 15 basis points Overall, the economic upswing in the first half of 2011 had a positive effect on developments in bad debt costs at domestic retail banking. Owing, in part, to the EHEC crisis in greenhouse horticulture, value adjustments saw an increase in the first six months of the year, rising to EUR 218 (177) million. Expressed in basis points of average lending, bad debt costs stood at 15 (13) basis points on an annual basis, which is just above the long-term average of 12 basis points. Of lending, 69% consists of residential mortgages; bad debt costs on this part of the portfolio remained very low. External capital requirement down 1% In calculating the capital requirement, risks associated with loans to private individuals and corporate clients are estimated using internal rating and risk models. The capital requirements for the domestic retail banking division saw a limited drop in 2011 on year-end 2010 to EUR 6.6 (6.7) billion. Economic capital, i.e. the internal capital requirement, stood at EUR 8.0 (8.1) billion. 20 Interim Report 2011 Rabobank Group

23 Wholesale banking and international retail banking Share in net profit Rabobank Group 2011-I Wholesale banking and international retail banking 27% Leading position in the Netherlands and handsome growth in savings on international scale Private sector lending at Rabobank International saw a marginal drop to EUR 97.8 billion in the first six months of 2011, due, in part, to the depreciation of the US dollar. Loans to the food and agri sector were stable at EUR 44.1 billion and the international retail portfolio stood at EUR 33.1 billion. Favourable developments in the Direct Banking business continued on into the first half of 2011; savings deposits at this division were up 22% to EUR 14.2 billion. Net profit fell by 30% to EUR 506 million. Profit in the first half of 2010 was affected by the sale of part of the equity interest in Yes Bank. The efficiency ratio was up 6.4 percentage points to 51.0%. Bad debt costs landed at 66 basis points of average lending. Rabobank International aspires to become the leading wholesale bank in the Netherlands, and this ambition was pursued vigorously in the first half of Now that it has been granted a banking licence in India, Rabobank International is expanding its activities in a key growth market for food and agribusiness. Rabo Development received the local seal of approval for acquiring an equity interest in Brazilian-based Banco Sicredi. In the year under review, Rabobank was involved in several initiatives to make food and agri chains more sustainable. Rabobank: the leading Dutch wholesale bank In collaboration with the local Rabobanks, the Dutch wholesale banking division provides services to wholesale clients. It was established in 2010 that there were good opportunities in the market to broaden the service provision to these clients and to increase the client base. Contacts with existing and prospective clients were intensified. Becoming our clients principal bank is our aim in the mid-corporate segment. Large corporates usually do not have a principal bank; they look for a banking partner in each large transaction. Rabobank wants to be the benchmark for specific products in the wholesale market. Being an all-finance bank and boasting a large global network, Rabobank is perfectly placed to offer excellent services to Dutch corporate clients. Experienced bankers are crucial in this regard and we have hired extra people who fit the bill. The results so far have been promising; our share of the wholesale market has grown since last year. Winner of Incompany 500 survey For the third consecutive year, Rabobank came first in the independent Incompany 500 survey, which ranks the reputation and customer satisfaction scores of businesses. Rabobank finished far ahead of the competition in terms of being the number one business partner and employer of choice. As employer of choice, Rabobank received 25% more preference votes than the runner-up; as the most popular business partner, we led by no less than 50%. 21 Wholesale banking and international retail banking

24 Sharing knowledge with the food and agri sector Rabobank plays a role in serving and connecting the entire food chain from primary production to the marketing of products by large multinationals. It is the international wholesale banking division s ambition to become the leading global food and agri bank. It is working towards fulfilling this ambition by capitalising on international growth opportunities in this sector. Rabobank also plays an important role with regard to sharing knowledge of food and agri dilemmas. One of the challenges for the agricultural sector is to produce enough food while there is less fertile agricultural land and the diet of people in emerging economies is changing. These developments make running an agricultural business more complex; sharing knowledge is crucial. Rabobank discusses these issues with its clients on a global scale, for instance in Advisory Boards that have been set up in several regions. Banking licence in India and office opening in Germany India s Central Bank has granted Rabobank a licence to open an office in Mumbai. Rabobank already had a presence in India through Rabo India Finance, a subsidiary that offers services in the areas of corporate finance, mergers & acquisitions, and equity & corporate advisory, and through the Rabobank Foundation. With the new licence, Rabobank will have the option of broadening its service provision by offering working capital and trade finance, foreign exchange trading and fixed-income products. India being a key growth market with a large food and agri sector, this step-up in services is perfectly in line with the strategy. For the same reason, Rabobank is considering also expanding its current operations in Turkey by applying for a banking licence there. Rabobank International Services increased its number of offices in Germany, which is an important trading partner for the Netherlands. As Northern Germany is the fastest growing region in the country, Rabobank opened an office in Hamburg, the region s economic hub, that provides support to mainly Dutch clients that do business. Best soft commodities bank In the first half of 2011, more customers yet again made use of our Trade & Commodity Finance services. The fact that these services are much appreciated was reflected in Euromoney, a business and investment magazine, proclaiming Rabobank the Best Soft Commodities Bank The achievements of Trade & Commodity Finance are particularly apparent in growth markets such as South America and Asia, both of which are key regions where Rabobank International is successfully building positions. Soft commodities are agricultural base products such as crops and animal products. This award shows that Trade & Commodity Finance is successful at helping customers meet their financing needs and mitigating risks associated with buying and selling soft commodities. The agricultural knowledge of our people contributes to this success. Partial IPO for Bank BGZ Poland is another key food and agri market with excellent growth perspectives, which is why Rabobank has a 59% equity interest in Bank BGZ. Bank BGZ is looking to become market leader in the Polish food and agri market, and, similar to Rabobank, has agricultural roots. The Polish State floated part of its shares in Bank BGZ in the first half of As a result, 12% of the shares have been publicly traded on the Polish stock exchange since the end of May Further increase in savings deposits at foreign direct banks The volume of savings deposits generated by Direct Banking activities continued to grow in the first half of Most of the growth originated in Belgium, but fairly substantial contributions were made in Australia, Ireland and New Zealand too. Total savings deposits at these foreign online banks rose by 22% to EUR 14.2 (11.6) billion in the first half of This increase was achieved in Belgium, Ireland and Australia in particular. Eight years after the introduction of Belgian-based Rabobank.be, we managed to break the EUR 5 billion mark. Rabobank s Direct Banking activities are expected to continue to grow globally in 2011 and options are being explored for starting up operations in new countries. The success of Direct Banking is attributable to the competitive rate of interest that is offered on savings deposits in combination with transparent terms and Rabobank s robust reputation. The deposited savings are being used to fund the lending activities of the international retail banking division. 22 Interim Report 2011 Rabobank Group

25 Limited drop in retail loans due to currency effects Although the international retail activities grew in volume because we opened many new retail branches, the portfolio contracted due to currency effects. Retail loans fell by 2% to EUR 33.1 (33.9) billion, which corresponds to 33.8% (34.2%) of Rabobank International s total lending. The depreciation of the Australian and New Zealand dollars cause retail loans in those countries to increase by a mere 1% to EUR 14.0 (13.8) billion. The US dollar fell by 8% in the first half of 2011, as a result of which US retail lending was down 4% to EUR 9.9 (10.3) billion. A survey of 52,000 retail clients in California by J.D. Power and Associates showed that Rabobank was awarded the highest customer satisfaction score of all surveyed banks. Customers had particular appreciation for our commitment to their present and future needs. Bank BGZ s Polish retail loan portfolio grew by 5% to EUR 5.3 (5.0) billion and Irish-based ACCBank saw the volume of its retail loans land at EUR 3.9 (4.2) billion. The economic climate in Ireland caused a growing number of customers to default, so that additional provisions had to be made in the first half of Focus on sustainability in food and agri chains In the first half of 2011, Rabobank International again placed much emphasis on creating more sustainable food and agri chains by entering into a direct dialogue with customers and discussing their opportunities and threats on the one hand, and indirectly through active involvement in various sector initiatives taken to help distribution partners and nongovernmental organisations (NGOs) reach agreement to make their raw materials chains more sustainable on the other. Rabobank has been on the Executive Board of the Roundtable on Sustainable Palm Oil for some time now and took a seat on the Board of the Round Table for Responsible Soy in June. The bank is also involved in other sector impulses, such as Bonsucro (sugar) and the Better Cotton Initiative, a large-scale project to help cotton farmers, in India among other countries, use more sustainable production methods. The project offers the bank the opportunity to become a front-runner in this sector. The first results are highly encouraging. Farmers who produce better cotton at present save up to 50% on their cost of raw materials, which leads to an instant increase in income for them while improving their well-being. Supporting rural banks in developing countries Rabo Development helps existing banks with a rural orientation in developing countries to grow into professional, modern-day financial institutions. This is how Rabobank allows millions of customers in other parts of the world to access suitable financial services. As Rabobank takes non-controlling interests in these banks, most of their equity remains in local hands. While keeping their autonomy, these banks benefit from Rabobank s capital, expertise, products, networks and management skills. To this end, Rabo Development makes use of the knowledge and experience of Rabobank staff from all parts of the organisation. Experts in such areas as credit management, risk management, product development, distribution, ICT and HR are continually on hand to provide support to our partner banks. Rabo Development had non-controlling interests in the following seven partner banks at 30 June 2011: National Microfinance Bank of Tanzania, Zambia National Commercial Bank, United Rural Cooperative Bank of Hangzhou, China, Banco Terra of Mozambique, Banque Populaire du Rwanda, Banco Regional of Paraguay and Banco Cooperativo Sicredi of Brazil. Rabobank was granted consent to take an equity interest in Sicredi in the first half of Overall, the partner banks have created jobs for more than 20,000 local employees. Boasting a network of over 1,700 branches, they serve nearly 7 million customers in developing countries. Limited technical assistance is also being provided to non-partner banks, for instance in Africa and Asia. In addition to coordinating this technical assistance, Rabo Development s project managers offer support to the partner banks in a range of other areas in their relationship to Rabobank. Our agricultural value chain experts help partner banks improve their service provision to the agricultural sector, as well as helping Rabobank customers in other market segments restructure the value chain. Options are being explored for creating more structured partnerships with sponsors, which are key stakeholders in the Rabo Development programme. 23 Wholesale banking and international retail banking

26 In the first half of 2011, Rabo Development assigned about 45 man-months worth of banking specialists to foreign postings. Furthermore, Rabo Development had 17 managers and longterm consultants working abroad at 30 June In May 2011, Rabo Development injected capital into Banco Terra Mozambique, Rabo Development s only greenfield operation. This investment was meant to encourage the bank s further commercial and financial growth. Increase in food and agri share of lending Total private sector lending at Rabobank International showed a marginal 1% drop in the first half of the year, falling to EUR 97.8 (99.1) billion. The main reason for this decline was the depreciation of a number of foreign currencies. There was also a reduced need for loans in the market. Loans to Dutch corporate clients saw a 9% increase to EUR 12.5 (11.5) billion. Loans issued to the food and agri sector were stable at EUR 44.1 (44.1) billion, corresponding to 45.0% (44.5%) of total lending. Loans to the TIS sector fell by 3% to EUR 48.4 (49.7) billion. Lending was down in particular in the industrial sector and the wholesale trade. Retail loans stood at EUR 5.4 (5.4) billion. Loan portfolio by sector in billions of euros Loan portfolio by region Food and agri TIS Private individuals America 38% Europe excluding the Netherlands 27% Australia and New-Zealand 18% The Netherlands 13% Asia 4% Interim Report 2011 Rabobank Group

27 Financial results of wholesale banking and international retail banking Results (in millions of euros) 2011-I 2010-I Change Interest 1,399 1,416-1% Commission % Other results % Total income 2,092 1,989 5% Staff costs % Other administrative expenses % Depreciation and amortisation % Total operating expenses 1, % Gross result 1,026 1,102-7% Value adjustments % Operating profit before taxation % Taxation % Net profit % Bad debt costs (in basis points) % Ratios Efficiency ratio 51.0% 44.6% RAROC 13.2% 18.7% Balance sheet (in billions of euros) 30- Jun Dec-10 Total assets % Private sector loan portfolio % Capital requirements (in billions of euros) Capital requirement % Economic capital % Number of employees (in FTEs) 15,572 15,197 2% Notes to financial results of wholesale banking and international retail banking Income up 5% Total income at Rabobank International was up 5% to EUR 2,092 (1,989) million in the first half of Interest income was stable at EUR 1,399 (1,416) million because of a reduced need for loans in the market and currency effects. Commissions rose by 3% to EUR 311 (301) million. Other income saw a 40% increase to EUR 382 (272) million thanks to higher income from Global Financial Markets. Operating expenses up 20% Rabobank International s operating expenses increased by 20% to EUR 1,066 (887) million in the first half of the year. Staff costs were up 23% to EUR 586 (475) million, owing, in part, to an additional pension charge for UK-based staff, and an increase in headcount by 2% to 15,572 (15,197) FTEs. Fuelled by the expansion of the number of retail branches, the cost of integrating the acquisitions made in 2010 and higher IT and marketing expenses, other administrative expenses increased by 18% to EUR 429 (363) million. Depreciation and amortisation was up slightly, rising to EUR 51 (49) million, due in particular to higher software amortisation. 25 Wholesale banking and international retail banking

28 Bad debt costs at 66 basis points Value adjustments at Rabobank International stood at EUR 301 (252) million in the first half of About two-thirds of these adjustments related to ACCBank s loan portfolio. At 66 (55) basis points of the average lending portfolio, bad debts costs are above the long-term average of 54 basis points. External capital requirement up 8% Rabobank International s capital requirement saw an 8% increase to EUR 7.0 (6.5) billion in the first six months of the year due in particular to changes in internal risk weightings. Economic capital, i.e. the internal capital requirement, stood at EUR 7.2 (7.4) billion. 26 Interim Report 2011 Rabobank Group

