Rabobank. Investor presentation H results. 18 January 2019

Transcription

1 Rabobank Investor presentation H results 18 January 2019

2 Disclaimer This presentation (the Presentation ) is prepared by Coöperatieve Rabobank U.A. ( Rabobank ) incorporated under the laws of the Netherlands. The liability of its members is excluded. Rabobank is among others regulated by De Nederlandsche Bank N.V. and by the Netherlands Authority for the Financial Markets, as well as the European Central Bank. This Presentation is solely for information purposes and on the basis of the acceptance of this disclaimer. Neither the Presentation nor any of its contents, in whole or in part, directly or indirectly, may be used for any other purpose without the prior written consent of Rabobank. This Presentation is only directed at Eligible Counterparties and Professional Clients, as defined in the Markets in Financial Instruments Directive 2014/65/EU ( MiFID ) (the Recipient ). It is not directed at Retail Clients (as defined in MiFID). 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3 Valuable progress on all our strategic objectives Update on strategy Continuing positive trend in customer satisfaction Ready for next step in successful transformation of domestic retail banking Balance sheet optimization on track Further progress in the execution of strategic portfolio management Acceleration of our investments in digitization Economic environment Ongoing positive economic momentum in the Netherlands Prolonged strong fundamentals in Dutch housing market Solid global economic expansion amidst ongoing (geo)political uncertainties Persistent low interest rate environment despite gradual winding down of extraordinary monetary policy Improvement of financial results Net profit +12% to 1.7bn Growth in loan portfolio (+ 7.6bn) and deposit base (+ 3.4bn) Net interest income impacted by low interest rate environment Ongoing impairment releases Continued strong underlying performance Strong capital ratios and optimized funding position Capital targets already met and well positioned to absorb future requirements Rabobank intends to meet its limited MREL needs with Own Funds and Non-Preferred Senior (NPS) Rabobank has already started issuing in NPS format Majority of long term funding budget raised in H

4 Rabobank at a glance Mission Growing a better world together The Netherlands 101 local Rabobanks DomesticRetail Banking International 38 countries WRR & DLL loan portfolio per region in bn 420 offices 1.9mn members mn million private corporate customers customers * Including WRR and DLL lending in the Netherlands 20% 33% Mortgages Private savings 192bn 120bn 59bn Private sector lending to TIS 27bn Private sector lending to F&A 63bn Private sector lending to F&A* 41bn Private sector lending to TIS* 29bn Private sector lending by Leasing* Credit ratings Rabobank is one of the few banks with NPS rated in the A-AA range Jun 2018 PS NPS T2 AT1 Issuer/outlook A+ A- BBB+ - A+/Positive Aa3 A3 Baa1 Baa3 Aa3/Stable AA- AA- A BBB- AA-/Stable AA AA/Stable PS: Preferred Senior; NPS: Non-Preferred Senior; T2: Tier 2; AT1: Additional Tier 1 ESG ratings 86 out of 100 points Industry ESG Leader 89 out of 100 points 4

5 Topics Update on strategy H results Appendix: Dutch economy, housing market and credit ratings Financial results Loan portfolio Capital, funding & liquidity Current & future developments 5

6 Strategy overview Focus on 10 top priorities for Growing a better world together Banking for the Netherlands Banking for Food Excellent customer focus Meaningful cooperative Rock-solid bank Empowered employees 10 Strategic Top Priorities 100% Digital convenience in everything Top customer advice nearby Growth with innovation Concrete socially responsible contribution Involved members and communities Top performance Optimal balance sheet Exceptionally good execution Inspired employees One-Rabobank culture 6

7 Highlights H (I) Excellent customer focus Meaningful cooperative Growth deposit base & loan book Growth loan book by 7.6bn Deposit base increased by 3.4bn Industry leading in sustainability Sustainalytics score: 86 + awarded ESG Industry Leader Oekom Prime: awarded Industry Leader in 2017 RobecoSam: score 89 (11 th worldwide) Most customer-friendly bank 1 st place by consumers as the most customer-friendly bank in the Netherlands (Customer First Awards) Sustained increase in domestic Net Promotor Scores First to launch ESG Leader program Rabobank was first to launch ESG Leader CP/CD program Driven by Rabobank's 'ESG Industry Leader' status Rabobank issues short term funding labelled as ESG investment Strong progress in innovation Rabobank innovation SurePay (IBAN name check) rolled out to many Dutch banks and insurance companies 1 st Dutch bank to facilitate 3 rd party payment initiation Customers can check account balance or set a spending alert using their voice via Google Assistant Client-focused operating model New client focused operating model for local Rabobanks in the Netherlands as the foundation for a more effective and efficient banking operation 3 rd Kickstart program launched (Food) Launched Kickstart Waste to drive food waste reduction, from stimulating innovations to financial support for farmers to improve replanting, logistics and storage Driving energy efficient housing Proprietary sustainability scan helps mortgage clients identify sustainability improvements in their homes Introduced Green Depot, a 2-year interest-free depot to finance sustainable home improvements 7

8 Highlights H (II) Rock-solid bank Empowered employees +12% ( 1.7bn) Strong net profit H1 net profit of 1.7bn (+12%) supported by favorable economic environment #1 Employer in the Netherlands Rabobank awarded #1 favorite employer to work for by talents (university & higher vocational education) CET1 Total Capital 15.8% 26.1% Comfortable capital position Well positioned to absorb future Basel IV and MREL requirements (30.96%) Expected Non-Preferred Senior issuance in H Diversity strong and improving Women well-represented in senior management positions (33% overall, 40% in Managing Board) Strong cultural diversity in our young talent pool (30%) Continued strategic focus Non-core domestic CRE portfolio divested with FGH Bank portfolio sale Repositioned BPD with focus on Dutch and German market by divesting BPD France (expected closing: Q4) 235 New start-up ideas generated Employees from 13 countries generated 235 ideas for start-ups through our innovation incubator program Involved in 68 start-up communities and organizer of F&A innovation events such as FoodBytes! and Terra 64.6% (-3.0%-point) Improved efficiency Cost/Income ratio improved to 64.6% with further cost reduction remaining a point of attention High employee mobility 63% of the employees we had to let go found a job within six months, which is above average for the banking sector in the Netherlands 8

