Issuer Debt Rated Rating Trend. Rabobank Nederland Long-Term Deposits & Senior Debt AAA* -- Rabobank Nederland Short-Term Debt R-1 (high) Stable

Transcription

1 Rating Report Previous Report: 25 January 2012 Analysts Ross Abercromby David Laterza Media Contact: Stephen Bernard The Bank Rabobank is the central institution of the cooperative Rabobank banking group. The Group has market-leading positions in Dutch retail banking, small and midsized enterprises and lending to the Dutch agricultural sector. Rabobank is active globally in selected areas, including lending to food and agricultural businesses. Rabobank Ratings Issuer Debt Rated Rating Trend Rabobank Long-Term Deposits & Senior Debt AAA* -- Rabobank Short-Term Debt R-1 (high) Stable *Under Review with Negative Implications Rating Rationale DBRS Ratings Limited (DBRS) rates Rabobank (Rabobank or the Group) at AAA for Long-Term Deposits & Senior Debt and R-1 (high) for Short-Term Debt. On 11 November 2013 DBRS placed the AAA Long-Term Deposits & Senior Debt ratings Under Review with Negative Implications. The R-1 (high) Short- Term Debt rating was confirmed. As part of the review process, the Intrinsic Assessment (IA) of AA (high) is also to be re-evaluated. Rabobank s current ratings reflect the AA (high) IA combined with a support assessment of SA-2, which results in a one notch uplift to the final rating from the IA. The SA-2 considers the importance of Rabobank to the financial system in the Netherlands and DBRS s expectation of some level of government support should it prove necessary. The rating action followed the 29 October 2013 announcements that Rabobank has agreed to pay settlement amounts totalling approximately EUR 774 million in relation to Libor and Euribor submission processes. The review of the ratings has been triggered by DBRS concern that the material shortcomings revealed in the Group s control and compliance frameworks through these investigations may not be compatible with the current rating level, which is at the very top end of DBRS global rating universe. (Continued on page 2) Rating Considerations At 30 June 2013 the Rabobank group had consolidated total assets of EUR 698 billion. Recent Actions 11 November 2013 DBRS places Rabobank s AAA LT rating Under Review with Negative Implications 18 October 2013 DBRS confirms Rabobank at AAA; Trend changed to Negative Strengths (1) Well-entrenched Dutch retail banking franchise (2) Focused international strategy driven by skills in serving Food & Agribusiness sector (3) Low-risk business mix (4) Strong financial profile under cooperative organisation Financial Information Challenges (1) Sustaining growth in its mature domestic market with refocused well-entrenched competitors (2) Minimising credit losses in the CRE and residential mortgage books (3) Improving profitability and efficiency while navigating the still challenging operating environment (4) Reducing further the exposure to wholesale funding (5) Managing potential reputational damage from the Libor and Euribor settlements 12 March 2013 DBRS Comments on Rabobank s 2012 earnings Ratings Unchanged EUR millions 30/06/ /12/ /12/ /12/ /12/2009 Total Assets 698, , , , ,483 Equity 40,658 44,627 45,001 40,757 37,883 Pre-provision operating income (IBPT) 1,828 3,633 3,769 4,008 4,043 Net Income 711 1,225 1,864 2,149 1,713 Net Interest Income / Risk Weighted Assets (%) 3.70% 3.73% 3.80% 3.68% 3.30% Risk-Weighted Earning Capacity (%) 1.65% 1.63% 1.70% 1.77% 1.72% Post-provision Risk-Weighted Earning Capacity (%) 0.65% 0.57% 0.98% 1.22% 0.87% Efficiency Ratio (%) 69.89% 71.30% 68.65% 67.16% 66.53% Impaired Loans % Gross Loans 2.56% 2.29% 2.11% 2.02% 2.12% Core Tier 1 (As-reported) 12.90% 13.20% 12.70% 12.63% 11.00% 1 Financial Institutions: Banks & Trusts *Adjusted to include payments on payments on capital securities, trust preferred securities III to VI, and minority interests Source: SNL, DBRS

2 Rating Rationale (Continued from page 1) The Group has entered into agreements with De sche Bank (DNB), the Dutch Public Prosecutor (DPP), the UK Financial Conduct Authority (FCA), the US Commodity Futures Trading Commission (CFTC), the US Department of Justice (DOJ) and the Japanese Financial Services Agency (JFSA). As a result Rabobank has agreed to pay settlement amounts to the DPP, FCA, CFTC and DOJ totalling approximately EUR 774 million. The agreement also includes a deferred prosecution agreement (DPA) with the DOJ. Although the financial penalty imposed on the Group was in excess of DBRS s expectation it will not have a material impact on the Group s financial fundamentals, as a result of the Group s strong financial position and a large provision taken in the first half of 2013 that covers a majority of the settlement. Additionally the Chairman of the Executive Board and the Executive Board member responsible for the wholesale banking division have resigned as a result of the findings of the investigations, however DBRS notes that no members of the Executive Board were aware of, or involved in, the inappropriate conduct. The review of the AAA ratings and the re-evaluation of the AA (high) IA will focus on two main areas. The first is the Group s ongoing review of the business activities of the Global Financial Markets division, the strategic fit of this division within the Group, and the likely risk profile of the division going forward. The second area of focus will be the