29 Asset management Share in net profit Rabobank Group 2011-I Asset management 7% Stability in assets under management and held in custody for clients Assets managed by Rabobank Group s asset management business in the first half of 2011 were virtually stable at EUR billion. Cash flows at Robeco and Sarasin stood at EUR 4.9 billion and EUR 3.2 billion respectively. Equities and bonds showed a mixed picture; investment returns were EUR 2.5 billion negative on balance. The depreciation of the US dollar had an adverse effect on the volume of assets under management. The total negative currency loss was EUR 4.6 billion. Robeco s strategic reorientation resulted in a lower headcount in the first half of Average assets managed for the period saw an increase compared with the first half of 2010, causing commissions to go up. This, for its part, contributed to an upswing in net profit from asset management to EUR 135 million. With respect to responsible investments, Rabobank, Robeco, Sarasin and Schretlen & Co took important steps towards achieving two objectives: further alignment of investment services to the UN Principles for Responsible Investments and deeper integration of responsible investment practices across the full investment product offering. New strategy prompting organisational changes at Robeco Robeco defined its strategy for the period in In the first half of 2011, it continued on the course towards strengthening its position as market leader in the Netherlands and introducing more focus with respect to the number of markets and clients. One of the pillars of this strategic reorientation is greater emphasis on cost control. Partly as a result of this, Robeco has managed to bring about a further reduction in its headcount over the first six months of In 2011, the asset manager will continue to pursue commercial growth while keeping costs at an acceptable level. Rabobank Private Banking and Schretlen & Co Collaborative ties between Rabobank Private Banking and Schretlen & Co have been substantially strengthened over the past period. One of the pillars of the cooperation is the provision of Schretlen services through local Rabobanks. Preparations to facilitate this are in full swing. At present, local Rabobanks are still limited to offering Rabo Beheerd Beleggen asset management services, which showed significant growth over the past six months, partly because of the introduction of an investment fund and an index tracker. In addition, new investment parameters were formulated that are meant primarily to align the goals and needs of customers, or their risk appetite, in respect of the portfolio. This target risk profile is a reflection of three interrelated aspects from the investment parameters: the bandwidths of the asset mixes, the risk-spreading rules within equities and bonds and other products, and the offering of investment instruments. In addition, a new range of investment funds was put together that combines the best of Rabobank and Schretlen & Co. In doing so, the number of funds and fund houses was reduced. 27 Asset management

30 Fund houses are selected based on quantitative on both quantitative criteria such as results, risks and costs, and qualitative aspects such as information provision, quality of the investment process and the extent to which they meet sustainable investing requirements. A range of index trackers will be added to the new offering of investment funds. Targeted investments in growth initiatives at Sarasin Sarasin continues to reap the benefits of the broad geographical spread of its operations across global growth markets. In addition to targeting Switzerland, Sarasin also focuses on markets in Europe, the Middle East and Asia. As part of its selective growth strategy, Sarasin opened a sixth Swiss branch in Luzern in July 2011, and a fourth German branch in Cologne. There are no plans at present to tap new markets. Instead, Sarasin seeks to leverage its full potential in existing markets in order to guarantee a cost-efficient approach. Robeco and Sarasin investment funds: positive returns despite mixed picture at stock exchange Many stock exchanges dropped slightly in the first half of 2011 and bond yields showed a moderately positive picture on average despite the public debt crisis. The AEX Index and the MSCI World Index were down about 2%, including reinvestment of dividend income. The MSCI Emerging Markets Index dropped by 6.7%. The Robeco and Sarasin investment funds generally achieved good returns. Overall, 65% of assets managed by Robeco outperformed the benchmark for the first six months of 2011, against 62% for the past three years. Integrating responsible investments into Rabobank Group service offering Rabobank, Robeco, Bank Sarasin and Schretlen & Co have taken important steps over the past two years towards achieving two joint objectives: aligning their investment services to the UN Principles for Responsible Investment and integrating responsible investment practices across the full investment product offering. In the period under review, for instance, Rabobank added details to the so-called fund selector on its investment website, allowing investors to review the extent to which a fund meets socially responsible investment criteria. Schretlen & Co offers its clients the option of defining their own criteria for portfolio structuring. This feature is used in particular for bodies such as congregations and charitable institutions that have usually formulated their own specific responsible investment criteria based on their role in society. The group ambitions will be fleshed out further in the second half of 2011 via the Sustainable Investing programme. Robeco s responsible investment practices In the reporting period, Robeco continued on the chosen path where responsible investments were concerned. There was an increase in the number of investment portfolios for which various factors involving the environment, social aspects and governance issues are integrated into the investment process. These so-called ESG factors have now become part of quantitative investment models and their integration is applied to theme funds as well. Robeco plans to launch several food and agri-related products in the years ahead. The revamped SAM Sustainable Agribusiness Equities fund has already been presented. While the asset management business is developing the product offering, Robeco, Robeco subsidiary SAM and Rabobank are also continuing to work on a programme that combines the areas of expertise of the three group entities. Assets managed by Robeco broken down by responsible investment instrument (in billions of euros) 30- Jun Dec-10 Total Assets invested in sustainable theme funds 5 4 Assets to which ESG factor integration is applied Assets on which dialogues with enterprises are ongoing Assets for which votes are cast Assets to which the exclusion policy can be applied Robeco s assets managed and held in custody under licence at SAM totalled EUR 7 (7) billion. 28 Interim Report 2011 Rabobank Group

31 Robeco actively involved in dialogue with businesses and exercising voting rights Robeco introduced new topics to include in the active dialogue with businesses and to vote on in shareholders meetings. It participated, for instance, in the PharmaFutures initiative, which has established a dialogue between investors and the pharmaceutical sector about trends in society such as the increasing power of the consumer and open innovation. Robeco also entered into a dialogue with various businesses about bribery and corruption. In addition, the asset manager again took an active role in the discussion about sustainable executive compensation. Boost in Sarasin s reputation for sustainable and responsible asset management With a market share of 27%, Bank Sarasin is the market leader in sustainable asset management in Switzerland. In 2011, it was awarded the title of Best Cross-Regional Sustainable Bank of the Year in the Sustainable Finance Awards 2011 of the Financial Times and the International Finance Corporation. Sustainable approach to nuclear power and controversial weapons policy Bank Sarasin s sustainability analysis proved its worth in the past six months: equities and bonds of businesses that generate more than 5% of their revenue from the production of nuclear energy were and are eliminated from all sustainable investment funds and all discretionary portfolio management mandates that are managed from Switzerland. In 2011, Bank Sarasin implemented a policy involving controversial weapons. This policy defines what Sarasin considers to be controversial weapons and how it approaches them in its service provision to clients and in its own investments. Stability in assets under management Positive cash flows, currency losses and negative investment returns more or less balanced out to keep assets managed and held in custody for clients virtually stable at EUR (270.4) billion in the first half of Assets managed by Robeco were up, although the result was the same in terms of euros because of the strong depreciation of the US dollar. Investment returns at Sarasin and the local Rabobanks had a negative effect on assets, while Robeco and Schretlen achieved positive returns. At group level, managed assets can be broken down as follows among Rabobank Group s subsidiaries: - Robeco: EUR (149.6) billion; - Sarasin: EUR 83.1 (82.5) billion; - Schretlen & Co: EUR 8.6 (8.4) billion; - Rabo Real Estate Group: EUR 7.3 (7.2) billion. The local Rabobanks have the other client assets in custody. Total inflow of assets into the asset management business was EUR 7.3 (9.7) billion. Of this amount, EUR 3.2 billion was attributable to Sarasin and EUR 4.9 billion to Robeco. The local Rabobanks experienced a limited outflow of assets. The inflow into Robeco subsidiaries Transtrend and Harbor Capital Advisors was EUR 1.0 billion and EUR 1.1 billion respectively. In addition, Robeco s sales offices contributed EUR 2.8 billion in assets. The stock markets showed a mixed picture in the first six months of 2011 and bond funds yielded moderate returns. This resulted in a negative return on investment of EUR 2.5 billion on balance. Assets under management and held in custody for clients by asset category Changes in assets under managment and held in custody for clients in billions of euros 280 Equity 47% Fixed income 28% Mixed 10% Money market 6% Alternatives 5% Real estate 3% Other 1% Cashflow Exchange results Investment resluts Sale Robeco France Other Asset management

32 Financial results of asset management Results (in millions of euros) 2011-I 2010-I Change Interest % Commission % Other results 110 (31) Total income % Staff costs % Other administrative expenses % Depreciation and amortisation % Total operating expenses % Gross result Value adjustments - - Operating profit before taxation Taxation Net profit Assets (in billions of euros) 30- Jun Dec-10 Assets under management and held in custody for clients Number of employees (in FTEs) 3,104 3,070 1% Notes to financial results of asset management Income up 46% Total income from the asset management business rose by 46% in the first half of 2011 to reach EUR 691 (473) million. Average assets managed over the period were up on the first half of 2010, causing commission income to grow by 18%, rising to EUR 499 (424) million. Interest income was virtually stable at EUR 82 (80) million. In 2011, Sarasin saw its income from trading activities recover from a low point in This contributed to the EUR 141 million increase in other income to EUR 110 (-31) million. Operating expenses up 11% Owing mainly to the strong appreciation of the Swiss franc and to a lesser extent the broadening of Sarasin s activities, staff costs increased by 15% to EUR 307 (266) million. This increase was a factor in the 11% rise in total expenses of the asset management business in the first half of 2011 to EUR 506 (455) million. Despite the appreciation of the Swiss franc, other administrative expenses were up no more than 5%, rising to EUR 140 (133) million, not in the least thanks to Robeco s cost reduction programme. Depreciation and amortisation charges rose by 5% to EUR 59 (56) million. The headcount of the asset management business saw a slight 1% increase to 3,104 (3,070) FTEs. 30 Interim Report 2011 Rabobank Group

33 Leasing Share in net profit Rabobank Group 2011-I Leasing 8% Strong increase in net profit thanks to higher interest income and lower bad debt costs In the first half of 2011, higher interest income and lower bad debt costs fuelled a EUR 53 million increase in net profit at De Lage Landen to EUR 154 million. Volumes were up and margins improved, leading to higher interest income, as a result of active portfolio management. In combination with a recovery of residual value gains, this had an upward effect on income. Moreover, the economic recovery and rigorous risk management drove a sharp 58-point drop in bad debt costs to 44 basis points. The efficiency ratio stood at 60.8%. Owing, in part, to the depreciation of the US dollar, lending at De Lage Landen saw only a limited increase to EUR 25.9 billion. The food and agri share of the portfolio was 26.9%. The consumer credit portfolio saw a EUR 0.3 billion increase to EUR 1.3 billion thanks to the acquisition of a consumer credit portfolio from Achmea. The Clean Technology business unit, which was formed in 2010, stepped up its activities, developing specific finance options and related expertise in concert with Rabobank. Vendor Finance well on course De Lage Landen s Vendor Finance division is well on course towards developing its plans. Portfolio growth was achieved in the period under review by fundamentally exploring how existing customers could best be supported. The Clean Technology business unit also stepped up its activities, developing specific finance options and related expertise in concert with Rabobank. New deals were closed, for instance, for funding solar panels and sustainable lighting products. De Lage Landen concluded a partner agreement with Philips Lighting for the Benelux and Scandinavia. Under the Philips Lighting Capital label, the two parties will offer finance solutions for innovative LED lighting and sustainable lighting systems for such sectors as greenhouse horticulture and education. Acquisition of Achmea consumer credits In the first half of 2011, De Lage Landen acquired a consumer credit portfolio containing several Achmea labels. De Lage Landen is now responsible for servicing all these labels. Being a specialist in consumer loans, De Lage Landen is well-placed to improve service quality and keep fees low. These are key aspects in the consumer credit market because pricing is one of its main marketing instruments. Some of the portfolio will be transferred to Freo, De Lage Landen s online consumer credit label. Freo has ambitious growth plans and this acquisition marks a leap forward in realising these plans. De Lage Landen s consumer credit portfolio grew by EUR 0.3 billion, reaching EUR 1.3 (1.0) billion in the first six months of Leasing

34 Third Service Centre for Athlon Athlon Car Lease, an international provider of operating leases for cars with activities in nine European countries, is a division of De Lage Landen. Globally, Athlon Car Lease operates about 210,000 (206,000) leases; it is market leader in the Dutch car leasing market with 126,000 leases. Athlon Car Lease opened its third service centre in the Netherlands in With it, the company wants to meet the need among lease car operators for a centralised location where all maintenance and repair works can be carried out. Four-pillar CSR strategy at De Lage Landen De Lage Landen s CSR strategy has four spearheads: sustainable and innovative leasing solutions, ethical and responsible business practices, eco-efficiency, and community involvement. These pillars are reflected in the day-to-day service provision and in developing partnerships with vendors. Developing sustainable and innovative solutions De Lage Landen subjected its portfolio of financed clients to a sustainability review. This helps the company test relevant sectors and industries for sustainability aspects. It was decided in addition to start monitoring the portfolio for financed sustainable products, which will allow De Lage Landen to gear its marketing to sustainability aspects of the financed asset going forward. De Lage Landen is also placing more focus on the full life cycle of leased assets. For this purpose, it has started to explore options for teaming up with partners where refurbishment and remanufacturing are concerned. De Lage Landen subsidiary Athlon Car Lease plans to develop into a one-stop shop for electric vehicles in the years ahead. Athlon currently operates about 125 electric cars. Its ambitions are greater than that, however. To realise its plans, it is working on partnerships with European energy suppliers in order to create charging facilities for electric cars. It has also teamed up with car manufacturers such as Renault, Opel and Tesla; about 250 electric cars are already on order. Athlon also focuses on battery leasing and analysing the residual values of electric vehicles. Community involvement through sponsoring De Lage Landen will again be sponsoring the Eindhoven Marathon for the next five years and plans to develop its sponsoring into a partnership between both parties so as to make the Eindhoven Marathon a grand event with record-breaking performances. De Lage Landen collaborates with the Worldwide Wildlife Fund (WWF) in the Clipper Round the World Race, within which scope nine employees from different countries will sail around the world. In this project, the leasing business hones in on WWF projects and donates financial resources to these projects. Focus is on water quality, maritime diversity and renewable energy. Moderate growth in lending On a global level, De Lage Landen endeavours to further increase the share of food and agri in its portfolio. This underpins Rabobank Group s international strategy. The food and agri share of the portfolio was up 1% to EUR 7.0 (6.9) billion in the first half of 2011, corresponding to 27% of the total portfolio. The US dollar fell by 8% in the period under review, weighing down the euro value of the US loan portfolio. This was one of the factors in limiting the increase in total lending at De Lage Landen to EUR 25.9 (25.7) billion. The share of lending in Asia continued to increase. The car lease portfolio was stable at EUR 2.6 (2.6) billion in the first half of Loan portfolio in billions of euros Loan portfolio by region mid-2011 Vendor Finance Consumer Finance Car Lease Healthcare and Clean Technology Construction, Transportation and Industrial Financial Institutions Office Technology Food and agriculture Europe 56% America 38% Asia/Pacific 6% Interim Report 2011 Rabobank Group