9 Ongoing successful transformation in the Netherlands Ready for the next phase Phase 1 Implement new governance Phase 2 Regionalize mid- & back office Phase 3 Optimize service model January June regions of 6-7 Rabobanks Anticipating changing client demands and regulatory requirements Merger of 106 local Rabobanks with central entity to one legal entity with one banking license and one balance sheet More flexible, simple and adaptive structure supporting cooperative values Efficiency improvement through process standardization and regionalization of customer call centers and operational service centers Incorporated digitalization as an integral part of the strategy and change agenda Significantly reduced cost and FTE, while increasing Net Promotor Scores (NPS) Next step towards a more effective and efficient organization as per 1/1/2019 Further optimization of omnichannel client service model 250 Market teams ensure customer intimacy through face-to-face contact, operating out of 90 banks supported by 14 regional teams 9

10 resulting in higher client appreciation and efficiency Net Promotor Score (domestic market) NPS private banking customers NPS retail customers NPS business customers FTE development Rabobank Group 52,013-8,390* 45,567 43, ** 43, , Dec 15 Dec 16 Dec 17 Jun 18 Dec 15 Dec 16 Dec 17 Jun 18 Ambition * Including 1,255 FTEs due to the Athlon sale in 2016 ** This is the balance of -775 FTEs at DRB (of which ~400 FTEs transferred to the central organization), and +669 FTEs at the other business segments 10

11 100% Digital convenience in everything Digitizing our traditional services and channels Solid base of digital clients >80% Active online corporate customers >50% Digital onboarding for private individuals >95mn Visits per month in the app >85 Features available in the app Business driven data solutions Development of self-learning prediction model that classifies sales leads, leading to substantial increase in leads conversion success and creating an efficiency-drive in sales Credit risk forecasting in business lending with advanced early warning system using machine learning (>85% accuracy rate) With Google Assistant customers can check their account balance or set a spending budget using their voice Distinctive improvement in digital sales and servicing Before year-end 2018 we will improve the 30 most important customer journeys in the. Examples include: Opening of a joint current account to 5 minutes from 30 days Digitally temporary blocking of cards resulting in ~10% less cards distributed per month Strong growth in use of payment request +135% in last 6 months Preparing ourselves for Open Banking & Platform Banking Addition of Bunq account information, payment initiation recently launched Developers platform launched with expanding API s and platform capabilities 11

12 Growth with innovation on three dimensions We deliver innovations for our clients We help our clients innovate We actively invest in start-ups and scale-ups that fit our innovation focus and strategy IBAN name check launched with major Dutch banks, preparing for international expansion Internal start-up enabling simple digital currency hedging. Adoption by Scandinavian bank will support international expansion International Food & Agri innovation ecosystem. Active on 3 continents, 1,300 startup applications pitching from > 30 countries Robotica innovation initiative, which executes Roboscans. Via this ecosystem robotica was introduced to 450 customers Leading blockchain platform for SME clients, commercially live as of July. Developed with other European banks, Rabobank first Dutch bank with working platform in international trade market Investment in JoinData to facilitate data streams in the Food & Agri sector Recent winner of our internal Moonshot campaign. Focused at digital cattle management by newly developed tech solution using ear-tags We are partner of YES!Delft, the #1 tech incubator in Europe. > 200 Start-ups have collaborated (of which 65% Rabobank clients), with > 30mn capital funding provided by Rabobank New mobile and online payment service in the Netherlands, a joint initiative of Rabobank and other Dutch banks 12

13 Sustainability We invest in the local and global community Sustainability: integrated in our day-today work We help clients to make a positive impact on their community with financial solutions, advice and network knowledge: GreenDepot: finance solution to invest in energy saving measures in houses We support clients in embedding circular practices into their businesses July 2018: introduction of Circular Economy financing guidelines (in cooperation with other banks) Sustainability: Rabobank is a leader We allocate ample resources to sustainability. For example with 19bn Sustainable Finance in total, Rabobank is a leading renewable energy projects financier Rabobank was first to launch ESG Leader CP/CD program ( 5bn), driven by Rabobank's 'ESG Leader' status as assessed by Sustainalytics. Under this program Rabobank issues short term funding labelled as ESG investment In H we were mandated several Sustainable Revolving Credit Facilities, for example by: first sustainable RCF in Dutch construction market a leading F&A company in Spain Sustainability: partnership with UN Rabobank and UN Environment are working on an ambition to finance $ 1bn to boost sustainable food production Our mission fits naturally within the UN Sustainable Development Goals ( SDG ). We also use SDG for internal steering and target setting We developed client photos reflecting the sustainability performance of our larger business clients. This is used in the credit approval and monitoring process 13

14 Optimization of Rabobank s balance sheet is on track Creating room for further growth of the core operations of the bank Funding diversification Balance sheet flexibility Balance sheet reduction Strengthening capital base Further diversification of our funding base (covered bonds, DLL asset backed securities, TLTRO, etc.) Decreasing funding costs via collateralized lending Creating flexibility for new lending and a solid balance sheet by investor participation This will not change the commercial relationship of our clients with Rabobank Focusing on the core of our strategy: Banking for the Netherlands and Banking for Food Reduction of non-core activities Building and preserving our strong capital position Non-exhaustive selection of balance sheet initiatives Inaugural 500mn Green Bond 1.0bn mortgage portfolio sale 1.1bn sale of Athlon Car Lease 1.25bn perp AT1 securities (coco) Green STORM 2016 and bn RMBS Purple STORM transaction Sale of remaining Robeco stake $ 1.5bn 10-year Tier 2 notes Launch of 25bn Covered Bond program 3.0bn capital relief transaction Sale of Van Lanschot stake 1.5bn Rabobank Certificates $ 500mn asset backed securities 600mn mortgage portfolio sale Sale of Orix Group stake* $ 500mn 12NC7 Tier 2 notes $ 824mn asset backed securities Sale of substantial parts of Bouwfonds** H bn capital relief transaction 1.25bn FORDless STORM and 550mn Green STORM 2018 Sale of 1.3bn CRE portfolio * Orix/Robeco will remain an important and trusted financial partner for Rabobank ** Multiple transactions between 2016 and