remedial measures being taken by the bank including the roll-out of a conduct and culture programme at Rabobank and the ongoing enhancements and expansion of the compliance, audit, and risk functions. Prior to the settlement announcement the trend on the long-term ratings had been changed to Negative in October This reflected several factors including the notably lower profit and efficiency metrics compared to other similarly rated banks, the relatively large structural wholesale funding reliance, the challenging economic environment in the Netherlands, which DBRS expects to lead to continued elevated provisioning charges, potentially in excess of more normal cyclical levels, as well as the Libor and Euribor investigations. The current ratings reflect the Group s extremely strong franchise including market-leading positions in retail savings, residential mortgages, small to mid-sized enterprises and food and agricultural lending in the Netherlands, as well as its international food and agribusiness franchise where Rabobank is acknowledged as a global leader. A key factor underpinning the intrinsic rating is the conservative business culture rooted in the Group s cooperative organisation that continues to demonstrate strong cohesion and member participation. The rating also reflects the credit strength of the overall Group, as the Group s members, the local Rabobanks, as well as Rabobank and other subsidiaries, are linked together by a cross-guarantee system where members are joint and severally liable for each other s commitments. Although the Group has performed well throughout the financial crisis, earnings have weakened, as the economic environment in the Netherlands remains challenging. Given the Group s lower risk profile DBRS would not expect profitability ratios at the top-end of the peer group, but the ongoing relative weakness in profitability is viewed negatively. For 1H13, Rabobank reported a net profit of EUR 1.1 billion, 14% lower than the same period of However, adjusting these results to include the payments on the Group s capital securities and trust preferred securities and minority interests would result in a DBRS calculated net profit of EUR 711 million. DBRS notes that the 1H13 results include a one-time provision for the Libor issue, but the magnitude of the provision has yet to be made public. The results for the full-year will benefit from a gain on the sale of Robeco, and in addition, the 2014 results will be impacted by the one-off resolution levy introduced by the Dutch State as a result of the nationalisation of SNS Reaal Group. Although in 2012 and 1H13 income before provisions and taxes (IBPT) has been at similar levels to the past, reaching EUR 1.8 billion in 1H13 and EUR 3.6 billion in 2012 (all on a DBRS adjusted basis which includes the payments on capital securities and the Dutch bank tax) the substantially increased impairment charges have led to weakening net profitability. In 1H13 the cost of risk totalled EUR 1.1 billion, at similar levels to the EUR 2.4 billion in 2012, but substantially higher than the EUR 1.2 billion charge in 2010, and the EUR 1.6 billion charge in As a result of the lower profitability, the Group is aiming to improve its efficiency through a reduction of 8,000 jobs at the local Rabobanks, out of a current total of 28,000. Improving 2 Financial Institutions: Banks & Trusts

3 efficiency is important given that on an adjusted basis the cost income ratio was almost 70% in 1H13, a challenge for the Group. Overall, DBRS views the risk profile of Rabobank as low and this is reflected in the high ratings. However, in recent periods the cost of risk has increased as a result of the difficult operating environment, especially in the Netherlands. This is especially important for Rabobank as 76% of the private sector loan portfolio is in the Netherlands. Over the total private sector loan portfolio, at end-june 2013, impaired loans accounted for 2.8%, up from 2.4% at end-2012, reflecting the environment. Although impaired loans in the Dutch mortgage portfolio have increased in recent periods they still remain at very low levels as evidenced by the impaired loan ratio of 0.43% at end-june DBRS would however expect this ratio to continue to rise as a result of the difficult environment and the substantial fall in house prices. DBRS views the exposure to commercial real estate as a further challenge for the Group. As of end-june 2013 the total exposure to commercial real estate was EUR 32 billion. The impaired loan ratio for the total loan portfolio to lessors of real estate, including the Group s Irish portfolio, was 17%. The impaired loan ratio for the total domestic portfolio, including the property development exposure was 12.5% at end-june 2013, up from 10.3% at end As a result, impairment charges remain elevated with the provision for the total loan portfolio to lessors of real estate at EUR 273 million in 1H13. DBRS would expect this to continue for some time given the weak outlook for commercial real estate in the Netherlands. Coverage of the impaired total loan portfolio to lessors of real estate was 40%. Although the vast majority of the exposure to real estate is investment related, Rabobank announced in May that the activities in the field of commercial real estate development will be phased out. DBRS views this positively. Rabobank s sound funding and liquidity profile and its conservative liquidity