35 Financial results of leasing Results (in millions of euros) 2011-I 2010-I Change Interest % Commission % Other results % Total income % Staff costs % Other administrative expenses % Depreciation and amortisation % Total operating expenses % Gross result Value adjustments % Operating profit before taxation % Taxation % Net profit % Bad debt costs (in basis points) % Ratios Efficiency ratio 60.8% 55.6% RAROC 26.8% 18.6% Balance sheet (in billions of euros) 30- Jun Dec-10 Loan portfolio % Capital requirements (in billions of euros) Capital requirement Economic capital Number of employees (in FTEs) 4,884 4,835 1% 33 Leasing

36 Notes to financial results of leasing Income up 13% Total income at De Lage Landen was up 13% in the first half of 2011, rising to EUR 645 (570) million. Interest income rose by 16% to EUR 370 (318) million as a result of improved margins on new products sold. Commissions fell by EUR 5 million, landing at EUR 36 (41) million. Higher residual value gains on leased cars and other lease products fuelled a 13% increase in other income to EUR 239 (211) million. Operating expenses up 24% Owing in particular to an increase in other administrative expenses, total operating expenses at De Lage Landen rose by 24% to EUR 392 (317) million in the period under review. Staff costs were up 10%, reaching EUR 219 (200) million, due, in part, to an increase in headcount and periodic salary increases. The 48% rise in other administrative expenses to EUR 145 (98) million was largely attributable to accelerated amortisation of self-developed software. Depreciation and amortisation charges stood at EUR 28 (19) million. Bad debt costs at 44 basis points The quality of the lease portfolio improved thanks to rigorous risk management and an upswing in the economy, tempering De Lage Landen s value adjustments markedly by 55% to EUR 54 (120) million in the first half of Bad debt costs corresponded to 44 (102) basis points of average lending, which is 25 basis points below the long-term average of 69 basis points. Stability in external capital requirement De Lage Landen s capital requirement was stable at EUR 1.2 (1.2) billion in the first half of The required economic capital, i.e. the internal capital requirement, grew by 9%, rising to EUR 1.2 (1.1) billion. 34 Interim Report 2011 Rabobank Group

37 Real estate Share in net profit Rabobank Group 2011-I Rabo Real Estate Group 4% Increase in residential property transactions, lending and managed assets Despite the continually poor market for Rabo Real Estate Group, Bouwfonds Property Development managed to achieve 9% growth in the number of homes sold to 3,567. Sales in France and Germany contributed to this increase in particular. MAB Development developed commercial properties for an amount of EUR 126 (131) million. Lending at FGH Bank was up 4%, rising to EUR 18.5 billion. Value adjustments in the first half of the year were limited to EUR 49 million, which corresponds to bad debt costs of 49 basis points of average lending. Managed assets at Bouwfonds REIM saw a limited increase, rising to EUR 7.3 billion. Rabo Real Estate Group s net profit rose by EUR 2 million, landing at EUR 68 million. In order to take a unified approach to sustainable building, Rabo Real Estate defined three principles for a group-wide approach in the first half of 2011: promoting the sustainable use of natural resources, helping users achieve their property ambitions and improving the quality of the living environment. Hearings in Klimop case In the spring of 2011, the first hearings were held in the criminal proceedings against a network suspected by the Public Prosecutor of large-scale property fraud at the legacy Bouwfonds organisation and the Philips Pension Fund. The suspects include a number of former employees of the legacy Bouwfonds organisation. Some of them will be tried for membership of a criminal organisation. Expectations are that the hearings in the first instance will be finished by the end of Irrespective of the criminal proceedings, the Public Prosecutor s Office, the Philips Pension Fund and Rabo Real Estate Group again negotiated repayment schedules in the period under review with a number of suspects in the case. Rabo Real Estate Group is preparing civil suits against parties that defrauded the legacy Bouwfonds organisation and with whom no repayment schedules have been agreed as yet. In addition, as part of Customer Due Diligence (CDD), more in-depth investigations were conducted, where appropriate, into parties mentioned in, or associated with, the fraud case. Mindful of Rabo Real Estate Group s CDD policy, these parties were given a CDD classification based on available information. This has led to Rabo Real Estate Group severing ties with a number of customers. Dutch Central Bank policy rule incorporated into integrity procedure In the spring of 2011, the Dutch Central Bank (DNB) published the Policy Rule on Integrity in Commercial Real Estate Operations. In it, DNB stipulated that financial institutions, in their statutory integrity policy and the procedures and measures based on it (including sound Customer Due Diligence practices), should make allowance for increased integrity risks associated with commercial property transactions. The crux of this policy rule has been incorporated into Rabo Real Estate Group s CDD policy. The policy rule is expected to be fleshed out on a divisional basis in the second half of Real estate

38 Group-wide principles for sustainable building In addition to integrity in business, responsible business practices and community involvement, sustainable building is one of the four building blocks of Rabo Real Estate Group s CSR Statute. The different markets in which Rabo Real Estate Group operates each come with their own set of sustainable building standards. In order to lend practical application to the concept of sustainable building, Rabo Real Estate Group has defined three principles for a group-wide approach: promoting the sustainable use of natural resources, helping users achieve their property ambitions and improving the quality of the living environment. In the period under review, the integration of corporate social responsibility into Rabo Real Estate Group s business practices prompted Bouwfonds Property Development, in close dialogue with Rabobank Nederland, to explore options for further broadening the borrowing capacity for energy-efficient new-build properties. This was driven specifically by the new code of conduct for mortgage loans and the so-called Spring Accord that has been in effect since early this year; it dictates that new-builds should be 25% more energy-efficient than stipulated in the prior-year Buildings Decree. One of the outcomes of the investigation was an updated housing costs calculator, which is based not only on the parameters used by the Dutch National Institute for Budget Advice (Nibud), but also takes into account the type of dwelling and, most importantly, that dwelling s energy efficiency. MAB Development further developed its sustainability procedures and embedded them in its business practices. Sustainability was given a more prominent position, both in decisionmaking processes and in the reporting structure. In addition, MAB Development devised an internal tool that helps to calculate the BREEAM rating of property developments on the basis of objective criteria. At property development level, MAB Development attaches ever greater importance to sustainability aspects. Together with Bouwfonds REIM, FGH Bank was a founding member of the International Sustainability Alliance. During Provada, the annual real estate platform, they joined other large Dutch property financiers in signing a sustainability covenant in order to stress the importance of sustainability for the sector. Bouwfonds REIM also went on to embed sustainability aspects in its strategy and day-to-day operations. Being one of the building blocks, sustainability is reflected in acquisitions and in measuring the level of sustainability in the current portfolio. Bouwfonds REIM developed the LOG model, which supplements the Municipal Practice Guideline for Buildings (GPR). This model centres on the location, the premises and the user of a property. Increase in residential property transactions at Bouwfonds Property Development Bouwfonds Property Development sold 3,567 (3,280) homes in the first half of 2011, which corresponds to a 9% increase on the same period in This increase was primarily attributable to higher sales in France and Germany, where the housing market is normal. The Dutch housing market did not yet show signs of recovery with the number of homes sold by Bouwfonds Property Development falling by 5%. A total of 2,206 (2,314) homes were sold until 1 July. On a more positive note, both the number of unsold homes under construction and the number of unsold completed homes saw a considerable drop. Breakdown of homes sold 2011-I by country The Netherlands 54% France 37% Germany 7% Other 2% Drop in construction of commercial real estate at MAB Development MAB Development developed commercial properties for an amount of EUR 126 (131) million in the first half of At 30 June 2011, 506,743 (561,337) m³ of commercial real estate was in the process of being constructed. This market is struggling with saturation and a low activity level, which affects the lettability and saleability of new developments. For this reason, MAB Development is now focusing on redevelopment opportunities. This division had nine developments under construction at the end of June Interim Report 2011 Rabobank Group

39 Loan portfolio in billions of euros Limited increase in lending at FGH Bank There were no material changes in the commercial real estate market in the period under review compared with the first half of Although there continues to be interest in properties subject to a long-term lease at top locations, the rest of the market is still characterised by low transaction volumes. Lending at FGH Bank saw a limited 4% rise to EUR 18.5 billion. Limited increase in assets managed by Bouwfonds REIM As investors continued to be hesitant to invest in unlisted property funds, Bouwfonds REIM introduced only few new funds in the first half of The division did prepare thoroughly for fund introductions that are planned for a later date. It also made acquisitions for a number of existing funds. Bouwfonds REIM announced a second European parking fund for institutional investors, which is set to invest in a pan-european portfolio of parking structures. In addition, Bouwfonds REIM entered into an alliance with a Belgian partner as part of the introduction of a new investment fund that will give private investors the opportunity to invest in high-quality retail properties in the Benelux. Other new initiatives were the US Multifamily Fund, which invests in US rental properties for Dutch private investors, and the Holland Fund, which allows German private investors to invest in Dutch office space. Managed assets at Bouwfonds REIM saw a limited increase, rising to EUR 7.3 (7.2) billion. Financial results of real estate 4 The Half-year profit Rabo Real Estate Group and Net profit Rabo Real Estate Group items correspond to the financial results published by Rabo Real Estate Group itself. The net profit real estate division item is inclusive of the amortisation and financing charges that were incurred due to the acquisition of the legacy Bouwfonds organisation and the harmonisation of accounting policies. Results (in millions of euros) 2011-I 2010-I Change Interest % Commission % Other results % Total income % Staff costs % Other administrative expenses % Depreciation and amortisation 4 4 Total operating expenses % Gross result % Value adjustments Operating profit before taxation % Taxation % Half-year profit Rabo Real Estate Group⁴ % Non-controlling interest 1 (1) Net profit Rabo Real Estate Group⁴ % Other % Net profit Real estate division % Bad debt costs (in basis points) Number of houses sold 3,567 3,280 9% Other information (in billions of euros) 30- Jun Dec-10 Loan portfolio % Assets under management % Number of employees (in FTEs) 1,598 1,559 3% 37 Real estate

40 Notes to financial results of real estate Income up 18% Interest income was up 15%, reaching EUR 138 (120) million, because of growth in lending, higher margins on new loans and loan renewals, as well as favourable developments in the interest rate structure. Thanks, in part, to new loans and loan renewals, commissions increased by 40% on the first half of 2010, landing at EUR 21 (15) million. Other income saw an 18% rise to EUR 129 (109) million thanks, in part, to an increase in residential property transactions and better margins on homes sold. Rabo Real Estate Group s total income was up 18% to EUR 288 (244) million in the first half of Operating expenses up 7% Total operating expenses at Rabo Real Estate Group rose by 7% to EUR 146 (136) million in the first half of Owing, in part, to an increase in headcount, staff costs were up 9% to EUR 100 (92) million. The total headcount at Rabo Real Estate Group showed a modest 3% increase to 1,598 (1,559) FTEs, which was chiefly attributable to growth in employee numbers at Bouwfonds Property Development in France and Germany, and at FGH Bank. Other administrative expenses stood at EUR 42 (40) million, and depreciation and amortisation charges amounted to EUR 4 (4) million. Bad debt costs at 49 basis points Although the effects of the continuing poor property market are relatively limited, they do have an impact on FGH Bank s loan portfolio. In the difficult market, value adjustments stood at EUR 49 (19) million in the first six months of 2011 while loan losses remained limited thanks to rigorous risk management. Bad debt costs rose to 49 (23) basis points of average lending. 38 Interim Report 2011 Rabobank Group