15 Valuable progress on our financial targets Financial targets and results Achievements in H Capital Profitability Funding Fully loaded CET1 ratio Total capital ratio* Jun 2017 Dec 2017 Jun 2018 Ambition % 15.5% 15.8% >14% 25.5% 26.2% 26.1% >25% ROIC 7.8% 6.9% 8.8% >8% C/I ratio 67.6% 71.3% 64.6% Underlying C/I ratio Wholesale funding See slides 29 and 30 for further details on MREL 63.9% 65.3% 62.9% 53-54% 171bn 160bn 164bn < 150bn Overall, we are well on track to deliver on our promises CET1 ratio increased by ~1%-point over the last 12 months as a result of adding net profit to retained earnings We are well positioned to absorb the impact of new regulations such as Basel IV and MREL, as our capital ratios are well in excess of our 2020 targets ROIC exceeded our 2020 ambition level on the back of enhanced efficiency and continued impairment releases C/I ratio improving due to stable income generation and ongoing restructuring program Further improvement of C/I ratio will remain a priority in the coming years, though our target has become challenging given the ongoing low interest rate environment and the acceleration of IT investments Wholesale funding slightly increased due to the growth of our balance sheet 15

16 Topics Update on strategy H results Appendix: Dutch economy, housing market and credit ratings Financial results Loan portfolio Capital, funding & liquidity Current & future developments 16

17 Positive net profit development Profit & Loss account In mn H H H Net interest income 4,454 4,389 4,274 Net fee & commission income Other results Total income 5,938 6,063 6,029 Main developments Net profit +12% to 1,698mn Stable top line despite the challenging interest rate environment Operating expenses down 4% in line with headcount reduction Negative impairment charges continue to bolster net profit Decrease in income tax mainly due to US tax reform 1.2bn of net profit added to retained earnings to further strengthen our balance sheet and finance future growth (H1 2017: 0.9bn) Operating expenses 3,755 4,299 3,611 Regulatory levies Impairment charges Operating profit before tax 1,992 1,640 2,171 Net profit (in mn) 2, ,024 2,674 1,158 H2 H1 Tax ,027 Net profit 1,516 1,158 1,698 1, ,516 1,

18 Continued strong underlying performance Main developments Rabobank was able to match its strong underlying performance realized in H Lower net releases from impairment allowances were offset by several favorable items in Other results Exceptional items included in operating profit before tax Underlying profit before tax (in mn) +2% 2,276 2,326 2, Exceptional items In mn H H H Fair Value items* Restructuring costs ,992 2,171 Operating profit before tax Provision RNA ,640 Derivatives framework Total effect * H and H Fair Value items consist of results on (i) hedge accounting and (ii) issued debt instruments (structured notes). As from 2018 onwards the latter will be nil due to the adoption of IFRS 9 H H H

19 Total income slightly up despite challenging interest rate environment Total income (in mn) Other results Net fee and commission income Net interest income FV items 5, ,124 6, , ,190 6,162 4,454 4,389 4, H H H Development of (underlying) income Corrected for the appreciation of the euro, total income was up 4% Net interest income (NII) was down 4%. Excluding FX effects NII declined by 2% due to the ongoing low interest rate environment and a lower average loan portfolio Net fee & commission income remained more or less stable: DRB: up 2% driven by higher commissions on payment accounts and AuM WRR: down 3%, but in local currency up 4% mainly due to a strong performance of our M&A division Leasing: sharp rise due to higher fees on syndicated financial leases in the US and a change in accounting treatment Real Estate: fee level much lower due to the downscaling of the activities of FGH Bank and Bouwfonds IM Sharp rise in underlying Other results, driven by: a book profit on the sale of FGH Bank s non-core CRE financing activities and a positive revaluation in the loan portfolio of ACC higher results at area developer BPD the reversal of an impairment taken by DLL in H

20 Net interest income impacted by prolonged low interest rate environment Net interest income (in mn) and Net interest margin (in % of average balance sheet total)* 1.32% 1.33% 1.33% NIM (12m-rolling average) 4,482 4, % 1.33% 1.39% 1.41% 4,375 4,368 4,454 4,389 4,274 Main developments Net interest margin improved slightly, mostly driven by a lower average balance sheet total Low and negative interest rate environment continues to affect net interest income (NII) due to: lower margins on savings and payment account balances the cost of prudently managing the Group s sizeable liquidity buffer continued high - but declining - level of early repayments on mortgage loans DRB: stable NII due to positive impact from new business margins on mortgages and SME lending WRR: NII slightly down, but improved in local currency in line with loan portfolio growth Leasing: NII down, mainly due to lower new lending margins Real Estate: NII reduced to almost nil following the sale of virtually the whole CRE loan portfolio H H H H H H H * Balance sheet total fluctuates during the year due to fair value items (such as derivatives) and the size of the liquidity buffer. The figures up to and including 2016 are including Athlon 20

21 Multi-year transformation program is paying off Operating expenses (in mn) Restructuring costs Other Opex Derivatives framework Provision RNA 3, ,451 3,657 4, ,611 3,877 3, ,462 3,589 Development of (underlying) expenses Corrected for the appreciation of the euro, operating expenses were down 2%, driven by lower restructuring costs Staff costs decreased due to ongoing headcount reductions, a lower (final) payment in connection with a pension guarantee and FX effects Other operating expenses (excluding restructuring costs) more or less stable, despite higher project expenses related to legacy files and regulatory compliance Since 2015 our underlying cost base has been reduced by almost 600mn on an annual basis The C/I ratio improved by 3%-points Staff costs 2,206 2,266 H H ,127 H Development cost/income ratio incl. regulatory levies H H H C/I ratio 67.6% 75.0% 64.6% Underlying C/I ratio 63.9% 66.6% 62.9% 21