management are key factors underpinning the high ratings. However, the reliance on wholesale funding remains significant, as indicated by the reported 135% loan to deposit ratio at end-june DBRS continues to see this level as elevated, especially when compared to similarly rated peers. DBRS expects the focus on raising customer deposits to continue. Although the Group has a diversified mix of funding sources, the large wholesale funding reliance (the Group had EUR billion of debt securities issued at end-june 2013) does expose Rabobank to the more volatile wholesale markets. The Group s liquidity remains strong with the EUR 47.8 billion of shortterm debt covered 2.7 times by the liquidity portfolio, which totalled EUR 131 billion. DBRS views Rabobank as solidly capitalised, given its low risk profile, conservative business model and overall operating philosophy and this is a further key factor in the high ratings. DBRS considers the conservative approach to capital management as prudent given the Group s mutual status, which limits its ability to raise external capital should it be necessary. However, the ability to raise equity capital through Member Certificates has enhanced its financial flexibility. At end-june 2013, the Core Tier 1 capital ratio, which includes the Member Certificates, stood at 12.9%, while its Tier 1 ratio was 16.9%. The Group aims to increase its capital ratios with a target of at least 14% for the Core Tier 1 ratio and at least 20% for the total capital ratio by end Additionally, the Group endeavours to improve the quality of the capital base by increasing the proportion of retained earnings and reducing the importance of the Member Certificates, which at end-june 2013 accounted for 21.9% of the core Tier 1 capital. 3 Financial Institutions: Banks & Trusts

4 Rating Drivers Factors with Positive Rating Implications Given the current rating level, upward rating migration is not possible. Factors with Negative Rating Implications The Group s ratings are at the very top end of DBRS s global ratings universe and at this rating level the reliance on wholesale funding and the lower profit and efficiency metrics are pressuring the ratings. This pressure has increased as a result of DBRS concern that the material shortcomings revealed in the Group s control and compliance frameworks through the Libor/Euribor investigations may not be compatible with the current rating level. In addition, negative pressure would increase should there be further deterioration in the credit quality of the residential mortgage, domestic business or real estate lending leading to higher impairment charges. The ratings could also be lowered if DBRS perceives a reduced level of sovereign support or if there is a downgrade of the sovereign rating. Franchise Strength - Description of Operations DBRS views the strength and resilience of Rabobank s franchise as a key factor underpinning its ratings. Rabobank (an abbreviation from Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A.) is the central entity of the cooperative Rabobank banking group. Rabobank resulted from the merger in 1972 of two cooperative institutions both created in 1898, Coöperatieve Centrale Raiffeisen-Bank based in Utrecht and Coöperatieve Centrale Boerenleenbank based in Eindhoven. With assets of EUR billion and total equity of EUR 40.7 billion at end-june 2013, Rabobank continues to rank among the largest European banks. The Group is organised as a cooperative and serves approximately 10 million customers worldwide. The Group comprises 136 local Rabobanks and the central institution, Rabobank, with its subsidiaries and affiliates. The local Rabobanks own the capital of Rabobank and are themselves owned by their 1.9 million members who, though not entitled to the reserves of their local Rabobanks, are enabled to hold Member Certificates in Rabobank. The local Rabobanks are deeply rooted in their local communities, reflecting the Group s historic roots as an agricultural cooperative lender. In 2012 Rabobank acquired Friesland Bank, a much smaller bank based in the province of Friesland in the North of the Netherlands. The Group benefits from market-leading positions in retail savings, residential mortgages, as well as banking services to small to mid-sized enterprises (SMEs). It also has a dominant share of food and agricultural lending in the Netherlands. Strategically, Rabobank aims to maintain its strong domestic franchise while positioning itself as the worldwide food and agricultural bank. To serve the needs of its clients, Rabobank is active in select capital markets businesses. Broadening its range of products and services, Rabobank is also engaged in various complementary business segments, principally leasing and real estate. Cross Guarantee DBRS views the Rabobank Group as one single, consolidated risk unit. This view is underpinned by the legally binding cross-guarantee mechanism that links the Group s different entities together. Under the cross guarantee, which is enshrined into Dutch law, if a participating institution has insufficient funds to meet its obligations, the other participants must supplement that institution s funds to enable it to fulfil its obligations. Accordingly, the Rabobank Group is treated as a consolidated entity for regulatory supervision purposes. The Group s close integration is also reflected in the supervisory role that the central institution, Rabobank, performs for the local Rabobanks. Under the Dutch Financial Supervision Act, under Rabobank 4 Financial Institutions: Banks & Trusts

