officer of Rabobank, says the outlook for the banking industry
remains bleak – despite his bank being one of the few big European
groups to report a rise in half-year earnings. He remains confident
Rabobank has a robust business strategy, in particular its
ever-expanding international portfolio.
Along with Santander, Standard Chartered and
Raiffiesen, Rabobank was one of the few Europe-based banks to
report an increase in interim profits. The Dutch co-operative,
Europe’s 10th-largest banking group by assets, managed to increase
net income by 12 percent to a record level of €1.53 billion ($2.16
billion).
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But despite a very robust performance from
its domestic retail banking units and exceptional income from the
sale of its investment bank subsidiary Alex, as well as better
income from its Polish subsidiary BGZ, Rabobank still suffered an
ugly €529 million negative impact from the credit crisis.
Talking exclusively to RBI, Bert
Bruggink, the group’s chief financial officer, remained largely
pessimistic about the global market going forward.
He said: “We are fairly negative about how
big this crisis will be and how long it will take to resolve.
“We are at best half-way through.
Everybody expects more losses to come and more banks to report bad
news or fail [and] there will be more bad news with some expected
and unexpected names. I think we will see a very challenging second
half of 2008 and also 2009. This is a nasty environment to live in
and bank in.”
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By GlobalDataHe added that Rabobank is not giving any
guidance on profits for the second half, either.
“Usually we tell the world what our
targets are. This time we have not done so,” Bruggink said. “We
have indicated that if markets do not decline any further then it
will be more or less in line with the first half. But we have seen
lots of things happening unexpectedly so what can happen in the
next six months, I do not know. There is a big question mark out
there.”
It will be the impact of the global
economic crunch on the local Dutch economy that will affect
Rabobank the most going forward. Despite now having businesses
across the world – including retail banking operations in Ireland,
Poland, the US, Australia, New Zealand and four African countries –
the Netherlands accounts for 76 percent of group lending.
More importantly, the bank is focused on
consumer banking: domestic retail banking accounts for 68 percent
of group lending.
Fortunately, this domestic business
performed well in the first half of 2008: net profit achieved by
domestic retail banking was up 28 percent in H108, to €856 million.
Private sector lending increased 5 percent to €257 billion; the
group strengthened its leading position in the mortgage market, up
to 2 percentage points to 30 percent.
And despite increasing competition in the
Dutch savings market, Bruggink said Rabobank managed to hold on to
its dominant 41 percent share, meaning the domestic retail banking
division funded most of the growth in overall group lending.
“Having this sort of customer base is very
beneficial these days [as was] our market share in mortgage
lending, which is still a relatively attractive market,” he
added.
A grip on consumer
savings
Rabobank’s grip on consumer savings and
lending in the Netherlands is, nevertheless, under threat from two
local rivals: ING, which is spending nearly €1 billion over five
years revamping and upgrading its local retail banking business
(see RBI 572); and Fortis, which took over ABN AMRO’s
Dutch retail business last year and is looking, among other things,
to become ‘the bank of choice’ for mass affluent and professional
customers across the Benelux region.
Talking about the threat from an enlarged
Fortis, Bruggink said: “In the current period of market turmoil, it
is clear that we can benefit in terms
of market share. That is what is happening. We
think, it is our expectation, that Fortis, which is now twice as
big, will be a strong competitor. To be able to meet these
challenges, Rabobank will spend a lot of time trying to strengthen
our base to meet this sort of challenge in the years to come.”
He added that Rabobank’s sophisticated
distribution network in the Netherlands, particularly its strong
presence in rural areas, its very popular online banking service
and its small-but-established m-bank, will continue to attract
strong retail banking business. The group is halfway through its
Rabobank 2010 Programme, a technology-led sales and service
initiative started in 2007 with aim of making all group units
‘available 24/7 to clients’. Nine pilot branches have implemented
the 2010 Programme so far this year and are in the final stages of
completing their assessment of the systems, and the programme will
soon be made available to other units.