22 Asset quality continues to benefit from economic tail wind Impairment charges (in mn and in bps of average lending) All segments benefited from benign economic environment -3 bps -6 bps - 67mn - 123mn -2 bps - 37mn For the third consecutive 6-month period negative impairment charges (IC), albeit somewhat smaller than in the previous two periods Leasing 41 IC at -2 bps of average lending (10-year average: +34 bps) Limited or even negative IC in all business segments: WRR Other Real Estate Domestic Retail DRB: smaller net release of allowances; residential mortgage portfolio continued to perform well with negligible IC WRR: IC decreased to nil; nearly all business lines and regions reported lower IC Leasing: IC remained at a stable and moderate level Real Estate: small release of allowance Other: negative IC due to partial sale and revaluation of a legacy investment portfolio H H H

23 Non-performing loans improve on a like-for-like basis NPL development* (in mn and in % of total loans & advances) 3.6% 3.4% 3.5% 3.8% 3.5% 19,763 18,873 18,315 20,215 18,755 1,900 1,460 Non-performing loans (NPL) Rabobank is frontrunner in applying the EBA Definition of Default to its portfolio as from 1 January One-off impact on NPL stock: + 1.9bn, mainly in the mortgage portfolio NPL stock further affected by: Conservative write-off policy Helping clients with ample prospects getting through tough times NPL decreased as a result of the favorable economic environment and the sale of non-core CRE exposure by FGH Bank Overall asset quality is improving, further evidenced by still favorable impairment charges and declining level of impairment allowances NPL level of remaining non-core CRE portfolio (ACC Ireland) is above average; excluding ACC the NPL ratio would be 3.2% NPL Coverage ratio decreased to 23% from 27% (Dec 2017) mainly as a result of: sale of non-core CRE loans, which were highly provisioned one-off increase in level of NPL in mortgage portfolio as a result of application of the EBA Definition of Default Dec 15 Dec 16 Dec 17 Jan 18 Net portfolio development Jun 18 * NPL includes both Stage 3 Loans & Advances and NPL in Financial Assets at Fair Value 23

24 Loan portfolio increased after a few years of slight contraction Composition of private sector loan portfolio (in bn) +2% * Leasing WRR Rural & Retail WRR Wholesale (excl. CRE) Domestic Retail other SMEs Domestic Retail F&A Domestic CRE ** Main developments Domestic residential mortgages portfolio slightly down as new production was more than offset by continued elevated level of early repayments Domestic CRE lending** further down in line with strategy WRR: exposure growth concentrated in Wholesale, both domestic and abroad (especially in North America) Leasing: steady underlying growth 72% of private sector loan portfolio outstanding in the Netherlands 47% of loan exposure to private individuals, 29% to trade, industry & services and 24% to F&A Domestic Retail mortgages Dec 17 Jan 18 Jun 18 * Due to the adoption of IFRS 9 as at 1 Jan the loan portfolio declined by 2.9bn ** This includes the aggregate exposure of the Domestic Retail Banking, WRR and Real Estate business segments to CRE 24

25 Loan-to-deposit ratio improved slightly Deposits from customers and private sector lending (in bn) Main developments LtD ratio 408* * WRR and Other RaboDirect Deposits DRB: up 6.3bn, partly supported by seasonal effects. The increase was split evenly over: Private savings: typically vacation bonuses paid out in May, temporarily boosting balances of accounts held by private individuals Other deposits: increase in current accounts held by SME clients RaboDirect: balances decreased as we are withdrawing from the Irish retail market Deposits WRR and Other: mainly balances from corporate customers, which remained more or less stable DRB Loan-to-deposit (LtD) ratio slightly improved Dec 17 Jan 18 Jun 18 Lending Deposits from customers * Due to the adoption of IFRS 9 as at 1 Jan the loan portfolio declined by 2.9bn and deposits increased by 2.5bn 25

26 Capital position provides strong basis for regulatory developments CET1 development (Fully loaded) Tier 2 AT1 CET1 12.0% Total capital development (Transitional) 23.2% 6.8% 2.9% 13.5% Profit minus distributions 7.4% 3.6% 13.5% 14.0% MREL eligible 26.5% capital 25.0% 26.2% 26.1% 7.4% 7.3% 3.0% 3.0% 15.8% 15.8% H % +0.6% -0.3% 15.8% Other H CET1 CET1 capital well above target and capital requirements Ratio strengthened by 30bps, driven by retained earnings and despite the -14bps IFRS 9 impact With a 15.8% fully loaded CET1 ratio Rabobank is solidly positioned for the manageable impact of Basel IV Rabobank is committed to its >14% CET1 target and continues to further strengthen its CET1 base in anticipation of Basel IV Total capital Rabobank has been building up its capital buffers to protect its senior funding against the (unlikely) risk of bail-in The total capital ratio of 26.1% offers a strong capital buffer to protect Rabobank s senior funding base and NPS holders The introduction of NPS allows for optimization of Rabobank s MREL stack Including the grandfathered AT1s and amortized part of Tier 2 with a maturity >1yr, Rabobank holds 26.5% of MREL eligible capital 26

27 Rabobank solidly positioned for future MREL requirement MREL requirement (in % of RWA) MREL requirement and position Rabobank has received a binding MREL requirement of 30.96% (~ 65bn FYE2016). This number: 15.25% 11.65% 4.06% 8% TLOF 30.96% 26.50% Includes the binding Basel I floor in the Recapitalization Amount Is based on BRRD I - future MREL subject to ongoing political developments (European trilogue) with regards to the risk reduction package With MREL eligible instruments of >30.96%*, Rabobank already meets its MREL requirement. As a result, no transition period is set Rabobank intends to meet its MREL requirement with a combination of Own Funds and Non-Preferred Senior only With MREL eligible capital of 26.5%, the additional MREL issuance is very manageable LAA RCA CBR including adjustments Total MREL requirement MREL eligible capital MREL eligible instruments* * Under BRRD I preferred senior is MREL eligible and included in calculations 27

