By Gareth Vaughan
Dutch cooperative banking giant Rabobank, whose New Zealand arm is a major rural sector lender, says its 2011 net profit fell 5% and its total net exposure to sovereign debt issued by western Europe's most troubled economies is just €349 million (NZ$554 million).
In an investor presentation issued with its annual results, Rabobank says the €349 million worth of exposure to government debt from Europe's so-called PIIGS nations - Portugal, Ireland, Italy, Greece and Spain, is dominated by a €200 million in Italian bond holdings. On top of the sovereign debt, it also has €121 million worth of state guaranteed PIIGS bonds, with €60 million Portuguese, and €1.57 billion in bonds - mainly covered bonds - issued by financial institutions in PIIGS countries, dominated by €1.45 billion from Spanish institutions.
The all up €2 billion exposure is a tiny chunk of the bank's €731.7 billion worth of total assets and comes after €374 million worth of write-downs on the PIIGS related debt, including a €227 million write-down on its Greek exposure.
Rabobank's net profit fell to €2.62 billion from €2.77 billion in 2010. Its return on equity fell to 7.6% from 8.6% and compares with ASB's 21.2%. Rabobank's equity rose €4.2 billion year-on-year to €45 billion. Group lending rose 3% to €448 billion and customer deposits rose 10% to €330 billion. Bad debt costs rose €372 million to €1.6 billion. Operating expenses were up 6% to €8.7 billion. Rabobank has 59,670 staff.
Rabobank, which lost its triple AAA Standard & Poor's credit rating in December when S&P changed its ratings system, said it had a total of €18.3 billion of lending in Australia and New Zealand as of December 31, with €3.4 billion wholesale lending and €14.9 billion rural and retail loans. The bank's new AA rating from S&P, two notches below AAA, is higher than the AA- ratings the credit rating agency has on ANZ NZ, ASB, BNZ, Westpac NZ and Kiwibank.
In New Zealand Rabobank is yet to release its December quarter General Disclosure Statement. However, in the September 2011 quarter the bank grew lending by NZ$422.254 million to NZ$7.866 billion. Rabobank New Zealand's unaudited profit after tax more than halved in the three months to September to NZ$13.586 million from NZ$30.6 million in the same period of the previous year with impairment losses on loans of NZ$10.2 million compared with a gain of NZ$5.45 million when the bank released a NZ$9.6 million provision for risk.
Piet Moerland, Rabobank's chairman, predicted a tough 2012.
"The market will continue to struggle in 2012," Moerland said. "Consumer and business confidence is not expected to recover in the near future. Employment trends are uncertain, additional cuts in government spending are likely, and pension benefits are under pressure."
"Top priority ought to be given to reforming the housing market, which could provide a significant boost to recovery of consumer confidence and a pick-up in economic growth. As the Dutch mortgage market leader, Rabobank presented an integrated plan for reforming the Dutch market for owner-occupied and rented residential properties."
"While Europe’s political and monetary authorities have taken important measures to bring back stability, it will still be some time before all countries of Europe have their public finances back in good order and confidence has been restored on the financial markets."
Moerland said a tough economic outlook wasn't the only challenge Rabobank faces this year.
"Just as other banks, Rabobank is also confronted with an increase in rules and regulations, such as the Basel III capital requirements, the new deposit guarantee system and, most likely, the bank tax. These will generally lead to growth in lending coming under pressure in 2012. Our employees will continue to put all their energy into working for our customers and providing the level of service that they have come to expect from Rabobank. Customer interests form the principal starting point for the services that we provide, both in the Netherlands and abroad. This is down to Rabobank’s long-standing cooperative perspective, which encourages us to connect with our members and our customers.”
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