41 Risk management Rabobank Group pursues a prudent risk policy aimed at maintaining a moderate risk profile. This was underlined by the solid outcomes of the EBA stress test. The risk profile of Rabobank Group s loan portfolio improved somewhat, but the fall-out from the EHEC crisis for greenhouse vegetable growers and the late-cyclical nature of the (worldwide) construction and real estate sector caused a limited increase in value adjustments compared to the first half of Rabobank only has a very limited exposure to European government bonds that are currently perceived by the markets as being less creditworthy. This however does not make her immune to a further worsening of the sovereign debt crisis. The capital position was further strengthened and the liquidity position remained strong. The full-year budget for long-term funding was already entirely raised in the first half of Stress testing Stress tests form an essential part of the risk management framework. Stress tests are used to measure the impact of extreme, yet plausible events on Rabobank. In 2011, the impact of several internal scenarios as well as some external scenarios developed by regulators, including the European Banking Authority and the Dutch Central Bank (DNB), was assessed. This set of scenarios was first translated into macro-economic consequences, and then into an impact on the bank. For each of the scenarios, a separate review was performed of its impact on the statement of income, the capital and the solvency position of the bank. The outcomes of the scenarios were then reported and discussed with the Executive Board and the Supervisory Board. Besides the stress testing activities for the Rabobank Group, stress scenarios were also developed for specific portfolios of the bank. The outcomes of the EBA stress tests underline the robust position of Rabobank Group. The core tier 1 ratio of 10.8% after two years of stress, is more than twice the minimum requirement of 5% that is needed to pass the stress test. Credit risk Credit risk management at Rabobank Group is robust and organised so as to ensure an acceptable risk profile even in less favourable economic circumstances. Each new loan application is assessed carefully and accepted only if the borrower is deemed to have a sufficient continuity perspective. Loans that have already been granted are managed and monitored rigorously. In its loan approval process, Rabobank Group uses the Basel II parameters and RAROC, so that credit analysts and credit committees are even better positioned to make balanced credit decisions. The Rabobank Risk Rating indicates the probability of default (PD) of a borrower, with the rating being non-cyclical in principle. At 30 June 2011, the exposure at default (EAD) weighted average PD of Rabobank Group s total performing Advanced IRB loan portfolio was 1.18% (1.21%). It should be noted that this PD only reflects the extent to which the bank expects clients to be able to fulfil their contractual obligations. The PD does not provide any indication as to the potential losses, because Rabobank Group has in many cases obtained additional collateral. This is reflected in the loss given default (LGD), which also takes the possibility of restructuring into consideration. The LGD is the estimated economic loss that would result if the debtor defaults, expressed as a percentage of the EAD. At 30 June 2011, the LGD percentage of the total Advanced IRB loan portfolio was 22.5% (22.0%). The EAD of Rabobank Group s Advanced IRB loan portfolio amounted to EUR 553 (546) billion at the end of the period under review. 39 Risk management

42 Allowance for loan losses The economic recovery will continue into 2011, and growth in the Netherlands will be around a moderate 2%. Many uncertainties, of which the European public debt crisis is the most important, are causing downside risks in terms of economic developments. The risk profile of Rabobank Group s loan portfolio improved slightly. However, the fall-out from the EHEC outbreak for greenhouse vegetable growers and the late-cyclical nature of the global construction and real estate sector caused a limited increase in value adjustments compared with the first half of At group level, value adjustments increased in the first half of 2011 to EUR 618 (569) million, which, on an annualised basis, corresponds to bad debt costs of 29 (27) basis points of average lending. The allowance for loan losses stood at EUR 4,252 (4,014) million. When allowances are taken, the one-obligor principle is applied, which means that the exposure to all counterparties belonging to the same group is taken into account. In addition, the full exposure to a client is then qualified as impaired, even if adequate coverage is available for part of the exposure in the form of securities or collateral. Finally, Rabobank Group always takes allowances at an early stage. The table below breaks down the impaired loans and allowances for loan losses in total lending. The amount for impaired loans at 30 June 2011 was EUR 9,669 (9,284) million. The allowance for loan losses covered is 44% (43%) of the impaired loans. Impaired loans correspond to 2.2% (2.1%) of the private sector loan portolio at 30 June Impaired loans and allowances 30- Jun Dec-10 (in millions of euros) Impaired loanes Allowances Impaired loanes Allowances Domestic retail banking 4,628 2,430 4,462 2,261 Wholesale- and international retail banking 3,267 1,141 2,999 1,130 Leasing Real estate Other Rabobank Group 9,669 4,252 9,284 4,014 Sovereigns In its investment and trading portfolios, Rabobank Group only has very limited exposure to European government bonds issued by the countries shown below, which are currently perceived by the markets as less creditworthy. Country (in millions of euros) Net exposure after impairment at 30-Jun-2011 Cumulative changes through profit or loss at 30-Jun-2011 Italy Greece Spain 69 - Ireland 45 6 Portugal 18 1 Total The Greek, Portuguese and almost all Italian and Spanish Government bonds involve available-forsale financial assets. It has been established, based on our accounting policies, that impairment losses need to be recognised; these positions have been impaired to their market value at 30 June The Irish exposure involves positions whose changes in value are recognised directly through profit or loss. Rabobank Group is currently evaluating the different alternatives for its contribution to resolving the Greek debt crisis. Structured credit Structured credit exposure in the trading and investment portfolios at 30 June 2011 stood at EUR 5.1 (5.8) billion. 40 Interim Report 2011 Rabobank Group

43 Structured credit exposure in billions of euros, mid-2011 Structured credit exposure rating distribution mid-2011 Non-subprime RMBS 2.1 CDO/CLO and other corporate exposures 1.6 Commercial real estate 0.9 Other ABS 0.2 US subprime 0.2 ABS CDO 0.1 AAA 44% AA 18% A 26% Below A 12% Monoline insurers are counterparties in some credit default swaps used to hedge the credit risk of certain investments. The counterparty risk on the monoline insurers before provisioning was EUR 1,227 (1,330) million at 30 June The total provision was EUR 1,068 (1,114) million, reducing the remaining counterparty risk to EUR 160 (216) million. This counterparty risk arises if the fair value of the underlying investments decreases, or as other insured investments potentially lead to claims for payment being filed with the insurers. In measuring the economic counterparty risk, time aspects and the credit quality of the investments have been taken into account. As the vast majority of counterparty risk has already been provided for, further downgrades have only a minor impact. Changes in market values and provisions in the first half of 2011 had only very minor result consequences for the aforementioned exposures. Funding and liquidity risk Rabobank Group manages its funding and liquidity risk by strictly limiting outgoing cash flows within the wholesale banking business, by maintaining a large liquidity buffer and by raising sufficient long-term funding in the international capital market. The retail banking division is expected to be largely self-funded by raising customer deposits. In the first half of 2011, this was more than achieved as amounts due to customers increased more than the growth in lending. In the first half of 2011, more than EUR 30 billion in long-term funding was raised in the international capital markets. This means that the target for the full year has been achieved in the first six months. Given the flare-up of the international debt crisis, allowance is made for more difficult market circumstances in the second half of the year. Equity was strengthened by the issue of hybrid capital for an amount of USD 2 billion. The Dutch Central Bank has tightened its liquidity requirements with effect from 1 May. This move, in anticipation of Basel III, primarily involves the definition of liquid assets and the haircuts to be applied. The available liquidity easily exceeded the requirement, even when applying the stricter rules. At 30 June 2011, the outstanding amount in asset-backed commercial paper totalled EUR 10.1 (14.0) billion. Disclosures as required by Section 5:25d of the Dutch Financial Supervision Act This interim report includes not only a summary of key events in the first six months of 2011, including any related effects on the interim financial statements, but also contains a description of the principal risks and uncertainties in the remaining six months of Besides the issue of Capital Securities, no material events and transactions occurred in the first six months of More details on Rabobank s outlook for the six months ahead can be found in this chapter and in the Chairman s foreword. Principal risks and uncertainties in the six months ahead Rabobank Group expects to see moderate growth in lending and amounts due to customers in the second half of Despite the current turmoil in the financial markets and the prospect of increasing competition on the Dutch savings market, Rabobank is optimistic about the level of its profits for the full year Risk management

44 It goes without saying that Rabobank Group will face a number of risks and uncertainties in the second half of the year that might have a material effect on earnings, equity and cash flows. The principal risks lie in the effects of a further downturn in the financial markets. In addition, the new flare-up in the European debt crisis in combination with the debt ceiling crisis in the US, for which no lasting solution has been formulated as yet, might cause unexpected currency fluctuations. A decline in the financial markets may well have a material effect on such issues as growth in lending, the measurement of impaired assets, the capacity to raise customer deposits, debt securities and/or hybrid capital, and the scale of assets under management. Such deterioration could potentially result in a substantial drop in interest and commission income, an increase in impairment losses, and a rise in value adjustments. Regulatory amendments, including changes in the Deposit Guarantee Scheme and the planned introduction of a bank tax, are not yet expected to have a major impact on earnings in the second half of Interim Report 2011 Rabobank Group

45 Working together towards a sustainable future Rabobank Group places high demands on its service provision and its corporate social responsibility (CSR) policy. In 2010, every group entity formulated its own CSR KPIs, and from 2011 these entities will be required to submit quarterly reports on these KPIs. Furthermore, a biodiversity policy was developed and the human rights policy was updated in the first half of In addition, the expertise of the area of CSR and Cooperation was combined to form the Department Cooperation & Sustainability. Rabobank also entered into a four-year partnership with the World Wildlife Fund (WWF) in March The CO₂ reduction target that Rabobank set for itself a 20% reduction per FTE between 2008 and 2013 has already been largely achieved. Responsible business practices to secure a sustainable future Rabobank Group is committed to building a sustainable society in an economic, social and ecological sense. Mindful of this, its services and policies must satisfy strict CSR requirements in relation to the environment, society and governance. Customers should know that the services we provide are responsible and transparent. Furthermore, Rabobank Group is committed to improving the sustainability of the value chains in all its core business activities. Based on our cooperative identity, we do this by engaging in partnerships with customers and other stakeholders. Corporate social responsibility is increasingly becoming integrated into the core business of Rabobank Group. This means that we endeavour to make the most of commercial opportunities that generate customer value. At the same time, we are focused on managing and mitigating risks associated with people, society and the environment. The importance of sustainability for our clients is expounded on various occasions by the members of the Executive Board for groups of clients and partners. The opening of the highly sustainable office building of Rabobank Nederland was one such occasion. Strategy based on central CSR themes and objectives Pursuing a sound CSR policy forms part of the Rabobank Group s strategy. This policy is focused on four central themes: - working towards a safe and sustainable food supply; - innovating production methods and encouraging the efficient use of renewable energy; - promoting equal opportunity and economic participation; - encouraging local cohesion and partnership both in and outside the Netherlands. The following key performance indicators were developed at group level in relation to these central themes (CSR KPIs): - helping clients move towards clean and sustainable business operations; - helping clients make responsible investments; - supporting community partnerships; - promoting climate-neutral and energy-efficient services. 43 Working together towards a sustainable future

46 Integration of CSR into core business In 2010, the CSR KPIs were transposed by the various entities of Rabobank Group into performance indicators. Starting in 2011, these have also been the subject of internal reporting. Considerable progress has been made towards the integration of CSR into our core business. In the domestic retail banking division, for instance, the CSR policy was developed in close connection with customer due diligence, and with a focus on transparency in the services we provide. In lending, the value chain policy has been further rolled out in such areas as risk assessment and customer relationship management. At the local Rabobanks, there has been a visible increase in CSR ambitions and in the implementation of the related policies. In asset management, clients are increasingly being informed of the CSR profile of alternative investments. This is done for clients who manage their own investments as well for those who have their investments taken care of by an investment adviser. In the real estate and leasing divisions, there is similarly clear progress in the implementation of CSR policies and the development of sales opportunities that contribute to improving the sustainability of value chains. Finally, initiatives are being deployed across Rabobank Group in all aspects of the business to improve energy efficiency, reduce emissions and implement socially responsible procurement. For the short term, the emphasis remains on further implementation of the ambitions and their further concretisation in line with developments in the market and in society. Rabobank in dialogue on animal welfare and the weapons industry In the period under review, policies were developed on how to deal with biodiversity. The human rights policy was also updated based on the Business & Human Rights framework endorsed by the United Nations in June There were two central themes in our dialogue with civil society organisations: policy on controversial weapons, and animal welfare in the pig farming industry. On the subject of controversial weapons, Rabobank explained its policy and how it is implemented to a number of civil society organisations. As for animal welfare, Rabobank made submissions to the Eerlijke Bankwijzer (Fair Bank Guide) about the ways it supports businesses and encourages them in their transition to more sustainable farming methods. We also provided information on our involvement in many initiatives to increase sustainability in the industry while referring to realistic economic conditions and global competitive relationships in pig farming that affect the economic viability of investments in animal welfare. Partnership agreement with WWF In March this year, Rabobank and the World Wildlife Fund (WWF) signed a four-year global partnership agreement. This is a strategic choice for the bank, based on the philosophy of our Food & Agribusiness Principles and our Strategic Framework. The focus of the partnership is on projects that will set the example for the bank s customers for making the transition from mainstream production processes and chain management to a more sustainable use of natural resources, raw materials and clean technologies. Reducing the bank s climate footprint Efforts towards frugal and efficient use of energy and a reduction in our impact on the climate are visible in all aspects of our operations. Rabobank Group wants to operate on a climateneutral basis in 2011 too. Our CO₂ reduction target of 20% per FTE between 2008 and 2013 has largely already been achieved. This target will therefore be made even tougher in the second half of the year. Rabobank Group s climate footprint is largely due to energy consumption and mobility. Energy saving activities will be continued or expanded. Starting in 2011 in the Netherlands, for instance, the contractual procurement of green gas has doubled from 6 million cubic metres to 12 million cubic metres. In terms of mobility, Rabobank encourages the use of public transport, and the impact of its leased vehicle fleet on the environment is being reduced. This is achieved by purchasing only energy-efficient vehicles and by setting absolute standards for CO₂ emissions. Furthermore, staff with leased cars are rewarded if they choose the most energy-efficient vehicles. 44 Interim Report 2011 Rabobank Group