28 Limited MREL issuance in light of Rabobank s redemption profile The role of NPS in the capital stack (in bn) PONV Own funds: 52.8bn Resolution MREL strategy Rabobank s substantial own funds ( 52.8bn) provide a significant buffer for NPS investors The introduction of NPS could gradually diminish the role of Tier 2 as key instrument to meet MREL requirements Rabobank intends to maintain a best-in-class Tier 2 layer protecting NPS holders CET1 AT1 Tier 2 Non-Preferred Senior Preferred Senior senior unsecured maturity profile (in bn) Issuance plans Upcoming senior unsecured redemptions ( 63.7bn until 2021) allow for gradual refinancing into NPS to address MREL needs. Based on current RWAs, the MREL shortfall (excluding senior unsecured) is limited Rabobank expects NPS issuances of 3-5bn per annum. This range is subject to regulatory and peer group developments and includes early anticipation of the expected Basel IV impact

29 Funding strategy: optimization and diversification Product base further diversified (in bn) Senior Unsecured Green Covered TLTRO H H1 Currency diversification Funding strategy: global market approach Diversified wholesale funding mix achieved by tapping different markets, maturities, currencies and products Rabobank s funding target for 2018 has been set at 10-12bn including NPS (subject to balance sheet developments) of which ~ 9bn has been funded in H1 2018: Year-to-date issuance is distributed over USD, EUR, AUD and NZD benchmarks, topped up with private placements in various markets Continued commitment towards strategic and liquid benchmark curve In line with Rabobank s strategy of reducing its wholesale funding dependency, it is likely that Rabobank remains a net negative issuer (also including NPS) 3% 7% EUR 7% USD 6% 22% 55% AUD GBP JPY Other 29

30 Topics Update on strategy H results Appendix: Dutch economy, housing market and credit ratings Financial results Loan portfolio Capital, funding & liquidity Current & future developments 30

31 The Dutch economy is still growing, albeit more slowly Key figures Dutch economy (Jan 2019)* Year-on-year change (%) Actual 2017 Forecast 2018 Forecast 2019 Gross Domestic Product Private consumption Government spending Business investment Residential investment Exports Imports Inflation (%) Unemployment (% labor force) Government budget (% GDP) Government debt (% GDP) * Source: RaboResearch Key characteristics Dutch economy Population 17mn GDP 738bn GDP per capita 5th in the EU, 13th in the world Household savings deposits 351bn Pension funds assets 1,510bn (205% of GDP) Household gross mortgage debt 696bn Economic Outlook The Dutch economy has fully recovered from the financial crisis, with above EU-average GDP growth Unemployment rate is rapidly declining Private consumption rising because of higher disposable income, high consumer confidence and rising house prices Housing market boom showing signs of fatigue with the number of transactions declining in the first half of 2018 Inflation will increase further in 2018 and 2019, in part due to pro-cyclical economic policy The downside risks are mostly international in origin, in the form of rising trade tensions and geopolitical risks 31

32 Dutch housing market characterized by strong price growth but decreasing sales activity House Price Index and number of transactions House Price Index: (June 2018; 2015 = 100) versus peak in August months total of number of os homes sold (x 1,000) (l) House Price Index (2015=100) (2010=100) (r) (x 1,000) In 2017 a record number of ~242,000 existing homes were sold. Year-todate sales were down 7.8% y-o-y. Forecast full year 2018: 225,000 transactions Prices rose by 9.2% in Q (7.6% in 2017; 5.0% in 2016) and are expected to rise by 9.0% in 2018 and 6% in 2019 Overall affordability remains relatively good, except for first-time buyers Owner occupation rate is 56%, comparable to surrounding EU countries Underlying fundamentals hint at further price increases in the short run: Increasing number of households and high income growth forecasted Housing shortage, also visible in the non-regulated rental segment where rent levels are rising quickly Limited land available for housing and limited new production Favorable tax regime: interest paid on mortgage loans, taken out for owner-occupied houses, is income tax deductible. This makes house purchase vis-à-vis renting an attractive option Strict mandatory underwriting criteria and strong legal system mitigate credit risks Interest rates remain low 32

33 National Mortgage Guarantee contributes to the strength of the Dutch mortgage market About the National Mortgage Guarantee (NHG) fund Offers financial protection to both lender and borrower in the event the borrower is left with residual debt Benefits from a back-stop government guarantee Rated Triple A by Fitch and Moody s Underwriting criteria: Maximum house price 265,000 For homes that are subject to energy-efficiency investments the maximum house price is 280,900 Affordability criteria (max. ratio of loan expenses-to-income and maximum 100% LTV) comparable to the criteria for non-nhg loans Specifically for borrowers Residual debt will in principle be forgiven Lower interest rate Borrowers pay a one-off guarantee fee of 1% of the mortgage loan Specifically for mortgage lenders Due to the credit cover by the fund, regulatory capital requirements are lower Extensive cover: not only residual debt, but also interest arrears and disposal costs For mortgages originated after 1 January 2014 the lender will participate for 10% in any loss claims made under NHG 20% of Rabobank s mortgage portfolio benefits from National Mortgage Guarantee 33

34 Credit ratings remained strong in H Dec 2017 Jun 2018 Issuer ratings PS NPS T2 AT1 Issuer ratings A+/Positive/A-1 A+ A- BBB+ - A+/Positive/A-1 Aa2/Negative/P-1 Aa3 A3 Baa1 Baa3 Aa3/Stable/P-1 AA-/Stable/F1+ AA- AA- A BBB- AA-/Stable/F1+ AA/Stable/R-1(high) AA AA/Stable/R-1(high) PS: Preferred Senior; NPS: Non-Preferred Senior; T2: Tier 2; AT1: Additional Tier 1 AA/Aa2 A-/A3 BB/Ba2 NL Rest of Europe Rest of world Graph based on the average rating score assigned by Fitch, Moody s and S&P (July 2018) of the world s 60 largest commercial banks (the Banker, July 2018), plus major Dutch banks 34

