2017 Annual report Rabobank Annual Report 2017 - 1 Introduction Chairman’s foreword; About this report 2 Read more Management report 6 Overview of the strategy, developments and financial results and corporate social responsibility and sustainability of Rabobank Group. Read more Appendices 96 Materiality matrix, Non-financial KPIs, Sustainability facts & figures, dialogue with organisations and clients, EU-directive, Global Reporting Initiative and financial performance. Read more Corporate governance 141 Retrospective on 2017 by the Supervisory Board. Explanation of the new governance structure of Rabobank. Read more Consolidated financial statements 162 The balance sheet and the profit and loss statement for the entire Rabobank Group, with notes. Read more Company financial statements 242 The balance sheet and the profit and loss statement of Rabobank, with notes. Read more Glossary of terms 282 Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements Chairman’s foreword Strong performance but some way to go We are committed to being a meaningful cooperative bank, making a substantial contribution towards achieving welfare and prosperity in the Netherlands and to resolving the global food issue. We are shaping our mission of ‘Growing a better world together’ with passion and this is bearing fruit. In 2017 we accelerated our efforts to reach the goals set in our Strategic Framework 2016- 2020. We further reinforced our position in Food & Agriculture in the Netherlands and around the world. The future Rabobank is taking shape with more satisfied customers, innovations, a stronger balance sheet and improved financial results. Our cooperative structure helps us identify and act upon the of the independent Rabobank Foundation1, we are helping 5 issues which matter to our 7.3 million retail and corporate million poor small farmers in the developing world to achieve customers in the Netherlands. Last year, for instance, we took self-reliance. We have launched and driven forward numerous specific measures to help starters and seniors in the housing digital innovations (including our first block chain application market. Our recent efforts relating to livestock production in 2017) and our operational indicators on reliability and rights (such as phosphate legislation) underscore our strong availability have improved sharply. We have introduced many commitment to our clients and partners in the Dutch Food & innovations in our client service offerings, and have improved Agri sector. Local Rabobanks allocated an amount of EUR 45 the Rabobank digital experience across many domains. The (2016: 40) million from their net profit for future investments in Rabo banking App is now highly rated and offers the widest local community initiatives in the Netherlands. number of services provided on the platform. The vast majority of our segments and businesses have delivered higher As a leading global Food & Agri bank, that lends around EUR 98 performance this year compared to last. What’s more, we have billion to corporate and rural clients in the Food & Agri sector, done this with a more diverse leadership team: 26% of our we are uniquely positioned to help our clients to produce senior management positions are now occupied by women more and better quality food in a more sustainable way, while (up from 25%), while 40% of the Managing Board and 33% of using fewer resources. In October we launched the Kickstart the Supervisory Board are female. We are deeply committed to Food programme. In collaboration with the UN Environment diversity of all forms and will continue to champion this cause Programme, we are creating a USD 1 billion facility to help in 2018. accelerate the transition to a sustainable food supply. Our Sustainably Stronger Together mission and our commitment Our employees make the difference. They are the people to the UN Sustainable Development Goals guide us in bringing about the bank’s transition and we very much helping clients around the world make their businesses more appreciate their efforts. Human Resources’ attention for talent is sustainable. now represented at the highest management level, with Janine Vos being appointed as CHRO. The results of recent surveys The capital targets we set for 2020 were reached this year, show an inspiring rise in employee motivation, thanks in part to which we consider prudent given upcoming new regulations our new mission Growing a better world together. Our mission and we posted a net profit over the year of EUR 2,674 million. Our ratings are stable, as are our market shares and margins, despite external volatile realities. Our Net Promotor Score 1 The Rabobank Foundation is an independent foundation, founded and other metrics have shownn even higher levels of client about 40 years ago by local Rabobanks. Up to this day the local appreciation nearly all our businesses throughout 2017. We banks donate a percentage of their profits to the foundation. have applied greater focus in our Food & Agri portfolios and, The foundation’s financial statements are not