5 s Articles of Association and under the Articles of Association of the local Rabobanks, Rabobank supervises the local Rabobanks with regard to their operations, solvency and liquidity. Business Segments The Group s activities are now organised into four main operating business segments Domestic Retail Banking, Wholesale Banking and International Retail Banking, Leasing, and Real Estate. Previously the group also had an Asset Management segment but with the sale of Robeco on July 1, 2013, this is no longer part of the group. These segments are described below. Domestic Retail Banking DBRS views the Domestic Retail Banking segment as the cornerstone of the overall strong franchise. Central to Rabobank s strategy is to be a provider of a full range of financial services in its home market, where it enjoys market-leading positions and generates relatively stable earnings. Rabobank serves 6.7 million retail customers and 800,000 corporate customers in the Netherlands and has a network of 802 branches. In 1H13, Domestic Retail Banking generated a net profit of EUR 615 million down 3% on the first half of At 30 June 2013, the Group reported market-leading shares of 39% in domestic savings, 44% in SME banking and 31% in residential mortgages in the Netherlands. The local Rabobanks serve mostly private retail customers and SMEs, including farmers and agricultural companies. Local Rabobanks offer traditional banking services and also distribute insurance products provided by Dutch insurance group Achmea, in which Rabobank holds a 29% interest. As part of the Group s Vision 2016 strategy the number of local Rabobanks is expected to reduce to around 100. This reflects the cost reductions that are necessary in the domestic banking division as customers increasingly use remote channels rather than physical branches to complete their banking. However with 100 local Rabobanks DBRS is of the view that this will allow the Group to maintain its proximity to customers and members, a key strength of the retail network. Wholesale Banking and International Retail Banking The Wholesale Banking segment includes financial services to large Dutch corporates provided by Rabobank (under the trade name Rabobank International), as well as international capital-markets oriented businesses such as Global Financial Markets, Corporate Finance, and Trade and Commodity Finance. The division also includes the food and agribusiness, where Rabobank is acknowledged as a global leader, which accounts for 50% of the segment s total portfolio. Net profit for the division in 1H13 was EUR 496 million, down 9% on the same period of 2012 mainly as a result of lower profits in the Global Financial Markets and Private Equity businesses. Following the financial crisis, the capital markets activities were reorganised to focus more on client-oriented business and liquidity management, and this has been further restructured in 2013 with the closure of the equity derivatives business. However the current review of the long-term rating will focus on the ongoing review of the business activities of the Global Financial Markets division, the strategic fit of this division within the Group, and the likely risk profile of the division going forward. International Retail Banking includes Rabobank s fully-owned banking subsidiaries in the United States, Australia and New Zealand, Ireland, and smaller operations through partner banks in a number of other countries. The Group s stake in BGZ in Poland was increased to 98% in 2012, following an offer to the minority shareholders, however DBRS understands that the Group is evaluating the future of BGZ within Rabobank. The International Retail Banking division focuses on agribusinesses and community banking, primarily in countries with a strong agricultural sector, where it can employ its expertise. At end-june 2013, the international retail banking portfolio was EUR 38.4 billion. Leasing The leasing segment reflects the results of De Lage Landen, the Group s fully-owned leasing subsidiary. Through its Vendor Finance division, De Lage Landen assists manufacturers and distributors generate sales, primarily geared towards the Group s core agricultural and SME business customer base. In the Netherlands through the Financial Solutions, Mobility Solutions and Consumer Finance divisions the Group offers a broad range of leasing, trading and consumer finance products. For the six months to end-june 2013, leasing generated a net profit of EUR 232 million, up 21% on the same period of 2012, mainly reflecting an increase in volumes. 5 Financial Institutions: Banks & Trusts