35 Topics Update on strategy H results Appendix: Dutch economy, housing market and credit ratings Financial results Loan portfolio Capital, funding & liquidity Current & future developments 35

36 Rabobank posted 12% higher net profit in mn Jun 2017 Jun 2018 Change Net interest income 4,454 4,274-4% Net fee & commission income % Other results % Total income 5,938 6,029 2% Operating expenses 3,755 3,611-4% Gross result 2,183 2,418 11% Impairment charges % Regulatory levies % Operating profit before tax 1,992 2,171 9% Tax % Net profit 1,516 1,698 12% ROIC 6.9% 8.8% +1.9%-pnt Cost/income ratio (incl. regulatory levies) 67.6% 64.6% -3.0%-pnt Impairment charges -3 bps -2 bps +1 bps 36

37 Underlying performance by business segment (I) (in mn) Domestic Retail Banking (DRB) Exceptional items Operating profit before tax 1, H ,715 Wholesale, Rural & Retail (WRR) Exceptional items Operating profit before tax 0% 1, ,414 1, H % , ,455 2,731 H Main developments Domestic Retail Banking Total income remained stable: downward pressure on NII (due to lower margins on savings and payment accounts) was compensated by favorable new lending margins and an increase in net fee & commission income Lower operating expenses (-7%), driven by a lower headcount due to the digitalization and centralization of services As in H1 2017, impairment releases contributed to operating profit, but to a much lesser extent ( 27mn versus 156mn) Slight reduction of loan portfolio due to continued elevated level of early mortgage repayments Main developments Wholesale, Rural & Retail Corrected for the appreciation of the euro, the improvement in total income (+5%) outpaced the increase in operating expenses (+3%) Excluding FX effects NII was up 7%, in line with loan portfolio growth Non-interest income corrected for FX effects 6% up, partly due to a strong performance of our M&A and Private Equity divisions Profit improvement driven by 105mn lower impairment charges Loan portfolio grew by 6% H H H

38 Underlying performance by business segment (II) (in mn) Leasing Operating profit before tax % Main developments Leasing Total income up 5%, driven by the reversal of an impairment taken in H Marginally higher operating expenses due to business growth Impairment charges decreased by 15% to 35mn, well below long-term average Financial lease portfolio grew by 6% Outlook positive for Leasing due to the shift to a pay for use economy Real Estate Exceptional items Exceptional items Operating profit before tax -5 H H H % H H H Main developments Real Estate Includes area developer BPD, investment manager Bouwfonds IM and FGH Bank; the latter was dissolved mid-2018 Performance improvement driven by BPD, which closed 20% more transactions of new residential units Segment result benefited from a book profit on the sale of FGH Bank s remaining non-core CRE loans NII plummeted due to a conscious reduction of the loan portfolio As in H1 2017, impairment charges contributed to operating profit, but to a lesser extent ( 3mn versus 43mn) In August 2018 Rabobank reached agreement on the sale of BPD France 38

39 Topics Update on strategy H results Appendix: Dutch economy, housing market and credit ratings Financial results Loan portfolio Capital, funding & liquidity Current & future developments 39

40 Total assets up due to business growth in bn Dec 2017 Jan 2018 Jun 2018 Assets Loans and advances to customers Cash Loans and advances to banks Securities Derivatives Other Total Assets Equity & liabilities Equity Deposits from customers Long-term issued debt Short-term issued debt Banks Derivatives Other Total equity & liabilities Encumbered assets According to EBA guidelines 10% 10% 11% 40

41 Diversified loan portfolio with focus on the Netherlands Group private sector loan portfolio by business segments Group private sector loan portfolio 415.7bn in bn Jan 2018* Jun 2018 change Group total % Domestic Retail Banking % WRR % Domestic Wholesale % International Wholesale % International Rural & Retail % Leasing % Domestic % International % WRR (excl. domestic CRE) 25% Domestic Retail other SMEs 11% Leasing 7% Domestic CRE* 5% Domestic Retail mortgages 46% Real Estate % Other % * Loan portfolio as at 1 Jan declined by 2.9bn due to the adoption of IFRS 9 Domestic Retail F&A 6% * This includes the aggregate exposure of the Domestic Retail Banking, WRR and Real Estate business segments to domestic CRE 41

42 Rabobank largest financier of the Dutch economy Domestic lending by client category in bn Jan 2018 Jun 2018 change Total Domestic lending % Mortgages % Food & Agri retail % Domestic private sector portfolio 300.2bn (72% of Group loan portfolio) Wholesale (excl. CRE) 5% Other SMEs 14% Leasing 1% Commercial real estate* % Other SMEs % Wholesale (excl. domestic CRE) % CRE * 7% Mortgages 64% Leasing % Other % * This includes the aggregate exposure of the Domestic Retail Banking, WRR and Real Estate business segments to domestic CRE Food & Agri retail 9% 42

43 Well diversified international loan portfolio International private sector loan portfolio in bn Wholesale Rural & Retail TOTAL International private sector portfolio 115.5bn (28% of Group loan portfolio) Total international portfolio WRR Leasing 24% Rural & Retail 32% Europe excl. the Netherlands North America South America Australia & New Zealand Asia Africa Leasing 27.5 Breakdown international loan portfolio WRR: Wholesale: 58% Rural & Retail: 42% Wholesale 44% Focus on Food & Agri business: F&A lending 60% of total WRR loan portfolio Leasing: share of Food & Agri business in total lease portfolio 35% Breakdown of loan portfolio based on country of residence 43