47 Greener working, greener living In 2011, the Work and Sustainability study into ways of making Rabobank s human resources policies more sustainable was completed. The study came about as a result of the collective bargaining agreement. The ideas gained from this study will be further discussed across the Rabobank organisation and shared with other businesses. Responsible procurement Rabobank discussed sustainability in the procurement process with its suppliers. In this connection, Rabobank was one of the initiators of the FIRA Rating System, which tells procurement officers about the CSR profile of suppliers. This provides a boost to socially responsible procurement on the supply side and the demand side. This year, Rabobank was the winner of the Dutch Sourcing Award for Sustainability 2011 of the Foundation for the Forward Development of Procurement. The prize was awarded for Rabobank s approach to supplying all its offices and branches with coffee that is both EKO and Fair Trade-certified, and is sourced from coffee cooperatives that are supported by the Rabobank Foundation. The CSR criteria are applied also in all CSR-relevant procurement categories, facility services and with regard to working conditions. This has already led to a reduction in non-recyclable waste, the application of Cradle to Cradle (C2C) principles and other CSR criteria in the procurement of office furniture and other materials. The tender was so successful that, from 2012 onwards, 70% of the product catalogue will be made up of sustainable products, compared to 28% until only recently. Other examples include increasing the share of organic products used by the catering service at Rabobank Nederland from 58% in mid-2010 to 76% in mid-2011 and trials with intelligent energy-efficient LED lighting. 45 Working together towards a sustainable future

48 Interim financial information Condensed statement of financial position In millions of euros 30- Jun Dec Jun-2010 Assets Cash and cash equivalents 26,088 13,471 9,356 Due from other banks 36,993 33,511 34,095 Trading financial assets 12,167 12,987 12,782 Other financial assets at fair value through profit or loss 9,337 9,588 10,037 Derivative financial instruments 34,704 43,947 63,578 Loans to customers 460, , ,224 Available-for-sale financial assets 55,835 55,458 60,652 Held-to-maturity financial assets Investments in associates 3,587 3,539 3,898 Intangible assets 3,551 3,675 3,936 Property and equipment 6,052 6,006 6,156 Investment properties ,291 Current tax assets Deferred tax assets 1,008 1,200 1,418 Employee benefits 1,953 1,668 1,765 Other assets 12,401 10,154 11,829 Total assets 664, , , Interim Report 2011 Rabobank Group

49 In millions of euros 30- Jun Dec Jun-2010 Liabilities Due to other banks 24,639 23,476 27,623 Due to customers 305, , ,765 Debt securities in issue 209, , ,417 Derivative financial instruments and other trade liabilities 41,332 49,640 72,441 Other debts 10,726 8,199 9,999 Other financial liabilities at fair value through profit or loss 25,857 29,867 30,144 Provisions ,080 Current tax liabilities Deferred tax liabilities Employee benefits Subordinated debt 2,371 2,482 2,350 Total liabilities 622, , ,386 Total equity 42,513 40,757 40,224 Total equity and liabilities 664, , , Interim financial information

50 Condensed consolidated statement of income In millions of euros First half 2011 First half 2010 Interest 4,507 4,347 Commission 1,513 1,413 Other results 1, Total income 7,303 6,432 Staff costs 2,596 2,362 Other administrative expenses 1,471 1,278 Depreciation and amortisation Operating expenses 4,357 3,906 Value adjustments Operating profit before taxation 2,328 1,957 Taxation Net profit 1,854 1,639 Of which attributable to Rabobank Nederland and local Rabobanks 1,340 1,176 Of which attributable to holders of Rabobank Member Certificates Of which attributable to Capital Securities Of which attributable to Trust Preferred Securities III to VI Of which attributable to non-controlling interests Net profit for the period 1,854 1, Interim Report 2011 Rabobank Group

51 Consolidated statement of comprehensive income In millions of euros First half 2011 First half 2010 Net profit 1,854 1,639 Arising in the period (after taxation): Foreign currency translation reserves Currency translation differences (189) 461 Revaluation reserve - Available-for-sale financial assets Currency translation differences 13 - Changes in associates (40) 147 Fair value changes (226) 64 Amortisation of reclassified assets Transferred to profit or loss Revaluation reserve - Associates Fair value changes (16) (14) Revaluation reserve - Cash flow hedges Fair value changes 5 (4) Non-controlling interests Currency translation differences (119) 346 Changes in AFS revaluation reserve 3 (6) Total other comprehensive income (240) 1,278 Total comprehensive income 1,614 2,917 Of which attributable to Rabobank Nederland and local Rabobanks 1,216 2,114 Of which attributable to holders of Rabobank Member Certificates Of which attributable to Capital Securities Of which attributable to Trust Preferred Securities III to VI Of which attributable to non-controlling interests (62) 376 Total comprehensive income 1,614 2, Interim financial information

52 Condensed consolidated statement of changes in equity In millions of euros Equity of Rabobank Nederland and local Rabobanks Rabobank Member Certificates Capital Securities and TPS Noncontrolling interests At 1 January ,963 6,315 6,182 3,423 37,883 Total comprehensive income 2, ,917 Attributable to Rabobank Member Certificates, Trust Preferred Securities III to VI (TPS) and Capital Securities - (151) (276) - (427) Other (283) (64) (149) At 30 June ,794 6,358 6,337 3,735 40,224 Total At 1 January ,749 6,583 6,306 3,119 40,757 Total comprehensive income 1, (62) 1,614 Attributable to Rabobank Member Certificates, Trust Preferred Securities III to VI (TPS) and Capital Securities - (157) (303) - (460) Issue of Capital Securities - 1,437-1,437 Other (358) (7) (74) (396) (835) At 30 June ,607 6,576 7,669 2,661 42,513 Condensed consolidated statement of cash flows In millions of euros First half 2011 First half 2010 Operating profit before taxation 2,328 1,957 Non-cash items through operating profit before taxation Net change in operating assets (802) (37,252) Net change in liabilities relating to operating activities 13,493 56,426 Other (2,702) (2,760) Net cash flow from operating activities 12,419 18,996 Net cash flow from investing activities (779) (27,850) Net cash flow from financing activities 977 1,645 Net change in cash and cash equivalents 12,617 (7,209) Cash and cash equivalents at 1 January 13,471 16,565 Cash and cash equivalents at 30 June 26,088 9, Interim Report 2011 Rabobank Group

53 Notes to the interim financial information General The consolidated interim financial information of Rabobank Group has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, and is presented in conformity with IAS 34 Interim Financial Reporting. Unless otherwise stated, all amounts are in millions of euros. For the publication of its interim financial information, Rabobank Group has opted for the alternative of presenting condensed versions of its consolidated statement of financial position, its consolidated statement of income, its consolidated statement of equity and its consolidated statement of cash flows. Insofar as other insights implied the need for reclassifications, the comparative figures have been restated. Accounting policies Taking due account of the new and amended IFRSs, the significant accounting policies used in preparing the consolidated 2010 financial statements and the present interim financial information have been summarised below. The condensed presentation of the primary financial statements may cause certain terms in the accounting policies set out below to be inconsistent with the primary statements. New and amended IFRSs In 2011, Rabobank applied Interpretation IFRIC 19, amended Interpretation IFRIC 14, as well as amended Standards IAS 24 and IAS 32. The bank also applied the improvements made to the IFRSs in IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments is effective for financial years beginning on or after 1 January IFRIC 19 provides guidance for the accounting by a debtor of the equity instruments it issues to a creditor to extinguish all or part of a financial liability after the terms of the liability have been renegotiated. This Interpretation does not apply to Rabobank. The amendment to IFRIC 14 Prepayments of a Minimum Funding Requirement is effective for financial years beginning on or after 1 January The amendment removes an unintended consequence when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover such requirements. Under certain circumstances, the entity would be required to recognise an expense. Where there is a minimum funding requirement for a defined benefit plan, the amendments to IFRIC 14 require that such prepayment, as well as any other prepayment, be treated as a pension asset. This amendment to IFRIC 14 does not affect earnings or equity. The amendment to IAS 24 Related Party Disclosures is effective for financial years beginning on or after 1 January The amendment aims to clarify the definition of a related party while removing certain internal inconsistencies. Furthermore, government-controlled entities are somewhat relieved from their obligations in terms of the volume of their related party transactions disclosure. The amendment to IAS 24 does not affect disclosures. The amendment to IAS 32 Financial Instruments: Presentation is effective for financial years beginning on or after 1 February It clarifies how certain rights must be accounted for when the instruments are issued in a different currency from the issuer s functional currency. 51 Notes to the interim financial information

54 If they are given pro rata to the issuer s existing shareholders for a fixed amount in cash, they must be classified as equity instruments, even if their exercise price is in a different currency from the issuer s functional currency. This Interpretation does not apply to Rabobank. Of the new Standards that have been issued by the IAS Board but are not yet effective, IFRS 9 Financial Instruments is the most important to Rabobank. The impact of IFRS 9 is still being studied. Changes in accounting policies and presentation The disclosure below was also presented in the consolidated financial statements for Compared with the 2009 consolidated financial statements, the treatment of impairments of Loans to customers previously classified as Available-for-sale financial assets has changed. In previous years, where these assets were found to be impaired, the remaining revaluation reserve in equity was transferred to profit or loss, with the assets being remeasured at the present value of the expected future cash flows, at the effective interest rate at the inception of the contract. Given an agenda decision the International Financial Reporting Interpretations Committee made in 2010, it was decided to base the remeasurement on the present value of future cash flows at the effective interest rate at the time of reclassification. As a result, Rabobank treats financial guarantee contracts concluded separately and contracts incorporated in structured products in the same manner when calculating impairment of the assets insured, with the carrying amounts of guarantee contracts concluded separately, on initial recognition, being equal to the present value of the estimated future cash flows from the contract. Recognition has been applied retroactively for consistency reasons. The impact on equity at 1 January 2009 is -24, at 31 December , and on the results for The gain or loss is recognised in Net income from other financial assets at fair value through profit or loss. The treatment of impairments of reclassified loans as Loans to customers previously classified as Available-for-sale financial assets had the following impact on the figures for At 31 December 2010, the item Loans to customers is 484 lower. The negative effect on profit for the year for 2010 was 29. Deferred tax assets at 31 December 2010 were adjusted upwards by 203. The impact on equity at 31 December 2010 was The impact of the adjustments relating to financial guarantee contracts referred to above on the 2010 figures is negligible. The amounts have already been included in the figures. The treatment of impairments of reclassified loans as Loans to customers previously classified as Available-for-sale financial assets had the following impact on the comparative figures. The item Loans to customers was 82 lower at 1 January 2009 and 513 lower at 31 December For 2009, interest income was 29 higher. Net income from other financial assets was 269 lower. Operating profit before tax was 240 lower. The impact of the adjustments relating to financial guarantee contracts referred to above on the comparative figures is as follows. The item Other assets was 41 higher at 1 January 2009 and 114 higher at 31 December For 2009, both Net income from other financial assets and Operating profit before tax were 73 higher. Combined, the impact of these adjustments on the comparative figures is as follows. The item Loans to customers was 426,201 at 1 January 2009, instead of 426,283. At 31 December 2009, they were 433,357 and 433,870 respectively. At 1 January 2009, the item Other assets was 10,596 instead of 10,555. At 31 December 2009, they were 8,835 and 8,721 respectively. Net profit for the year for 2009 was adjusted downward from 2,288 to 2,208. At 1 January 2009, the deferred tax asset was changed from 1,619 to 1,636. At 31 December 2009, these amounts were 1,174 and 1,358 respectively. At 31 December 2009, equity was adjusted downward from 22,178 to 21,963. The amounts have already been included in the restated comparative figures. The amounts at 30 June 2010 have been restated as a result of the changes in accounting policies and presentation referred to above. The item Loans to customers was 454,224 at 30 June 2010, instead of 454,773. At 30 June 2010, the item Other assets was 11,829 instead of 11,715. Net profit for the first half of 2010 was adjusted downward from 1,661 to 1,639. Deferred tax assets at 30 June 2010 were adjusted from 1,220 to 1,418. Equity was adjusted from 40,461 to 40,224. The amounts have already been included in the restated comparative figures. 52 Interim Report 2011 Rabobank Group

55 Judgments and estimates The preparation of the interim financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities, the reporting of contingent assets and liabilities at the date of the interim financial statements, as well as the amounts reported for income and expenses during the reporting period. The situations that are assessed based on available financial data and information mainly concern the determination of the provision for doubtful debts, the fair value of assets and liabilities and impairments. Although management based their estimates on the most careful assessment of the current circumstances and activities, the actual results might deviate from these estimates. Group interim financial statements Subsidiaries Subsidiaries and other entities (including special purpose entities over which Rabobank exercises control, directly or indirectly) are consolidated. The assets, liabilities and results of these entities are consolidated in full. Subsidiaries are consolidated from the date on which Rabobank obtains control, and cease to be consolidated on the date that this control ends. All intra-group transactions, balances and unrealised gains and losses on transactions between Rabobank Group entities are eliminated for consolidation purposes. Internal liability (cross-guarantee system) In accordance with the Financial Supervision Act (Wet op het financieel toezicht), various legal entities belonging to the Rabobank Group are internally liable under an intragroup mutual keep well system. Under this system the participating entities are bound, in the event of a lack of funds of a participating entity to satisfy its creditors, to provide the funds necessary to allow such deficient participant to satisfy its creditors. The participating entities are: - The local member banks of Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. - Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank Nederland), Amsterdam - Rabohypotheekbank N.V., Amsterdam - Raiffeisenhypotheekbank N.V., Amsterdam - Schretlen & Co N.V., Amsterdam - De Lage Landen International B.V., Eindhoven - De Lage Landen Financiering B.V., Eindhoven - De Lage Landen Trade Finance B.V., Eindhoven - De Lage Landen Financial Services B.V., Eindhoven Joint ventures The interests of Rabobank in entities where control is shared are consolidated proportionally. With this method, Rabobank includes its share of the income and expenses, assets and liabilities, and cash flows of the various joint ventures in the relevant items of its interim financial statements. Investments in associates Investments in associates are recognised in accordance with the equity method. With this method, Rabobank s share of the profits and losses of an associate subject to Rabobank s accounting policies (after the acquisition) is recognised in profit or loss, and its share of the changes in reserves after the acquisition is recognised in reserves. The cumulative changes after acquisition are adjusted to the cost of the investment. Associates are entities over which Rabobank has significant influence and in which it usually holds between 20% and 50% of the voting rights but over which it does not exercise control. Unrealised gains on transactions between Rabobank and its associates are eliminated in proportion to the size of Rabobank s interest in the associates. Unrealised losses are also eliminated unless the transaction indicates that an impairment loss should be recognised on the asset transferred. 53 Notes to the interim financial information