6 Real Estate The Real Estate segment includes Bouwfonds Property Development (Bouwfonds), as well as the subsidiaries FGH Bank, MAB Development and Fondsenbeheer. This division does not include the real estate financing carried out by the local Rabobanks. The segment is active in retail and corporate real estate with core areas in the development of residential property, property finance and service provision to property investors. Most operations are focused on the Netherlands with a presence in countries such as France and Germany. In 2013 the Group announced that the activities of MAB Development, primarily commercial property development, were to be phased out over time. In a challenging housing market, home sales at Bouwfonds fell further to 1,749 in 1H13 (1H12: 2,506) with the Netherlands and France both showing reductions. The loan portfolio of FGH Bank remained at just over EUR 19 billion. Overall the segment reported a loss of EUR 189 million in 1H13, compared to a profit of EUR 41 million in the same period of Earnings Power Although Rabobank has remained profitable throughout the financial crisis earnings have weakened as the economic environment in the Netherlands remains challenging. Given the Group s lower risk profile, DBRS would not expect profitability ratios at the top-end of the peer group but the relative weakness in profitability is viewed negatively. For 1H13, Rabobank reported a net profit of EUR 1.1 billion, 14% lower than the same period of However adjusting these results to include the payments on the Group s capital securities and trust preferred securities and minority interests would result in a net profit of EUR 711 million. DBRS notes that the 1H13 results include a one-time provision for the Libor / Euribor issue, but the magnitude of the provision has yet to be made public. The results for the full-year 2013 will benefit from a gain on the sale of Robeco, and in addition, the 2014 results will be impacted by the one-off resolution levy introduced by the Dutch State as a result of the nationalisation of SNS Reaal Group Domestic Retail Source: Company reports Wholesale & Int. Retail Profit by Business Segment EUR millions 1H12 1H13 Leasing Real Estate Asset Management Net interest income remains the key driver of revenues, accounting for 69% of total income in 1H13 with fees and commissions accounting for a further 16%. On an adjusted basis (including the payments on the capital securities and trust preferred securities), DBRS calculates the net interest margin (NIM) at 1.18% in 1H13, the same level as in 2012, despite some improvement in the pricing of deposits in the Netherlands. 6 Financial Institutions: Banks & Trusts

7 14 12 Earnings Profile* 1.40% 1.35% % % % % % H1 1.05% Non-Interest income Net Interest Income NIM 7 Financial Institutions: Banks & Trusts * Adjusted to include payments on payments on capital securities and trust preferred securities III to VI Source: SNL, DBRS Calculations Although in 2012 and 1H13 income before provisions and taxes (IBPT) has been at similar levels to the past, reaching EUR 1.8 billion in 1H13 and EUR 3.6 billion in 2012 (all on a DBRS adjusted basis which includes the payments on capital securities and the Dutch bank tax) the substantially increased impairment charges have led to weakening net profitability. In 1H13 the cost of risk totalled EUR 1.1 billion, at similar levels to the EUR 2.4 billion in 2012, but substantially higher than the EUR 1.2 billion charge in 2010, and the EUR 1.6 billion charge in As a result of the lower profitability, the Group is aiming to improve its efficiency through a reduction of 8,000 jobs at the local Rabobanks, out of a current total of 28,000. Improving efficiency is important given that on an adjusted basis the cost income ratio was almost 70% in 1H13, and is therefore a challenge for the Group. Funding and Liquidity Rabobank s sound funding and liquidity profile and its conservative liquidity management are key factors underpinning the high ratings. However the reliance on wholesale funding remains large as evidenced by the reported 135% loan-to-deposit ratio (LTD) at end-june DBRS continues to see this level as elevated, especially when compared to similarly rated peers. Although the domestic deposit franchise provides a strong foundation to the funding profile, the Group continues to focus on growing deposits and in 1H13 total deposits grew by 2% to EUR billion, and the growth in the core domestic retail banking segment was 3%. Positively, the funding profile has improved in recent years with the LTD ratio reduced from 149% at end-2010, and DBRS would expect the focus on raising customer deposits to continue. Given the large wholesale funding reliance (the Group had EUR billion of debt securites issued at end- June 2013) DBRS views positively that Rabobank has a diversified mix of funding sources by type, maturity, currency and market that enables it to tap a variety of markets to meet its funding needs. This diversification along with the strong franchise allowed Rabobank to retain uninterrupted access to market funding (without reliance on Government guarantees), throughout the crisis, differentiating itself from many peers. Nonetheless, this level of wholesale sourced funding does expose the Group to the more volatile wholesale markets. Prior to the publication of the interim results in August 2013, the Group raised EUR 15 billion of long-term wholesale funding and the average maturity of the funding portfolio is 4.5 years. At end-june 2013 short-term debt totalled EUR 47.8 billion, however this was covered 2.7 times by the EUR 131 billion liquidity portfolio. The liquidity portfolio includes 34% held at the ECB and 35% in government debt, and the Group is in excess of the Basel III NSFR and LCR requirements at 102% and 131%, respectively at end-june 2013.