44 Credit quality loan portfolio further improved NPL and allowances in mn Jun 2018 % of loans & advances Non-performing loans Domestic Retail Banking 12, % (NPL) WRR (incl. Other) 6, % Leasing % Real Estate % Total Rabobank 18, % Allowances (Stages 1, 2 & 3) Jan 2018 Total Rabobank 20, % Jun 2018 Domestic Retail Banking 2,601 WRR (incl. Other) 1,147 Leasing 255 Real Estate 55 Total Rabobank 4,058 Main developments Declining levels of NPL and Impairment allowances evidence of continuing improvement of the credit quality of the loan portfolio January 2018 one-off impact on level of: NPL stock: + 1.9bn (application of EBA Definition of Default ) Allowances: - 1.1bn (adoption of IFRS 9) NPL ratio calculation according to EBA definition; excluding remaining non-core CRE portfolio (ACC Ireland) the NPL ratio would be 3.2% NPL Coverage ratio calculated according to EBA definition, i.e. excluding IBNR (IAS 39) and Stage (IFRS 9) allowances; decrease to 23% from 27% (Dec 2017) mainly as a result from: sale of non-core CRE loans, which were highly provisioned one-off increase in level of NPL in mortgage portfolio as a result of application of the EBA Definition of Default Jan 2018 Total Rabobank 4,361 44

45 Consistently strong-performing domestic residential mortgage portfolio (I) Portfolio by type of mortgage Other 8% Savings 23% Redeeming 18% Interest only 22% Partial interest only 29% Portfolio by contractual fixed interest rate period Fixed <1yr 4% 2-3 Years 2% 4-5 Years 9% Variable 5% >10 Years 30% 6-10 Years 50% Loan portfolio 1% to 192bn, mainly as a result of continued elevated level of early (partly) repayments due to the ongoing low interest rate environment As in H2 2017, releases exceeded new additions to allowances As at 1 January 2018 NPL and allowances increased due to the introduction of a new definition of default: potential defaults are recognized at an earlier stage excluding this one-off effect, the underlying development of the asset quality is still positive Number of delinquencies and foreclosures remains very low Average loan-to-value ratio: 67% (Dec. 2017: 69%) National Mortgage Guarantee (NHG): stable at 20.0% of mortgage portfolio 95% of portfolio has (predominantly long-term) fixed interest rates Banks are in a preferential position to enforce the liquidation of collateral Bank has full recourse to the borrower Share of interest only will decline due to prevailing tax regime 45

46 Consistently strong-performing domestic residential mortgage portfolio (II) in mn Jun 2017 Dec 2017 Jan 2018* Jun 2018 Change Dec 17 Jun 18 Loans 194, , , ,791-1% Non-performing loans 1,293 1,112 2,912 2,347-19% in % of loans 0.67% 0.58% 1.51% 1.22% -0.29%-pnt Allowance % in % of non-performing loans 15% 15% 11% 10% -1%-pnt H H H Change H H Loan impairment charges mn In basis points 1 bps -1 bps -3 bps -4 bps * NPL and allowances increased as at 1 Jan due to the implementation of a new definition of default. See also previous slide 46

47 Loan-to-value mortgage portfolio decreased further LTV domestic residential mortgage portfolio Loan-to-value NHG Guaranteed Other Total 0%-50% 2.7% 25.6% 28.3% 50%-60% 1.8% 10.4% 12.2% 60%-70% 2.6% 11.0% 13.6% 70%-80% 3.6% 10.3% 13.9% 80%-90% 4.2% 9.7% 13.9% 90%-100% 3.4% 6.4% 9.8% 100%-110% 1.1% 3.0% 4.1% 110%-120% 0.3% 1.4% 1.7% Loan-to-value (LTV) is not the sole determinant of loan quality Average LTV portfolio June 2018: 67% (Dec 2017: 69%) Prudent underwriting standards, including a Loan expenses-to-income ratio, and active risk monitoring are the most important factors determining the risks in Rabobank s mortgage portfolio LTV figures do not take into account: free savings accounts of the borrower securities and other assets of the borrower To cover premature death risk, the majority of clients have taken out a life insurance, pledged to the bank Some clients have taken out an insurance to cover unemployment risk An LTV>100% does not mean that the loan in question is nonperforming. As long as the borrower is able to meet debt service, the collateral value is less of an issue Declining trend in the share of mortgages with an LTV >100% (8% in H1 2018) >120% 0.3% 2.2% 2.5% 20.0% 80.0% 100.0% 47

48 Well diversified business lending Group F&A portfolio 100.0bn Sugar 3% Beverages 3% Food retail & foodservice 5% Farm inputs 10% Fruit & veg 10% Other 11% Group non-f&a portfolio 119.0bn Retail non-food 4% Construction 4% Health care 6% Transport and warehousing 5% Activities related to real estate 8% Other 25% Animal protein 16% Grains & oilseeds 20% Dairy 22% Lessors of real estate 12% Finance & insurance (except banks) 11% Trade 11% Professional, scientific and technical services 6% Manufacturing 8% Well diversified business lending Subsectors Geography Links in the food supply chain F&A portfolio 100.0bn (+2%), 24% of total Group loan portfolio, of which: Domestic retail SMEs: 26.7bn WRR: 63.3bn Leasing: 10.1bn Domestic primary F&A market share around 86% Non-F&A portfolio 119.0bn (+3%), 29% of total Group loan portfolio, of which: Domestic retail SMEs: 59.2bn WRR: 40.9bn Leasing: 18.9bn Mainly SME lending 48

49 Commercial real estate: lower exposure, improving credit quality Development domestic commercial real estate lending (in bn) Dec 15 Jun 16 Dec 16 Jun 17 Dec 17 Jun 18 Breakdown of domestic commercial real estate loan portfolio Main developments CRE exposure being actively managed down (H1 2018: -4%; 2017: -4%; 2016: -15%) Improving real estate market is reflected in decreasing LTVs, NPL level and impairment allowances LTV of domestic lessors of real estate (i.e. buy-to-let) loan portfolio further improved to 68% (Dec 2017: 71%), mainly due to the further reduction of non-core exposure and improved market conditions In H FGH Bank sold the final part of its non-core loan portfolio to RNHB (deal size: 1.3bn) FGH Bank merged with Coöperatieve Rabobank U.A. on 30 June 2018 Other 18% Land 4% Offices & mixed use 25% Industrial 14% Retail outlets 16% Residential 23% CRE financing includes the aggregate exposure of the DRB, WRR and Real Estate business segments to domestic CRE 49