56 Investments by Rabobank in associates include the goodwill acquired. If Rabobank s share in the losses of an associate equals or exceeds its interest in the associate, Rabobank will not recognise any more losses of the associate unless Rabobank has given undertakings or made payments on behalf of this associate. Derivative financial instruments and hedging General Derivative financial instruments generally comprise foreign exchange contracts, currency and interest rate futures, forward rate agreements, currency and interest rate swaps, and currency and interest rate options (written as well as acquired). Derivative financial instruments might be traded on an exchange or as over-the-counter (OTC) instruments between Rabobank and a client. All derivative financial instruments are recognised at fair value. The fair value is determined using listed market prices, prices offered by traders, cash flow discounting models and option valuation models based on current market prices and contracted prices for the underlying instruments, as well as the time value of money, yield curves and the volatility of the underlying assets and liabilities. All derivative financial instruments are included under assets if their fair value is positive and under liabilities if their fair value is negative. Derivative financial instruments that are embedded in other financial instruments are treated separately if their risks and characteristics are not closely related to those of the underlying derivative contract and this contract is not classified as fair value through profit or loss. Instruments not used for hedging Realised and unrealised gains and losses on derivative financial instruments classified by Rabobank as held for trading are recognised under Trading results. Hedging instruments Rabobank also uses derivative financial instruments as part of statement of financial position control to manage its interest rate risks, credit risks and foreign currency risks. Rabobank makes use of the possibilities provided by the EU through the carve-out in IAS 39. The carve-out facilitates the application of fair value portfolio hedge accounting to certain positions. Buckets are used to measure effectiveness. On the date of concluding a derivative contract, Rabobank can designate certain derivative financial instruments as (1) a hedge of the fair value of an asset or liability in the statement of financial position (fair value hedge), as (2) a hedge of future cash flows attributable to an asset or liability in the statement of financial position, an expected transaction or a non-current liability (cash flow hedge), or as (3) a hedge of a net investment in a foreign entity (net investment hedge). Hedge accounting can be applied for derivative financial instruments designated in this manner if certain criteria are met. These criteria include the following: - Formal documentation of the hedging instrument, the hedged item, the objective of the hedge, the hedging strategy and the hedge relationship before applying hedge accounting. - The hedge is expected to be very effective (in a range of 80% to 125%) in offsetting changes in the hedged item s fair value or cash flows attributable to the hedged risks during the entire reporting period. - The hedge is continuously very effective from inception onwards. Changes in the fair value of derivative financial instruments that are designated as fair value hedges and are effective in relation to the hedged risks are recognised in profit or loss, together with the corresponding changes in the fair value of the assets or liabilities hedged against the risks in question. If the hedge no longer meets the criteria for hedge accounting (according to the fair value hedge model), any adjustment to the carrying amount of a hedged interest-bearing financial instrument is amortised through profit or loss until the end of the hedged period. Any adjustment to the carrying amount of a hedged equity instrument is recognised as equity until disposal of the equity instrument. Changes in the fair value of derivative financial instruments that are designated and qualify as cash flow hedges and that are highly effective in relation to the hedged risks are recognised in the hedging reserve included under Equity. The non-effective part of the changes in the fair values of the derivative financial instruments is recognised in profit or loss. 54 Interim Report 2011 Rabobank Group

57 If the forecast transaction or the non-current liability results in the recognition of a nonfinancial asset or a non-financial liability, any deferred gain or loss included in equity is restated to the initial carrying amount (cost) of the asset or the liability. In all other cases, deferred amounts included in equity are taken to the statement of income and are classified as income or expenses in the periods in which the hedged non-current liability or the forecast transaction had an effect on profit or loss. Certain derivative contracts, although they are economic hedges in relation to the managed risk positions taken by Rabobank, do not qualify for hedge accounting under the specific IFRS rules. These contracts are therefore treated as derivative financial instruments held for trading. Trade liabilities and other liabilities at fair value through profit or loss Trade liabilities Trade liabilities are mainly negative fair values of derivative financial instruments and delivery obligations arising on short selling of securities. Securities are sold short to realise gains from short-term price fluctuations. The securities needed to settle the short selling are acquired through securities leasing or sale and securities repurchase agreements. Securities sold short are recognised at fair value at the reporting date. Other liabilities at fair value through profit or loss Other liabilities at fair value through profit or loss include certain financial liabilities that Rabobank does not intend to sell, but which it accounted for at fair value. Changes in the fair value of these financial liabilities are recognised in profit or loss for the period in which they arise. Trading financial assets Trading financial assets are acquired to realise gains from short-term fluctuations in the prices or margins of traders, or form part of a portfolio that regularly generates short-term gains. These assets are stated at fair value based on quoted bid prices. Any realised and unrealised gains and losses are included under Trading income. Interest earned on trading financial assets is recognised as interest income. Dividends received on trading financial assets are recognised as Trading income. All purchases and sales of trading financial assets that have to be delivered within a period prescribed by regulations or market convention are recognised at the transaction date. Other financial assets and liabilities at fair value through profit or loss Rabobank has opted to classify financial instruments not acquired or entered into for realising gains from short-term fluctuations in traders prices or margins at fair value through profit or loss. These financial assets, including venture capital, are carried at fair value. Management designates financial assets and liabilities to this category upon initial recognition if any or all of the following criteria are met: - Such a designation eliminates or substantially reduces any inconsistent treatment that would otherwise have arisen upon valuation of the assets or liabilities or recognition of profits or losses on the basis of different accounting policies. - The assets and liabilities belong to a group of financial assets and/or financial liabilities that are managed and assessed on the basis of their fair value in accordance with a documented risk management or investment strategy. - The financial instrument contains an embedded derivative financial instrument, unless the embedded derivative financial instrument does not significantly affect the cash flows or if it is evident, after limited analysis or no analysis at all, that separate recognition is not required. Interest earned on assets with this classification is recognised as interest income and interest due on liabilities with this classification is recognised as interest expense. Any other realised and unrealised gains and losses on revaluation of these financial instruments at fair value are included under Income from other financial assets and liabilities. Day 1 profit Discrepancies between the transaction price and fair value may arise if valuation techniques are applied at the time of the transaction. Such a discrepancy is referred to as day 1 profit. Rabobank recognises this profit directly under Trading income provided that the valuation 55 Notes to the interim financial information

58 technique is based on observable data inputs (from active markets). If unobservable data inputs were used, the day 1 profit is amortised over the term of the transaction and recognised under Other liabilities. Profit is subsequently accounted for if the financial instrument in question is sold or if the data input has subsequently become observable. Available-for-sale financial assets Management determines the classification of financial assets on the date of acquisition, depending on the purpose for which the investments are acquired. Financial assets that are intended to be held indefinitely and that could be sold for liquidity purposes or in response to changes in interest rates, exchange rates or share prices are classified as available for sale. Available-for-sale financial assets are initially recognised at fair value, including transaction costs, based on quoted bid prices or values derived from cash flow models. The fair values of unlisted equity instruments are estimated based on appropriate price/earnings ratios, adjusted to reflect the specific circumstances of the respective issuers. Any unrealised gains and losses from changes in the fair value of available-for-sale financial assets are recognised in equity unless they relate to amortised interest. If such financial assets are disposed of, the adjustments to fair value are recognised in profit or loss. At each reporting date, management assesses whether there are objective indications of impairment of available-for-sale assets. Equity instruments are impaired if their cost permanently exceeds their recoverable amount, i.e. their fair value is permanently or significantly lower than their cost. The recoverable amount of investments in unlisted equity instruments is determined using approved valuation methods, whereas the recoverable amount of listed financial assets is determined on the basis of market value. Impairment of equity instruments is never subsequently reversed through profit or loss. Debt instruments are impaired if there are objective indications that the market value has decreased to such a degree that no reasonable assumptions can be made that the value will recover to carrying amount in the foreseeable future. In the event of impairment, the cumulative loss is determined by the difference between cost and current fair value, less any previously recognised impairment transferred from the revaluation reserve in equity to profit or loss. If the impairment of a debt instrument diminishes in a subsequent period and the diminution can be objectively attributed to an event that occurred after the impairment, the impairment is reversed through profit or loss. All purchases and sales made in accordance with standard market conventions for available-for-sale financial assets are recognised at the transaction date. All other purchases and sales are recognised at the settlement date. Held-to-maturity financial assets Financial assets with fixed terms and cash flows are classified as held-to-maturity financial assets, provided management intends to keep them for their full terms and is in a position to do so. Management determines the appropriate classification for its investments on their acquisition dates. Held-to-maturity financial assets are initially recognised at fair value and subsequently carried at amortised cost based on the effective interest method, net of provisions for impairment losses. Interest earned on held-to-maturity financial assets is recognised as interest income. All purchases and sales made in accordance with standard market conventions for held-tomaturity financial assets are recognised at the date of settlement. Repurchase agreements and reverse repurchase agreements Financial assets that are sold subject to related sale and repurchase agreements are included in the interim financial statements under Trading financial assets or Available-for-sale financial assets. The liability to the counterparty is included under Due to other banks or Due to customers, depending on the application. Financial assets acquired under reverse sale and reverse repurchase agreements are recognised as Due from other banks, or Loans to customers, depending on the application. The difference between the selling price and repurchasing price is recognised as interest income or interest expense over the term of the agreement, based on the effective interest method. 56 Interim Report 2011 Rabobank Group

59 Securitisations and other derecognition constructions Rabobank securitises, sells and carries various financial assets. Those assets are sometimes sold to special purpose entities ( SPEs ), which then issue securities to investors. Rabobank has the option of retaining an interest in sold securitised financial assets in the form of subordinated interest-only strips, subordinated securities, spread accounts, servicing rights, guarantees, put options and call options, and other constructions. A financial asset (or a portion of it) is derecognised if: - The rights to the cash flows from the asset expire. - The rights to the cash flows from the asset and a substantial portion of the risks and benefits of ownership of the asset are transferred. - A commitment to transfer the cash flows from the asset is presumed and a substantial portion of the risks and benefits are transferred. - Not all the economic risks and benefits are retained or transferred; however, control over the asset is transferred. If Rabobank retains control over the asset but does not retain a substantial portion of the rights and benefits, the asset is recognised in proportion to the continuing involvement of Rabobank. A related liability is also recognised to the extent of Rabobank s continuing involvement. The recognition of changes in the value of the liability corresponds to the recognition of changes in the value of the asset. If a transaction does not meet the above conditions for derecognition, it is recognised as a loan for which security has been provided. To the extent that the transfer of a financial asset does not qualify for derecognition, the transfer does not result in Rabobank s contractual rights being separately recognised as derivative financial instruments if recognition of these instruments and the transferred asset, or the liability arising on the transfer, were to result in double recognition of the same rights or obligations. Gains and losses on securitisations and sale transactions depend partly on the previous carrying amounts of the financial assets transferred. These are allocated to the sold and retained interests based on the relative fair values of these interests at the date of sale. Any gains and losses are recognised through profit or loss at the time of transfer. The fair value of the sold and retained interests is based on quoted market prices or calculated as the present value of the future expected cash flows, using pricing models that take into account various assumptions such as credit losses, discount rates, yield curves, payment frequency and other factors. Rabobank decides whether the SPE should be included in the consolidated interim financial statements. For this purpose, it performs an assessment of the SPE by taking a number of factors into consideration, including the activities, decision-making powers and the allocation of the benefits and risks associated with the activities of the SPE. Cash and cash equivalents Cash equivalents are highly liquid short-term investments held to meet current obligations in cash, rather than for investments or other purposes. Such obligations have outstanding terms of less than 90 days at inception. Cash equivalents are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value. Netting of financial assets and liabilities Financial assets and liabilities are set off and the net amount is transferred to the statement of financial position if a legal right to set off the recognised amounts exists and it is intended to settle the expected future cash flows on a net basis, or to realise the asset and settle the liability simultaneously. This mainly concerns netting off of current account balances. Foreign currencies Foreign entities Items included in the interim financial statements of each entity in Rabobank Group are carried in the currency that best reflects the economic reality of the underlying events and circumstances that are relevant for the entity ( the functional currency ). The consolidated interim financial statements are presented in euros, which is the parent company s functional currency. 57 Notes to the interim financial information