8 Risk Profile Overall DBRS views the risk profile of Rabobank as low and this is reflected in the current ratings. At end- June 2013 the Group s loan portfolio totalled EUR billion of which EUR billion was to the private sector. Total exposure to private individuals was EUR 220 billion, primarily in the form of residential mortgages. The rest of the portfolio consists of the food and agribusiness (EUR 90.5 billion) lending to corporate customers and SMEs, labelled as trade, industry and services by the Bank (EUR billion). At end-june 2013 the total real estate exposure was approximately EUR 32 billion. Group Loan Portfolio as of June 2013 Total: EUR billion Real estate 5% Domestic Loan Portfolio as of June 2013 Total: EUR billion Leasing 1% Other 1% Non-food & Agribusiness 32% Food & Agribusiness 20% Private Individuals 48% Large corp. 5% Domestic retail ASMEs, excl. F&A 18% Food & agribusiness 9% Residential mortgages 61% Source: Company reports 8 Financial Institutions: Banks & Trusts However in recent periods the cost of risk has increased as a result of the challenging economic environment, especially in the Netherlands; this is especially evident in the 20% fall in residential house prices since 2008, the substantial reduction in commercial real estate values and the increase in unemployment from 3.1% in 2008 to 7% at July This is especially important for Rabobank as 76% of the private sector loan portfolio is in the Netherlands. The reduction in house prices has led to average LTVs increasing from their already high levels (a function of the tax incentives) and at Rabobank the weighted average LTV was 83% at end-june 2013 up from 81% at end However DBRS does note that these high levels of indebtedness are mitigated by additional collateral such as savings, investments and life insurance mortgages. Interest only mortgages, excluding those covered by the NHG, account for 31% of the Bank s Dutch mortgage portfolio, down from 35% at end In total 20% of the mortgage book is covered by the NHG, this has increased in recent years as a result of the less onerous limits for NHG acceptance. Impaired loans in the Bank s Dutch mortgage portfolio have increased in recent periods but still remain at very low levels as evidenced by the impaired loan ratio of 0.43% at end-june 2013 and the ratio of loans in arrears for more than 90 days which stood at 0.62%. DBRS would, however, expect this ratio to continue to rise as a result of the difficult environment and the substantial fall in house prices. DBRS views the exposure to commercial real estate as a further challenge for the Group. As of end-june 2013 the total exposure to commercial real estate was EUR 32 billion. The impaired loan ratio for the total loan portfolio to lessors of real estate, including the Group s Irish portfolio, was 17%. The impaired loan ratio for the total domestic portfolio, including the property development exposure was 12.5% at end-june 2013, up from 10.3% at end As a result, impairment charges remain elevated with the provision for the total loan portfolio to lessors of real estate at EUR 273 million in 1H13. DBRS would expect this to continue for some time given the weak outlook for commercial real estate in the Netherlands. Coverage of the impaired total loan portfolio to lessors of real estate was 40%. Although the vast majority of the exposure to real estate

9 is investment related, Rabobank announced in May that the activities in the field of commercial real estate development will be phased out. DBRS views this positively. Over the total private sector loan portfolio, at end-june 2013, impaired loans accounted for 2.8%, up from 2.4% at end-2012, reflecting the difficult economic conditions. Rabobank s exposure to peripheral European economies is low. Combined, net sovereign exposure to Greece, Italy, Spain, Ireland and Portugal totalled EUR 191 million as of end-june The Group has further exposure to financial institutions operating in these countries of EUR 1.5 billion, which is primarily made up of Spanish covered bonds. Retail exposure is low and limited to ACC Bank in Ireland. Capitalisation: Structure and Adequacy DBRS views Rabobank as solidly capitalised, given its low risk profile, conservative business model and overall operating philosophy and this is a key factor in the high ratings. DBRS considers the conservative approach to capital management as prudent given the Group s mutual status which limits the ability to raise external capital should it be necessary. As such, the Group relies primarily on retained earnings to grow equity capital, but has also developed the ability to raise equity capital through Member Certificates that are compatible with its mutual status and enhances its financial flexibility. At end-june 2013, the core Tier 1 capital ratio, that includes the Member Certificates, stood at 12.9% and the Tier 1 ratio was 16.9%. The Group aims to increase its capital ratios with a target of at least 14% for the core Tier 1 ratio and at least 20% for the total capital ratio by end Additionally, the Group is aiming to improve the quality of the capital base by increasing the proportion of retained earnings and reducing the importance of the Member Certificates that at end-june 2013 accounted for 21.9% of the core Tier 1 capital. To bolster its capitalisation, Rabobank has issued Member Certificates which at end-june 2013 totalled EUR 6.2 billion. Member Certificates have been sold to members and employees since Payments on Member Certificates of EUR 161 million in 1H13, which does not substantially reduce the Group s ability to build equity capital through retained earnings. Meanwhile, hybrid instruments totalled EUR 8.6 billion accounting for 21% of capital. 9 Financial Institutions: Banks & Trusts