“The nature of branches is changing all
the time,” stated Bruggink. “The general trend we have seen is, and
this is definitely true among the younger part of the population,
is towards online and mobile [distribution]. The nature of our
branches is changing more towards the community, a place to get a
real cup of coffee, as a place to have a meeting with someone about
the more complex products, and away from traditional banking with
people behind counters.
“You can be very successful in selling via
the internet and via the mobile, but you have to be visible in the
street. The great majority of the population still want to see that
the bank physically exists so bricks and mortar is important for
visibility… But the traditional ways of transacting are getting
less and less, so you have to change the physical nature of these
branches and make them still a relevant part of your distribution
concept, and that is what we are doing.”
He admitted that mobile banking has been a
relatively harder channel to sell to the Dutch population, but
remained adamant that m-banking and m-payments will become
practical sales and service tools in the near future.
Rabobank was the first European bank to
launch a third-generation m-banking product back in 2003 and has
invested in the medium over the past five years.
“The original ideas about what could be
possible with mobile banking maybe have not been realised in the
way we had initially expected and as fast, ie the mobile as a way
of paying bills or whatever you like,” Bruggink said.
“It is happening, but maybe not as fast as
we had hoped for. I think we can say that the mobile phone and
mobile banking as a tool for payments or transacting is not 100
percent there yet. But we are convinced it will be because there
are other places where it is happening. We think this is going to
happen – it is just a matter of time.”
Outside of the Netherlands
The biggest fall in group profit came from Rabobank’s
wholesale and international retail banking division (WB&IRB),
which suffered an 88 percent drop year-on-year in net profit. But
while wholesale banking took the brunt of the market downturn,
income from international retail banking actually increased by 40
percent to €396 million, with all regions contributing to this
growth.
International retail banking operations
accounted for 30 percent of the group’s WB&IRB loan portfolio,
with lending increasing 18 percent to €25.6 billion.
In Australia and New Zealand, the retail
portfolio grew by 8 percent to €9.5 billion; in Europe excluding
the Netherlands it was up by 41 percent; and in the US, it
increased 10 percent to €6.5 billion. In terms of Europe, the
consolidation of Bank BGZ in Poland and subsequent extra income
from the bank – Rabobank increased its stake in BGZ from 46 percent
to 59 percent – contributed significantly to earnings.
Bruggink said Rabobank was no longer
looking at rolling out a US direct banking operation. It has
successful online-only services in Ireland, Belgium, Australia and
New Zealand (with deposits up 29 percent to €6.6 billion in total
for all four), and was more bullish on prospects in Australia and
India, in particular.
In India, Rabobank retains a small stake
in the fast-growing Yes Bank and it is also still waiting for its
own retail banking licence. “We absolutely believe that India in
the long run is one of the key countries for Rabobank to be in,”
said Bruggink.
He added: “It is the countries where we
want to grow fast where we really invest significant amounts of
money. In this particular category are Australia and New Zealand
and North America. That is where acquisitions have predominantly
been focused.
“And that will continue to be the case –
maybe not so much in North America because we did three
[acquisitions] in a relatively short amount of time – but in
Australia we are clearly looking at ways to expand and grow our
business organically and if there is an acquisition possibility,
with regards to retail banking, we will definitely look into
it.”
Pushing into Africa
Other countries high up on the Rabobank
list are, in Europe, Poland and Turkey, and further afield,
Indonesia, Chile and Brazil as well as India. The group has also
pushed into Africa, buying stakes in banks in Tanzania, Zambia,
Mozambique and, most recently, in Rwanda (it took a 35 percent
stake in Banque Populaire).
The connecting theme between all of
Rabobank’s acquisitions, from the US to Africa, is its over-arching
strategic focus on food and agricultural industries and
communities, and its desire to be the world’s main food and
agricultural banking group.
In terms of Rabobank’s African exposure,
Bruggink says the deals were part strategic, part driven by the
group’s well-known, entrenched belief in corporate social
responsibility. “The reason why we took these stakes is to also
give the banking industry in each country a boost and, via the
banking industry, we can also develop the agricultural market.
“The reliability and the liquidity of
markets is very important from our perspective [and], ultimately,
our view is that Africa will become a very important
continent.”