60 Gains, losses and cash flows of foreign entities are translated into the presentation currency of Rabobank at the exchange rates ruling at the transaction dates, which is approximately equal to the average exchange rates. For purposes of the statement of financial position, they are translated at closing rates. Translation differences arising on the net investments in foreign entities and on loans and other currency instruments designated as hedges of these investments are recognised in equity. If a foreign entity is sold, any such translation differences are recognised in profit or loss as part of the gain or loss on the sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are recognised as assets and liabilities of the foreign entity and are translated at the closing rate. Transactions in foreign currencies Transactions in foreign currencies are translated into the functional currency at the exchange rates ruling at the transaction dates. Translation differences arising on the settlement of such transactions or on the translation of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, unless they are recognised in equity as qualifying net investment hedges. Translation differences on debt securities and other monetary financial assets carried at fair value are included under foreign exchange gains and losses. Translation differences on nonmonetary items such as equity instruments held for trading are recognised as part of the fair value gains or losses. Translation differences on available-for-sale non-monetary items are included in the revaluation reserve reported under Equity. Interest Interest income and expense for all interest-bearing instruments is recognised in profit or loss on an accrual basis, with the effective interest method being applied. Interest income includes coupons relating to fixed-interest financial assets and trading financial assets, as well as the cumulative premiums and discounts on government treasury securities and other cash equivalent instruments. If any loans suffer impairment losses, they are written down to their recoverable amounts and the interest income recognised henceforth is based on the original discount rate for calculating the present value of the future cash flows used to determine the recoverable amounts. Commission Income from asset management activities consists mainly of unit trust, fund management commission and administration. Income from asset management and insurance brokerage is recognised as earned once the services have been provided. Commission is generally recognised on an accrual basis. Commission received for negotiating a transaction, or taking part in the negotiations, on behalf of third parties, for example the acquisition of a portfolio of loans, shares or other securities, or the sale or purchase of companies, is recognised at completion of the underlying transactions. Loans to customers and Due from other banks Loans to customers and Due from other banks are non-derivative financial instruments with fixed or defined payments, not listed on an active market, apart from such assets that Rabobank classifies as trading, at fair value on initial recognition with changes recognised through profit or loss, or as available for sale. Loans to customers and receivables are initially recognised at fair value, including transaction costs, and subsequently carried at amortised cost, including transaction costs. Loans are subject to either individual or collective impairment analyses. A value adjustment, a provision for expected losses on loans, is recognised if there is objective evidence that Rabobank will not be able to collect all amounts due under the original terms of the contract. The size of the provision is the difference between the carrying amount and the recoverable amount, which is the present value of the expected cash flows, including amounts recoverable under guarantees and sureties, discounted at the original effective rate of interest of the loans. 58 Interim Report 2011 Rabobank Group

61 The provision for loans includes losses if there is objective evidence that losses are attributable to some portions of the loan portfolio at the reporting date. Examples of objective evidence for value adjustments are: - Significant financial problems on the part of the borrower. - Default in making interest and/or redemption payments on the part of the borrower. - Loan renegotiations. - Possibility of bankruptcy of or financial reorganisation at the borrower. - Changes in borrowers payment status. - Changes in economic circumstances that could cause the borrower to default. The losses are estimated based on the historical pattern of losses for each separate portion, the credit ratings of the borrowers, and taking into account the actual economic conditions under which the borrowers conduct their activities. The carrying amount of the loans is reduced through the use of a provision account and the loss is taken to the statement of income. Write-downs of provisions for expected losses on loans are made as soon as the enforcement process is completed, the security provided has been realised, when virtually no other means of recovery are available and in the event of a formal cancellation of a debt. Where extraordinary circumstances arise, a provision for expected losses on loans may be written down at a portfolio level, up to the amount deemed uncollectible. Any amounts subsequently collected are included under the item Value adjustments in the statement of income. In its role as relationship bank, Rabobank will try to prevent the risk of default of payment on the part of the customer through adequate credit management, regular consultations with the customer and taking timely action. If despite these efforts a customer defaults on payment, Rabobank will attempt to restructure the loan instead of realising the collateral as long as it sees prospects for continuity. This may result in payments being rescheduled, new terms attached to the loan agreed or additional collateral obtained. As soon as the prospects for continuity have recovered, the loan is no longer considered impaired (not fully collectible). Management continually assesses these renegotiated loans to ensure that all criteria are satisfied with a view to expected future cash flows. At each reporting date, management assesses whether there is objective evidence that reclassified loans previously recognised as available-for-sale assets have been impaired. Intangible assets Goodwill Goodwill is the amount by which the acquisition price paid for a subsidiary or associate exceeds the fair value on the acquisition date of Rabobank s share of the net assets and the contingent liabilities of the entity acquired. Upon each acquisition, the other minority interests are recognised at fair value or at the proportion of the identifiable assets and liabilities of the acquired entity. Impairment tests are performed annually or if indications so dictate more frequently to determine whether impairment has occurred. Software development costs Costs related to the development or maintenance of software are recognised as an expense at the time they are incurred. Costs directly incurred in connection with identifiable and unique software products over which Rabobank has control and that will probably provide economic benefits exceeding the costs for longer than a year are recognised as intangible assets. Direct costs include the employee expenses of the software development team, financing and an appropriate portion of the relevant overhead. Expenditures that improve the performance of software compared with their original specifications are added to the original cost of the software. Software development costs are recognised as assets and amortised on a straight-line basis over a period not exceeding five years. Other intangible assets Other intangible assets are mainly those identified upon business combinations. They are amortised over their terms. Each year, Rabobank performs an impairment test based on expected future cash flows. An impairment loss is recognised if the expected future profits do not justify the carrying amount of the asset. 59 Notes to the interim financial information

62 Impairment losses on goodwill Each year at year-end goodwill is tested for impairment by comparing the recoverable amount of cash flow generating units with their carrying amount. The higher of value in use on the one hand and fair value less selling costs on the other determines the recoverable amount. The definition of cash flow generating units depend on the type of company acquired. The recoverable amount of a cash flow generating unit is arrived at by determining the present value of the expected future cash flows of the cash flow generating unit in question at the interest rate before tax. The major assumptions used in the cash flow model depend on the input data which reflect different financial and economic variables, such as the risk-free interest rate in a country and a premium reflecting the inherent risk of the entity concerned. The variables are determined subject to review by management. Impairments of goodwill are included in Other income in the statement of income. Impairments of goodwill recognised in the interim financial statements may not be reversed in the subsequent annual financial statements. Impairment losses on other intangible assets At each reporting date, Rabobank assesses whether there are indications of impairment of other intangible assets. If such indications exist, impairment testing is carried out to determine whether the carrying amount of the other intangible assets is fully recoverable. An impairment loss is recognised if the carrying amount exceeds the recoverable amount. Goodwill and software under development are tested for impairment each year at the reporting date or more frequently if indications of impairment exist. Impairment losses and reversed impairments of other intangible assets are included in Other administrative expenses in the statement of income. Property and equipment Equipment (for own use) is recognised at historical cost net of accumulated depreciation and impairments if applicable. Property (for own use) represents mainly offices and is also recognised at cost less accumulated depreciation and impairments if applicable. Straight-line deprecation is applied to these assets in accordance with the schedule below. Each asset is depreciated to its residual value over its estimated useful life: - Land Not depreciated - Buildings years - Equipment, including - Computer equipment 1-5 years - Other equipment and vehicles 3-8 years Each year, Rabobank assesses whether there are indications of impairment of property and equipment. If the carrying amount of an asset exceeds its estimated recoverable amount, the carrying amount is written down immediately to the recoverable amount. Impairment losses and reversed impairments of property and equipment are included in Other administrative expenses in the statement of income. Gains and losses on the disposal of items of property and equipment are determined in proportion to their carrying amounts and taken into account when determining the operating result. Repair and maintenance work is charged to profit or loss at the time the relevant costs are incurred. Expenditures on extending or increasing the benefits from land and buildings compared with their original benefits are capitalised and subsequently depreciated. Investment properties Investment properties, mainly office buildings, are held for their long-term rental income and are not used by Rabobank or its subsidiaries. Investment properties are recognised as longterm investments and included in the statement of financial position at cost, net of accumulated depreciation and impairment. Investment properties are depreciated over a term of 40 years. 60 Interim Report 2011 Rabobank Group

63 Work in progress Work in progress is included in Other assets. Work in progress relates to commercial real estate projects as well as sold and unsold housing projects under construction or planned and is carried at cost plus allocated interest, net of provisions as necessary. Instalments invoiced to buyers and customers are deducted from work in progress. If the balance for a project is negative (the amount of the invoiced instalments exceeds the capitalised costs), the balance of that project is recognised as Other liabilities. Gains and losses are recognised based on the percentage of completion method given the continuous transfer of ownership involved. In the course of the construction work, Rabobank transfers the control and the material risks and benefits of the ownership of the work in progress in its current state to the buyer. Leasing Rabobank as lessee Leases relating to property and equipment under which virtually all risks and benefits of ownership are transferred to Rabobank are classified as finance leases. Finance leases are capitalised at the inception of the lease at the fair value of the leased assets or at the present value of the minimum lease payments if the present value is lower. Lease payments are apportioned between the lease liability and the finance charges, so as to achieve a constant rate of interest on the remaining balance of the liability. The corresponding lease liabilities are included under Other loans, after deduction of finance charges. The interest components of the finance charges are recognised in profit or loss over the term of the lease. An item of property and equipment acquired under a lease agreement is depreciated over the useful life of the asset or, if shorter, the term of the lease. Leases under which a considerable portion of the risks and benefits of ownership of the assets is retained by the lessor are classified as operating leases. Operating lease payments (less any discounts by the lessor) are charged to profit or loss on a straight-line basis over the term of the lease. Rabobank as lessor Finance leases If assets are leased under a finance lease, the present value of the lease payments is recognised as a receivable under Due from other banks or Loans to customers. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised as interest income over the term of the lease using the net investment method, which results in a constant rate of return on the investment. Operating leases Assets leased under operating leases are included in the statement of financial position under Property and equipment. The assets are depreciated over their expected useful lives in line with those of comparable items of property and equipment. Rental income (less discounts granted to lessees) is recognised under Other income on a straight-line basis over the term of the lease. Provisions Provisions are recognised if Rabobank has a present obligation (legal or constructive) as a result of a past event, if it is probable that an outflow of resources will be required to settle the obligation and if a reliable estimate can be made of the amount of the obligation. If Rabobank expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only if the reimbursement is virtually certain. The provisions are carried at the discounted value of the expected future cash flows. Restructuring Restructuring provisions comprise payments under redundancy schemes and other costs directly attributable to restructuring programmes. The costs are recognised in the period in which a legal or constructive obligation arises for Rabobank and a detailed redundancy scheme is in place. No provisions are formed in advance for costs relating to continuing operations of Rabobank. 61 Notes to the interim financial information

64 Tax and legal issues The provisions for tax and legal issues is based on the best possible estimates available at the reporting date, taking into account legal and tax advice. The timing of the cash outflow of these provisions is uncertain because the outcome of the disputes and the time involved are unpredictable. Other provisions This item includes a provision for onerous contracts, credit guarantees and obligations under the terms of the deposit guarantee system. Employee benefits Rabobank has various pension plans in place based on the local conditions and practices of the countries in which it operates. In general, the plans are financed by payments to insurance companies or trustee administered funds. The payments are calculated actuarially at regular intervals. A defined benefit plan is one that incorporates a promise to pay an amount of pension benefit, which is usually based on several factors such as age, number of years in service and remuneration. A defined contribution plan is one under which Rabobank pays fixed contributions to a separate entity (a pension fund) and acquires no legal or constructive obligation if the fund has insufficient assets to pay all the benefits to employee/members of the plan in respect of service in current and past periods. Pension obligations The defined benefit liability is the present value of the defined benefit obligation at the reporting date, including adjustments for actuarial gains and losses and past service costs not yet recognised, reduced by the fair value of the plan assets. The defined benefit obligation is calculated by independent actuaries each year using the projected unit credit method. The present value of the defined benefit obligation is calculated by discounting the estimated future cash outflows at rates of interest on prime corporate bonds with terms approximating those of the related obligations. Most of the pension plans are career average pension plans and the net costs after deduction of employees contributions are included under Staff costs. Actuarial gains or losses from adjustments to actual developments and modified actuarial assumptions are recognised using the corridor method. Insofar as unrecognised cumulative actuarial gains or losses exceed 10% of the higher of the present value of the gross obligation under the defined benefit plan and the fair value of the fund, such excess is taken to profit or loss the next financial year, spread over two years. Defined contribution plans Under defined contribution plans, Rabobank pays contributions to publicly or privately managed insured pension plans on a compulsory, contractual or voluntary basis. Once the contributions have been made, Rabobank has no further payment obligations. The regular contributions are net period costs for the year in which they are due and are included on this basis under Staff costs. Other post-employment obligations Some Rabobank units provide other post-employment benefits. To become eligible for such benefits, the usual requirement is that the employee remains in service until retirement and has been with the company a minimum number of years. The expected costs of these benefits are accrued over the years of service, based on a system similar to that for defined benefit plans. The obligations are valued each year by independent actuaries. Tax Current tax receivables and payables are set off if there is a legally enforceable right to set off such items and if simultaneous treatment or settlement is intended. Deferred tax assets and liabilities are set off if there is a legally enforceable right to set off such items and if they relate to the same tax authority and arise from the same tax group. Provisions are formed in full for deferred tax liabilities, using the liability method, arising from temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. 62 Interim Report 2011 Rabobank Group

65 The main temporary differences relate to the depreciation of property and equipment, the revaluation of certain financial assets and liabilities, including derivative financial instruments, provisions for pensions and other post-employment benefits, provisions for losses on loans and other impairment and tax losses, and, in connection with business combinations, the fair values of the net assets acquired and their tax bases. Deferred income tax assets and liabilities are measured at the tax rates that have been enacted or substantively enacted at the reporting date. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available, against which the temporary differences can be utilised. Provisions are formed in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, unless the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Taxes on profit are calculated in accordance with the tax legislation of the relevant jurisdiction and recognised in the period in which the profit is realised. The tax effects of the carry-forward of unused tax losses are recognised as an asset if it is probable that future taxable profits will be available against which the losses can be utilised. Deferred tax assets or deferred tax liabilities are included for the revaluation of available-forsale financial assets and cash flow hedges that are directly taken to equity. Upon realisation, they are recognised in profit or loss together with the respective deferred gain or loss. Due to other banks, due to customers and debt securities in issue These borrowings are initially recognised at fair value, i.e. the issue price less directly attributable and non-recurring transaction costs. Loans are subsequently included at amortised cost. Any difference between the net proceeds and the redemption amount is recognised over the term of the loan, using the effective interest method. If Rabobank repurchases one of its own debt instruments, it is derecognised, with the difference between the carrying amount of a liability and the consideration paid being recognised as income or expense. Rabobank Member Certificates These are the certificates for shares in the capital of Rabobank Ledencertificaten N.V., Rabobank Ledencertificaten II N.V. and Rabobank Ledencertificaten III N.V. respectively issued in 2000, 2001, 2002 and On 30 December 2008, the merger between RLC (as the recipient company), RLC I and RLC II became effective ( the Merger ). As a consequence of the Merger, RLC (known after the Merger as: Rabobank Ledencertificaten N.V.) acquired all the capital of RLC I and RLC II by universal title and RLC I and RLC II ceased to exist. Since the proceeds of the issue are available to Rabobank on a perpetual and highly subordinated basis (also subordinate to the Trust Preferred Securities), and since, in principle, no distribution is made if the consolidated statement of income of Rabobank shows a loss for any financial year, the issue proceeds, insofar as they have been lent on to Rabobank Nederland, are recognised under Equity in proportion to the number of certificates held by members and employees. As a result, distributions are accounted for in the profit appropriation. Trust Preferred Securities and Capital Securities Trust Preferred Securities, which pay a non-discretionary dividend and are redeemable on a specific date or at the option of the holder, are classified as financial liabilities and included under Subordinated debt. The dividends on these preferred securities are recognised in profit or loss as interest expense based on amortised cost using the effective interest method. The remaining Trust Preferred Securities and Capital Securities are recognised as Equity, as there is no formal obligation to repay the principal or to pay the dividend. Financial guarantees Financial guarantees are measured at fair value. 63 Notes to the interim financial information