10 Rabobank Group 30/06/ /12/ /12/ /12/ /12/2009 EUR EUR EUR EUR EUR EUR Millions IFRS IFRS IFRS IFRS IFRS Balance Sheet Cash and deposits w ith central banks 45,181 68,103 70,430 13,471 16,565 Lending to/deposits w ith credit institutions 34,091 35,386 25,221 33,511 35,641 Financial Securities* 63,441 63,271 67,491 78,354 55,751 - Trading portfolio 0 6,387 8,112 12,987 12,761 - At fair value 5,381 5,911 7,015 9,588 9,122 - Available for sale 51,217 50,425 51,930 55,458 33,349 - Held-to-maturity Other 6, Financial derivatives instruments 47,774 65,423 58,973 43,947 39,091 - Fair Value Hedging Derivatives NA 5,397 4,651 2, Mark to Market Derivatives NA 60,026 54,322 41,367 38,215 Gross lending to customers 479, , , , ,756 - Loan loss provisions NA 3,715 3,089 2,610 4,399 Insurance assets NA NA NA NA NA Investments in associates/subsidiaries 3,541 3,649 3,340 3,539 4,056 Fixed assets 8,451 7,989 6,916 6,822 7,487 Goodw ill and other intangible assets 2,279 2,343 2,802 3,675 3,736 Other assets 14,450 20,947 28,407 13,276 11,799 Total assets 698, , , , ,483 Total assets (USD) 907, , , , ,604 Loans and deposits from credit institutions 19,892 27,059 26,259 23,476 22,429 Repo Agreements in Deposits from Customers NA 2,299 2,669 2,017 1,207 Deposits from customers** 339, , , , ,131 - Demand NA 96,763 86,432 86,959 76,156 - Time and savings NA 205, , , ,911 Issued debt securities 219, , , , ,430 Financial derivatives instruments 56,516 73,237 63,224 47,960 46,262 - Fair Value Hedging Derivatives NA 18,861 13,256 8,096 7,662 - Other NA 54,376 49,968 39,864 38,600 Insurance liabilities NA NA NA NA NA Other liabilities 16,599 20,439 25,693 12,568 13,779 - Financial liabilities at fair value through P/L 21,785 24,091 25,889 29,867 27,319 Subordinated debt 5,203 4,992 1,984 2,062 1,971 Hybrid Capital NA Equity 40,658 44,627 45,001 40,757 37,883 Total liabilities and equity funds 698, , , , ,483 Income Statement*** Interest income NA 21,702 21,299 19,928 19,795 Interest expenses NA 13,397 12,810 11,847 12,106 Net interest income and credit commissions 4,081 8,305 8,489 8,081 7,689 Net fees and commissions 1,046 2,206 2,361 2,831 2,575 Trading / FX Income NA NA NA 357 1,427 Net realised results on investment securities (available for sale) NA NA NA Net results from other financial instruments at fair value NA NA NA ,816 Net income from insurance operations NA NA NA NA NA Results from associates/subsidiaries accounted by the equity method NA Other operating income (incl. dividends) 944 1,894 1, ,476 Total operating income 6,071 12,660 12,021 12,204 12,081 Staff costs 2,634 5,325 4,862 4,919 4,603 Other operating costs 1,352 3,175 2,850 2,706 2,908 Depreciation/amortisation Total operating expenses 4,243 9,027 8,252 8,196 8,038 Pre-provision operating income 1,828 3,633 3,769 4,008 4,043 Loan loss provisions**** 1,106 2,350 1,606 1,255 1,983 Post-provision operating income 722 1,283 2,163 2,753 2,060 Impairment on tangible assets NA NA NA 0 9 Impairment on intangible assets Other non-operating items***** Pre-tax income 722 1,283 2,163 2,753 2,051 (-)Taxes (-)Other After-tax Items (Reported) (+)Discontinued Operations (Reported) (-)Minority interest Net income 711 1,225 1,864 2,149 1,713 Net income (USD) 1,424 2,593 3,549 3,556 2,927 *Includes derivatives w hen breakdow n unavailable, ** Incl. Repos as of 1H13, ***Restated for payments on payments on capital securities and trust preferred securities III to V ****LLP includes Impairments on financial assets, *****Incl. Other Provisions, 10 Financial Institutions: Banks & Trusts

11 Rabobank Group 30/06/ /12/ /12/ /12/ /12/2009 Off-balance sheet and other items Asset under management 5, , , , ,300 Derivatives (notional amount) NA 3,372,146 3,436,747 3,243,241 2,950,131 BIS Risk-w eighted assets (RWA) 220, , , , ,221 No. of employees (end-period) 59,501 59,628 59,670 58,714 59,311 Earnings and Expenses Earnings Net interest margin [1] 1.18% 1.18% 1.29% 1.34% 1.32% Yield on average earning assets NA 3.08% 3.24% 3.31% 3.40% Cost of interest bearing liabilities NA 2.19% 2.15% 2.16% 2.38% Pre-provision earning capacity (total assets basis) [2] 0.50% 0.49% 0.54% 0.64% 0.66% Pre-provision earning capacity (risk-w eighted basis) [3] 1.65% 1.63% 1.70% 1.77% 1.72% Net Interest Income / Risk Weighted Assets 3.70% 3.73% 3.80% 3.68% 3.30% Non-Interest Income / Total Revenues 32.78% 34.40% 29.38% 33.78% 36.35% Post-provision earning capacity (risk-w eighted basis) 0.65% 0.57% 0.98% 1.22% 0.87% Expenses Efficiency ratio (operating expenses / operating income) 69.89% 71.30% 68.65% 67.16% 66.53% All inclusive costs to revenues [4] 69.89% 71.30% 68.65% 67.16% 66.61% Operating expenses by employee 142, , , , ,523 Loan loss provision / pre-provision operating income 60.50% 64.68% 42.61% 31.31% 49.05% Provision coverage by net interest income % % % % % Profitability Returns Pre-tax return on Tier 1 (excl. hybrids) 4.98% 5.25% 9.60% 12.59% 10.08% Return on equity 3.62% 4.67% 6.02% 7.13% 6.09% Return on average total assets 0.20% 0.27% 0.37% 0.43% 0.34% Return on average risk-w eighted assets 0.64% 0.90% 1.15% 1.18% 0.89% Dividend payout ratio [5] NA NA NA NA NA Internal capital generation [6] NA NA NA NA NA Grow th Loans -3.65% 3.62% 2.64% 5.02% 1.88% Deposits -0.32% 1.30% 10.41% 4.16% -5.94% Net interest income -8.76% -2.17% 5.05% 5.10% -5.44% Fees and