consolidated within through the work of Rabo Development and with the help Rabobank’s consolidated financial statements. Rabobank Annual Report 2017 2 Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements confirms the course we are taking and guides our actions as Taking a stand on issues that matter is also key to the personal a cooperative bank. The increase in employee motivation is and professional development of our employees. In 2017, appropriate to the current phase of our overall transformation. we redesigned the leadership profiles; they now emphasise We have confidence in the measures we are taking to address leadership through connection in the community in addition employee motivation and are grateful for their continued to personal and team leadership. We seek to empower our dedication to Rabobank in these turbulent times. employees and leaders by asking them: What do you need to achieve personal growth as well as growth in and for your In all, we are proud that we are on track to achieving the goals team? How are you helping to grow a better world together? set in the Strategic Framework 2016-2020. Yet our ambitions This applies to the whole bank, to our customers and their go beyond the results to date. We must pick up even more communities. speed, particularly in our digital transition and innovation efforts, to continue offering our customers the best possible In the Strategic Framework 2016-2020, Rabobank adopted a service. We laid a solid foundation for this in 2017. And like in clear strategy for improvement with Performance Now. This any organisation in transition some things go according to plan programme has had major consequences for our staffing levels, while others are more challenging, and sometimes even present reducing them by approximately 7,000 jobs so far with another dilemma’s. 5,300 set to go between 2018 and 2020. Job loss is an issue across the financial sector, but our mobility centres are proving Keeping up with the implementation of new regulation needs effective in helping many of those who we had to let go. The attention. Rabobank runs a complex portfolio of IT change initial figures show that almost half of this group found a job programmes. It requires extra management attention, time or started their own business within six months of being made and costs to implement new policies and procedures in redundant.In 2018 the focus will shift to starting support earlier, the changing organisation. We also implemented a global in the active mobility phase. Research shows that the earlier programme on customer due diligence, encompassing employees start working on developing a new perspective, the governance, education, conduct and tools. We monitor a large more likely they are to succeed in finding a new challenge. portfolio of customer relationships and transactions worldwide and address new adverse external signals throughout the entire Many of our employees are migrating from local Rabobanks to organisation. That also means that we sometimes need to end centralised regionalised service centres. This move will benefit customer relationships or decline transactions. We assigned a our client service because it will boost our speed and efficiency task to a committee to review the target operating model of the and reduce back office costs. Our cost reduction efforts are local Rabobanks in order to increase customer focus, increase mostly on target, with increased efficiency in many parts of the contribution to the regional economy, improve operational Rabobank, in line with our strategic plan. However additional management and reduce costs. The outcome is planned for 2018. efforts in IT and follow-up work on for example SME derivatives and other one-offs led to an increase in overall costs for the In June we announced the formation of a new management year. We need to continue focusing intensively on cost control structure. In the new Managing Board, all key customer to achieve structural efficiency gains to further reduce our cost- segments are represented at the executive level. Group-wide to-income ratio, leveraging the benefits of further digitalisation attention for digitalisation and talent at the highest executive and building scale in back-office activities. management level gives us a closer fit with the change agenda of the cooperative Rabobank. Each of my fellow members The past few years have been particularly challenging for our of the Managing Board will introduce themselves and their employees. In the Organisational Health Index taken at the start business later in this report. Suffice to say here that I am proud of 2017, they expressed a need for a clearer sense of direction to chair such a driven and diverse team and to be leading and purpose. We have addressed this in our new mission, the bank forward together. I would also like to express our Growing a better world together, which is a clear statement deep appreciation and thanks to Rien Nagel and Ralf Dekker of that purpose. On behalf of the Managing Board, I sincerely who stepped