66 Segment information A segment is a distinguishable component of Rabobank that engages in providing products or services and is subject to risks and returns that are different from those of other segments. The business segments Rabobank uses in its reporting are defined from a management viewpoint. This means they are the segments that are reviewed as part of Rabobank s strategic management and for the purpose of making business decisions, and have different risks and returns. Rabobank s primary segment reporting format is by business segment; the secondary format is by geographical segment. Statement of cash flows Cash and cash equivalents comprises cash resources, money market deposits and deposits at central banks. The statement of cash flows is prepared in accordance with the indirect method of calculation and provides details of the source of the cash and cash equivalents that became available during the year as well as their application during the year. Operating profit before taxation in the net cash flow from operating activities is adjusted for items in the statement of income and changes in items in the statement of financial position which do not actually generate cash flows during the year. The cash flows from operating, investing and financing activities are stated separately. Changes in loans and receivables and interbank deposits are accounted for under cash flows from operating activities. Investing activities relate to acquisitions and disposals and repayments on financial investments, as well as the acquisition and disposal of subsidiaries and property and equipment. The proceeds from the issue of and payments on Rabobank Member Certificates, Trust Preferred Securities, Capital Securities, Senior Contingent Notes, Rabo Extra Member Notes and subordinated loans qualify as financing activities. Changes on account of currency translation differences are eliminated, as are the consolidation effects of acquisitions of associates. Capital Securities issue in first half of 2011 Rabobank Nederland issued USD 2 billion in Capital Securities in the first six months of The Capital Securities are perpetual and first callable on 26 July The Capital Securities are recognised within Equity, as there is no formal obligation to repay the principal or pay dividend. They satisfy the present rules, known as the CRD 2 requirements, that apply to hybrid capital. Among other things, they prescribe that the securities may no longer include a step-up and that they should share in losses once a certain trigger is hit, in which case the principal is permanently written down. Write-down will be on a pro rata basis with other equity components. For Rabobank Group, the trigger will be an equity capital ratio of 8%. Once it is hit, losses will also be attributed to this series of Capital Securities on a pro rata basis. The distribution is 8.375% per year and is made payable every six months in arrears as of the issue date (26 January 2011), for the first time on 26 July With effect from 26 July 2016, provided the Capital Securities have not been repaid early, the distribution will be reset without a step-up for a five-year period, based on the US Treasury Benchmark Rate plus a 6.425% mark-up. Planned exchange of Rabobank Member Certificates In October 2011, the Rabobank Member Certificates are expected to be exchanged. Holders of an existing Rabobank Member Certificate will receive a new Rabobank Member Certificate as well as a payment in cash equaling the difference between the existing Rabobank Member Certificate s net asset value and the new Rabobank Member Certificate s nominal value, which difference is expected to be EUR 1.20 per certificate. The new Rabobank Member Certificates will be depository receipts of participation rights directly issued by Rabobank Nederland. 64 Interim Report 2011 Rabobank Group

67 Disclosures required under IAS 34.15, 15B and 16A Besides the issue of Capital Securities referred to above and the planned exchange of Rabo Member Certificates, no significant events and transactions occurred in the first six months of The disclosures required under IAS 34.16A are presented below. - The same accounting policies and methods of computation are followed in the interim financial statements as compared with the 2010 consolidated annual financial statement. Changed accounting policies and methods are set out in the New and amended IFRSs Section. - There are no other items than those set out in this report that affect assets, liabilities, equity, net income or cash flows that are unusual because of their nature, size or incidence. - No changes in estimates occurred during this interim period. - Rabobank made various issues, repurchases and repayments of bonds, but they are part of Rabobank s ordinary operations. - Rabobank s interim operations are not of a seasonal or cyclical nature. - Rabobank made payments to owners of equity instruments as set out in the condensed consolidated statement of changes in equity. - The Business segments Section has been prepared in conformity with the requirements of IFRS 8. - There were no events after the reporting date that provide further information on the actual situation at the reporting date. - There were no changes in the composition of the entity during the interim period, including business combinations, obtaining or losing control of subsidiaries and long-term investments, restructurings and discontinued operations. Notes to the primary financial statements Condensed consolidated statement of income - Other results Higher income from Global Financial Markets and Professional Products, an improvement in trading income at Sarasin, and an increase in residual value gains at De Lage Landen were factors in the rise in other income. In combination with favourable developments in the yield curve, with rates rising and the curve steepening, this resulted in a 91% increase in other income to 1,283 (672) million in the first half of Consolidated statement of comprehensive income The fall in total other comprehensive income can largely be attributed to currency translation differences in non-controlling interests and the foreign currency translation reserve, which were chiefly caused by the lower US dollar exchange rate. Condensed consolidated statement of changes in equity Other non-controlling interests are 396 lower, especially mainly due to the deconsolidation of structured finance deals with third-party investors in the United States. Condensed consolidated statement of cash flows For the first half of 2011, the non-cash items recognised in operating profit before taxation are lower than those for the first half of 2010, because of the increase in net income from financial assets and liabilities at fair value through profit or loss and income from associates. In the first half of 2011, the net change in operating assets was less negative than that for the first half of 2010, chiefly on account of the decrease in derivative financial instruments during the first half of 2011 and the increase in derivative financial instruments in the first half of The same effect can be seen in the net change in liabilities relating to operating activities. The net cash flow from investing activities in the first half of 2011 was lower than that for the first half of 2010, as a major cash outflow had taken place in the first half of 2010 with respect to the purchase of government bonds in anticipation of more stringent liquidity requirements. 65 Notes to the interim financial information

68 Business segments The business segments Rabobank uses in its reporting are defined from a management viewpoint. This means they are the segments that are reviewed as part of Rabobank s strategic management and for the purpose of making business decisions and have different risks and returns. Rabobank distinguishes six major business segments: domestic retail banking, wholesale and international retail banking, asset management, leasing, real estate and other segments. The domestic retail banking segment mainly comprises the operations carried out by the local Rabobanks and Obvion. The wholesale and international retail banking segment Rabobank International provides support to Rabobank Group in achieving market leadership in the Netherlands as an all-finance service provider. Internationally, it concentrates on the food and agri sector. Rabobank International undertakes regional corporate banking operations while globally operates entities, such as Global Financial Markets, Structured Finance, Leveraged Finance, Renewable Energy & Infrastructure Finance, Direct Banking, Trade & Commodity Finance and Rabo Private Equity. It carries on its retail banking operations under the Rabobank label, with the exceptions of ACCBank and Bank BGZ, The asset management segment mainly comprises the operations of Robeco, Schretlen & Co and Sarasin. The leasing segment De Lage Landen is responsible for the lease operations, offering a wide range of lease, trade finance and consumer finance products in its Dutch home market. Across the globe, it supports sales of manufacturers, vendors and distributors, offering them its asset finance products. In Europe, De Lage Landen operates the car lease company Athlon Car Lease. The real estate segment Rabo Real Estate Group carries out Rabobank s real estate operations. Its core business is in developing residential and commercial real estate as well as providing finance and asset management services. Rabo Vastgoedgroep operates under the labels Bouwfonds Ontwikkeling, MAB Development, FGH Bank and Bouwfonds REIM. The other segments of Rabobank comprise a variety of segments, none of which requires separate reporting. They chiefly reflect the figures for the associates (notably Eureko) and head office operations. There are no clients representing over 10% of Rabobank s total revenues. Inter-segment transactions are conducted in accordance with standard commercial terms and market conditions. The dividend distribution of 241 to the local Rabobanks has been recognised within Other results in the domestic retail banking segment. No material income or expense items other than from operating activities arise between business segments. The assets and liabilities of a segment comprise operating assets and operating liabilities, i.e. a substantial part of the statement of financial position, but are exclusive of items such as taxation. The accounting policies used for segment reporting are the same as those described in the section on the significant accounting policies used in preparing the consolidated interim financial statements. 66 Interim Report 2011 Rabobank Group

69 In millions of euros For the half-year ended 30 June 2011 Domestic retail banking Wholesale banking and international retail banking Asset management Leasing Real estate Other segments Consolidation effects/ hedge accounting Interest 2,576 1, (61) - 4,507 Commission (25) (1) 1,513 Other results (333) 1,283 Total income 3,511 2, (334) 7,303 Segment expense 1,954 1, (677) 4,357 Value adjustments Operating profit before taxation 1, (576) 343 2,328 Taxation (231) Net profit 1, (345) 259 1,854 Total Total assets 371, ,236 26,074 29,541 26,899 92,485 (332,077) 664,953 Total liabilities 348, ,634 23,085 26,477 24,882 75,798 (323,148) 622,440 In millions of euros For the half-year ended 30 June 2010 Domestic retail banking Wholesale banking and international retail banking Asset management Leasing Real estate Other segments Consolidation effects/ hedge accounting Interest 2,483 1, (73) - 4,347 Commission (53) 1 1,413 Other results (31) (750) 672 Total income 3,254 1, (749) 6,432 Segment expense 1, (595) 3,906 Value adjustments Operating profit before taxation 1, (149) (154) 1,957 Taxation (69) (32) 318 Net profit (80) (122) 1,639 Total Total assets 349, ,766 24,744 30,623 26,685 70,901 (283,915) 675,610 Total liabilities 327, ,544 22,098 27,753 25,489 57,297 (316,306) 635, Notes to the interim financial information

70 Statements Review report To the Executive Board and Supervisory Board of Rabobank Nederland Introduction We have reviewed the condensed consolidated interim financial information as set out in the interim report 2011 on pages 46 to 67, of Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank Nederland), Amsterdam, which comprises the condensed consolidated statement of financial position as at 30 June 2011, the condensed consolidated statement of income, consolidated statement of comprehensive income, condensed consolidated statement of changes in equity and condensed consolidated statement of cash flows for the six month period then ended and the notes to the interim financial information. The Executive Board of Rabobank Nederland is responsible for the preparation and presentation of this condensed consolidated interim financial information in accordance with IAS 34, Interim Financial Reporting as adopted by the European Union. Our responsibility is to express a conclusion on this condensed consolidated interim financial information based on our review. Scope We conducted our review in accordance with Dutch law including the Dutch standard 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with the Dutch auditing standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial information for the six months period ended 30 June 2011 is not prepared, in all material respects, in accordance with IAS 34, Interim Financial Reporting, as adopted by the European Union. Amsterdam, 22 August 2011 Ernst & Young Accountants LLP /s/g.h.c. de Meris 68 Interim Report 2011 Rabobank Group

71 Executive Board responsibility statement The Executive Board of Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank Nederland) declares that, to the best of their knowledge: - the interim financial information gives a true and fair view of the assets, liabilities, financial position and results of operations of Rabobank Nederland and its consolidated entities; - the interim report gives a true and fair view of the situation at the balance sheet date, and of developments in activities of Rabobank Nederland and of its consolidated entities in the first half of the year, as well as a description of the principal risks and uncertainties for the remaining six months of 2011, in which, insofar as weighty interests do not oppose this, special attention is paid to the investments and to the circumstances on which the development of turnover and profitability depends. Piet Moerland, Chairman Bert Bruggink, CFO Berry Marttin, Member Sipko Schat, Member Piet van Schijndel, Member Gerlinde Silvis, Member Utrecht, 22 August Statements

72 Colophon Published by Rabobank Nederland Communications Departments Disclaimer This Interim Report is a translation of the Dutch Interim Report. In the event of any conflict in interpretation, the Dutch original takes precedence. Annual Reporting In 2011 Rabobank Group publishes the following annual reporting documents, both in English and in Dutch: - Annual Summary 2010 Rabobank Group - Jaarbericht 2010 Rabobank Groep - Annual Report 2010 Rabobank Group - Jaarverslag 2010 Rabobank Groep - Consolidated Financial Statements 2010 Rabobank Group - Geconsolideerde jaarrekening 2010 Rabobank Groep - Financial Statements 2010 Rabobank Nederland - Jaarrekening 2010 Rabobank Nederland - Interim Report 2011 Rabobank Group - Halfjaarverslag 2011 Rabobank Groep Rabobank Group s annual reporting is available online on and The key figures are also available for the mobile phone on: Materials used Rabobank Group uses environmentally-friendly materials when printing this document. Third parties downloading the PDF from the Internet and printing it are kindly requested to do the same. Contact [email protected] Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank Nederland) Croeselaan 18 P.O. Box HG Utrecht The Netherlands Interim Report 2011 Rabobank Group

73 Interim Report 2011 Rabobank Group August