commissions % -6.57% % 9.94% % Expenses -3.37% 9.39% 0.68% 1.97% 5.61% Pre-provision earning capacity NA -3.61% -5.96% -0.87% -6.00% Loan-loss provisions 0.91% 46.33% 27.97% % 8.54% Net income % % % 25.45% 0.59% Risks RWA% total assets 31.63% 29.62% 30.56% 33.65% 38.39% Credit Risks Impaired loans % gross loans 2.56% 2.29% 2.11% 2.02% 2.12% Loss loan provisions % impaired loans NA 33.16% 31.02% 28.11% 47.33% Impaired loans (net of LLPs) % pre-provision operating income [7] NA % % % % Impaired loans (net of LLPs) % equity NA 17.66% 15.95% 14.04% 13.54% Liquidity and Funding Customer deposits % total funding 58.13% 54.30% 55.03% 54.07% 56.13% Total w holesale funding % total funding [8] 41.87% 45.70% 44.97% 45.93% 43.87% - Interbank % total funding 3.40% 4.43% 4.42% 4.28% 4.42% - Debt securities % total funding 37.58% 40.46% 40.22% 41.28% 39.06% - Subordinated debt % total funding 0.89% 0.82% 0.33% 0.38% 0.39% Short-term w holesale funding % total w holesale funding 8.13% 9.68% 9.82% 9.31% 10.07% Liquid assets % total assets 20.43% 22.16% 22.30% 19.21% 17.77% Net short-term w holesale funding reliance [9] % % % % % Adjusted net short-term w holesale funding reliance [10] % % % % % Customer deposits % gross loans 70.92% 67.89% 69.45% 64.71% 65.13% 11 Financial Institutions: Banks & Trusts Capital [11] Tier % 17.24% 16.98% 15.69% 13.79% Tier 1 excl. All Hybrids 12.87% 10.16% 9.71% 9.63% 8.26% Core Tier 1 (As-reported) 12.90% 13.20% 12.70% 12.63% 11.00% Tangible Common Equity / Tangible Assets 3.18% 3.40% 3.25% 3.25% 3.02% Total Capital 18.71% 19.02% 17.48% 16.27% 14.14% Retained earnings % Tier % 71.62% 69.45% 71.45% 70.46% [1] (Net interest income + dividends)% average interest earning assets. [2] Pre-provision operating income % average total assets. [3] Pre-provision operating income % average total risk-w eighted assets. [4] (Operating & non-op. costs) % (op. & non-op. revenues) [5] Paid dividend % net income. [6] (Net income - dividends) % shareholders' equity at t-1. [7] We take into account the stock of LLPs in this ratio. [8] Whole funding excludes corporate deposits. [9] (Short-term w holesale funding - liquid assets) % illiquid assets [10] (Short-term w holesale funding - liquid assets- loans maturing w ithin 1 year) % illiquid assets [11] Capital ratios of Interim results exclude profits for the year * Interim information is annualised w here needed.

12 Ratings History Issuer Debt Rated Current Rabobank Long-Term Deposits & Senior Debt AAA* AAA AAA AAA Rabobank Short-Term Debt R-1 (high) R-1 (high) R-1 (high) R-1 (high) *Under Review with Negative Implications Note: All figures are in Euros (EUR) unless otherwise noted. For the definition of Issuer Rating, please refer to Rating Definitions under Rating Policy on Issuer ratings apply to all general senior unsecured obligations of the issuer in question. Ratings assigned by DBRS Ratings Limited are subject to EU regulations only. Copyright 2013, DBRS Limited, DBRS, Inc. and DBRS Ratings Limited (collectively, DBRS). All rights reserved. The information upon which DBRS ratings and reports are based is obtained by DBRS from sources DBRS believes to be accurate and reliable. DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance. The extent of any factual investigation or independent verification depends on facts and circumstances. DBRS ratings, reports and any other information provided by DBRS are provided as is and without representation or warranty of any kind. DBRS hereby disclaims any representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, fitness for any particular purpose or non-infringement of any of such information. In no event shall DBRS or its directors, officers, employees, independent contractors, agents and representatives (collectively, DBRS Representatives) be liable (1) for any inaccuracy, delay, loss of data, interruption in service, error or omission or for any damages resulting therefrom, or (2) for any direct, indirect, incidental, special, compensatory or consequential damages arising from any use of ratings and rating reports or arising from any error (negligent or otherwise) or other circumstance or contingency within or outside the control of DBRS or any DBRS Representative, in connection with or related to obtaining, collecting, compiling, analyzing, interpreting, communicating, publishing or delivering any such information. Ratings and other opinions issued by DBRS are, and must be construed solely as, statements of opinion and not statements of fact as to credit worthiness or recommendations to purchase, sell or hold any securities. A report providing a DBRS rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. DBRS receives compensation for its rating activities from issuers, insurers, guarantors and/or underwriters of debt securities for assigning ratings and from subscribers to its website. DBRS is not responsible for the content or operation of third party websites accessed through hypertext or other computer links and DBRS shall have no liability to any person or entity for the use of such third party websites. This publication may not be reproduced, retransmitted or distributed in any form without the prior written consent of DBRS. ALL DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AT ADDITIONAL INFORMATION REGARDING DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES AND METHODOLOGIES, ARE AVAILABLE ON 12 Financial Institutions: Banks & Trusts