down in September. They brought distinctive thank our employees for their intensive efforts in 2017 and look leadership to Rabobank during their long careers at the bank. forward to the growth we can achieve together in 2018. We wish them all the best for the future. Rabobank Annual Report 2017 3 Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements Looking ahead In 2017 Rabobank laid a solid foundation for the next step in its transition. The environment is changing fast and we will boost our digitalisation and innovation efforts so we can continue to offer optimum service to our clients. Our employees play a key role in this process. The legislative changes in Europe, such as PSD2 and GDPR, will alter client interactions in all industries. Open banking could make us just one of many ecosystem choices. While the regulatory requirements of the reform of Basel III have finally been made clear, they do not favour north-western European banks like ourselves, with a prudent risk profile like Rabobank. We will of course comply with these new requirements on time, but we would prefer a more level playing field. The favourable economic climate in many parts of the world helped many customers thrive in 2017 and this will continue in 2018. When our customers do well, we do well. Yet we also face considerable uncertainties. The interest rate landscape in 2018 is likely to remain challenging for our customers and our balance sheet. And the geopolitical environment is both tense and unpredictable. The one constant in the world - not just the financial sector - is change and disruption. While we can be pleased with our progress in 2017, we are not there yet. I believe that our new positioning and clear direction as a meaningful cooperative will serve as a source of inspiration for our employees and our customers. It represents the basis for the choices we make in the future. As the natural world teaches us, adaptivity is key in a changing, and sometimes hostile, Wiebe Draijer, Chairman environment. In the future we will focus even more keenly on adaptivity: the key not only to survival, but also to thriving. of the Managing Board Wiebe Draijer, Chairman of the Managing Board Rabobank Annual Report 2017 4 Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements About this report Rabobank is driven to create value for our clients and other stakeholders. Key inputs fuel our strategy and business model, allowing us to fulfil our mission and vision, and maximise both our output and our impact on members, customers, the society and our employees. Therefore the 2017 Annual Report takes an integrated approach, highlighting Rabobank’s contribution to our various stakeholders by providing both financial and non-financial information. This report and Financial Statements have been prepared in accordance with the appropriate reporting standards and guidelines and it relates to the reporting period 1 January 2017 to 31 December 2017. They were published on 15 March 2018 on Rabobank’s corporate website. See appendix 1 for more information. Integrated reporting Materiality Our integrated reporting approach rests on two pillars: our The materiality analysis provides insight into the choices we value creation model and materiality matrix. The value creation made in the reporting year. This is illustrated in a materiality model is about how we create economic, social and ecological matrix, which shows the topics that require attention as value through our capital resources, business model and they have substantial impact on both our stakeholders and strategic priorities. This model enables a transparent view of on Rabobank. Information on the process of determining our ability to create value over the short, medium and long materiality and the boundaries of the topics is provided in term. It begins with three key inputs: human and social capital, Appendix 1. Rabobank’s mission is Growing a better world intellectual capital and financial resources. These inputs lead to together. Through our strategic focus areas – Banking for the our business model, including Rabobank’s mission, vision and Netherlands and Banking for Food - we offer value-added strategy. Finally, the output and impact section of the model products and services to our customers in the Netherlands is structured along the 18 material topics from the materiality and in Food & Agri in the world. We are committed to making matrix. a difference as a leading, cooperative, client-driven bank, in the Netherlands and around the world and to being a rock- solid bank with strong financial capital and liquidity buffers for financial solidity and high credit ratings made possible by our empowered employees. Rabobank Annual Report 2017 5 Management report Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements Contents Key figures 8 Rabobank at a glance 10 Our impact on our customers 20 Our impact on society 45 Empowered Employees 54 Our performance 63 Our financial performance 72 Risk Management and Compliance 79 Outlook on 2018 90 Members of the Managing and Supervisory Board 91 Management board responsibility statement 95 Rabobank Annual Report 2017 - Management report 7 Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements Key figures Key figures Amounts in millions of euros 2017 2016 2015 2014 2013 Financial position and solvency Equity 39,610 40,524 41,197 38,788 38,534 Common equity tier 1 capital 31,263 29,618 28,754 28,714 28,551 Tier 1 capital 37,204 37,079 35,052 33,874 35,092 Total capital 51,923 52,873 49,455 45,139 41,650 Risk-weighted assets 198,269 211,226 213,092 211,870 210,829 Profit and loss account Income 12,001 12,805 13,014 12,889 13,072 Operating expenses 8,054 8,594 8,145 8,055 9,760 Regulatory levies 505 483 344 488 197 Impairment losses on goodwill and investments in associates 0 700 623 32 42 Loan impairment charges (190) 310 1,033 2,633 2,643 Taxation 958 694 655 (161) 88 Net profit from continued activities 2,674 2,024 2,214 1,842 342 Net profit from discontinued activities 0 0 0 0 1,665 Net profit 2,674 2,024 2,214 1,842 2,007 Ratios Common equity tier 1 ratio 15.8% 14.0% 13.5% 13.6% 13.5% Fully loaded common equity tier 1 ratio 15.5% 13.5% 12.0% 11.8% 11.1% Tier 1 ratio 18.8% 17.6% 16.4% 16.0% 16.6% Total capital ratio 26.2% 25.0% 23.2% 21.3% 19.8% Equity capital ratio 17.3% 15.0% 14.7% 14.4% 16.1% Leverage ratio 6.0% 5.5% 5.1% 4.9% 4.8% Loan-to-deposit ratio 1.20 1.22 1.25 1.32 1.35 Return on tier 1 capital 7.2% 5.8% 6.5% 5.2% 5.2% ROIC 6.9% 5.2% 6.0% - - Cost/income ratio excluding regulatory levies 67.1% 67.1% 62.6% 62.5% 74.7% Cost/income ratio including regulatory levies 71.3% 70.9% 65.2% 66.3% 76.2% Net profit growth 32.1% -8.6% 20.2% -8.2% -2.5% Return on assets 0.44% 0.31% 0.33% 0.28% 0.27% Ratings Standard & Poor’s A+ A+ A+ A+ AA- Moody’s Investors Service Aa2 Aa2 Aa2 Aa2 Aa2 Fitch Ratings AA- AA- AA- AA- AA- DBRS AA AA AA AA (high) AAA Sustainability ratings RobecoSAM (DJSI) – ranking 11 7 5 12 - Sustainalytics – ranking 7 2 11 40 - Volume of services Total assets 602,991 662,593 678,827 691,278 669,095 Private sector loan portfolio 410,964 424,551 433,927 429,731 434,691 Deposits from customers 340,682 347,712 345,884 336,409 326,222 Wholesale funding 160,407 188,862 203,218 216,529 219,057 Supporting local communities Rabobank Foundation (in the Netherlands and abroad) 20 16.9 16.3 19.5 16.4 Cooperative dividend (local Rabobanks) 38.9 36.8 38.1 36.8 44.5 Donations Rabobank 6.6 6.5 6.9 8.0 8.0 Climate Footprint before full compensation CO emissions own operations (x 1,000 tonnes CO) 174 181 182 198 208 2 2 CO emissions per FTE (tonnes CO) 4.0 3.8 3.5 3.6 3.5 2 2 Rabobank Annual Report 2017 - Management report 8 Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements Key figures 2017 2016 2015 2014 2013 Private customers Net Promotor Score (NPS Recommendation) 53 36 33 17 12 Customer Effort Score (CES Day-to-day banking) 66 67 64 68 66 Customer Advocacy Score (CAS Recommendation) 80% 79% 76% 61% 59% Satisfaction with day-to-day banking 8.4 8.2 7.9 7.8 7.7 Private Banking customers Net Promotor Score (NPS Recommendation) 50 41 37 29 20 Customer Effort Score (CES Day-to-day banking) 65 68 64 68 66 Customer Advocacy Score (CAS Recommendation) 82% 84% 81% 70% 64% Satisfaction with day-to-day banking 8.4 8.1 7.8 7.8 7.7 Corporate customers Net Promotor Score (NPS Recommendation) 43 30 21 10 1 Customer Effort Score (CES Day-to-day banking) 49 51 43 52 43 Customer Advocacy Score (CAS Recommendation) 69% 71% 62% 53% 48% Satisfaction with day-to-day banking 8.0 8.4 7.3 7.1 6.9 Nearby Local Rabobanks 102 103 106 113 129 Offices 446 475 506 547 656 ATMs 1,967 2,141 2,206 2,305 2,524 Members (x 1,000) 1,916 1,927 1,945 1,959 1,947 Availability of internet payments & savings1 99.9% 99.7% 99.8% 98.9% - Availability of mobile banking1 99.9% 99.7% 99.8% 99.0% - Foreign places of business 389 382 403 440 769 Market shares (in the Netherlands) Mortgages 22% 21% 20% 22% 26% Savings 34% 34% 35% 36% 38% Trade, Industry and Services (TIS) 39% 41% 42% 39% 44% Food & Agri 86% 84% 84% 85% 85% Sustainable products and services (in millions of euros) Total sustainable financing 18,610 18,791 19,240 19,510 18,926 Total sustainable assets under management and assets held in custody 4,030 3,835 2,843 2,101 1,739 Total sustainable funding 3,501 2,985 2,122 2,365 2,870 Total financial transactions supervised by Rabobank 6,236 5,750 6,313 2,383 883 Personnel data Number of employees (internal in FTEs) 37,170 40,029 45,658 48,254 56,870 Number of employees (external in FTEs) 6,640 5,538 6,355 5,658 6,034 Number of employees (total in FTEs) 43,810 45,567 52,013 53,912 62,904 Staff costs (in millions of euros) 4,472 4,680 4,787 5,086 5,322 Absenteeism 4.0% 3.6% 3.7% 3.7% 3.5% Females employed 50.9% 51.7% 51.8% 53.3% 53.5% Females in senior positions (≥ scales 8) 27.4% 25.8% 28.6% 28.5% 27.6% Training expenses (in millions of euros) 68 78 79 77 91 Training expenses in EUR per FTE 1,837 1,945 1,734 1,604 1,603 1 Average availability measured over 12 months Rabobank Annual Report 2017 - 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