50 Topics Update on strategy H results Appendix: Dutch economy, housing market and credit ratings Financial results Loan portfolio Capital, funding & liquidity Current & future developments 50

51 Strong capital buffer over SREP requirements 2018 SREP requirement (in %) % CET1 requirement in 2018 SRB CCB P2R P % 2.25% 1.875% 1.75% 4.5% 4.5% 2018 requirement 11.75% 3% 2.5% 1.75% Expected fully phased in requirement % Rabobank CET1 ratio H >14% Rabobank target 2020 Rabobank 2018 CET1 requirement is built up as follows: 4.5% Pillar 1 (P1) 1.75% Pillar 2 Requirement (P2R) 1.875% Capital Conservation Buffer (CCB) 2.25% Systemic Risk Buffer (SRB) In 2019 the fully loaded CET1 requirement and MDA trigger is expected to be at 11.75% due to the phasing in of the CCB and SRB The undisclosed Pillar 2 Guidance (P2G) is not directly binding and not relevant for the MDA trigger Targets Rabobank is committed to its >14% CET1 target Current (fully loaded) CET1 ratio of 15.8% implies a substantial buffer of 5.4%-points ( 10.7bn) over 2018 minimum CET1 requirements Rabobank s Distributable Items amounted to 26.5bn at HY

52 Capital position provides strong basis for regulatory developments CET1 development (Fully loaded) Tier 2 AT1 CET1 12.0% Total capital development (Transitional) 23.2% 6.8% 2.9% 13.5% Profit minus distributions 7.4% 3.6% 13.5% 14.0% MREL eligible 26.5% capital 25.0% 26.2% 26.1% 7.4% 7.3% 3.0% 3.0% 15.8% 15.8% H % +0.6% -0.3% 15.8% Other H CET1 CET1 capital well above target and capital requirements Ratio strengthened by 30bps, driven by retained earnings and despite the -14bps IFRS 9 impact With a 15.8% fully loaded CET1 ratio Rabobank is solidly positioned for the manageable impact of Basel IV Rabobank is committed to its >14% CET1 target and continues to further strengthen its CET1 base in anticipation of Basel IV Total capital Rabobank has been building up its capital buffers to protect its senior funding against the (unlikely) risk of bail-in The total capital ratio of 26.1% offers a strong capital buffer to protect Rabobank s senior funding base and future NPS holders The introduction of NPS allows for optimization of Rabobank s MREL stack Including the grandfathered AT1s and amortized part of Tier 2 with a maturity >1yr, Rabobank holds 26.5% of MREL eligible capital 52

53 Rabobank solidly positioned for future MREL requirement MREL requirement (in % of RWA) MREL requirement and position Rabobank has received a binding MREL requirement of 30.96% (~ 65bn FYE2016). This number: 15.25% 11.65% 4.06% 8% TLOF 30.96% 26.50% Includes the binding Basel I floor in the Recapitalization Amount Is based on BRRD I - future MREL subject to ongoing political developments (European trilogue) with regards to the risk reduction package With MREL eligible instruments of >30.96%*, Rabobank already meets its MREL requirement. As a result, no transition period is set Rabobank intends to meet its MREL requirement with a combination of Own Funds and Non-Preferred Senior only With MREL eligible capital of 26.5%, the additional MREL issuance is very manageable LAA RCA CBR including adjustments Total MREL requirement MREL eligible capital MREL eligible instruments* * Under BRRD I preferred senior is MREL eligible and included in calculations 53

54 Limited MREL issuance in light of Rabobank s redemption profile The role of NPS in the capital stack (in bn) PONV Own funds: 52.8bn Resolution MREL strategy Rabobank s substantial own funds ( 52.8bn) provide a significant buffer for NPS investors The introduction of NPS could gradually diminish the role of Tier 2 as key instrument to meet MREL requirements Rabobank intends to maintain a best-in-class Tier 2 layer protecting NPS holders CET1 AT1 Tier 2 Non-Preferred Senior Preferred Senior senior unsecured maturity profile (in bn) Issuance plans Upcoming senior unsecured redemptions ( 63.7bn until 2021) allow for gradual refinancing into NPS to address MREL needs. Based on current RWAs, the MREL shortfall (excluding senior unsecured) is limited Rabobank expects NPS issuances of 3-5bn per annum. This range is subject to regulatory and peer group developments and includes early anticipation of the expected Basel IV impact

55 Flexibility regarding the issuance of Non-Preferred Senior Debt NPS documentation Issuance of inaugural NPS Pari passu with existing senior debt Credit Hierarchy Directive effective in the Netherlands Automatic change in status to statutory NPS ranking NPS The Dutch Ministry of Finance is working on the implementation of NPS under Dutch law, the Dutch Credit Hierarchy Directive (CHD). Final adoption of the law is expected in the course of 2018 It is expected that the Dutch statutory framework will be equivalent to other European solutions and in line with EU proposals Implementation process of NPS Rabobank has updated its GMTN programme to include the flexibility to issue NPS prior to the final implementation of the law Rabobank issued its inaugural NPS before the adoption of the law, this temporary Preferred Senior debt will automatically change to reflect the statutory NPS ranking once the legislation becomes effective After the implementation of the CHD, MREL instruments will be issued directly in NPS format This approach is consistent with other European countries NPS law implementation processes NPS issues Coupon Issue date Maturity EUR 1bn 0.75% Aug 2018 Aug 2023 USD 1bn 3.875% Sep 2018 Sep 2023 USD 250mn 3m USD Libor + 86bps Sep 2018 Sep

56 Funding strategy: optimization and diversification Product base further diversified (in bn) Senior Unsecured Green Covered TLTRO H H1 Currency diversification Funding strategy: global market approach Diversified wholesale funding mix achieved by tapping different markets, maturities, currencies and products Rabobank s funding target for 2018 has been set at 10-12bn including NPS (subject to balance sheet developments) of which ~ 9bn has been funded in H1 2018: Year-to-date issuance is distributed over USD, EUR, AUD and NZD benchmarks, topped up with private placements in various markets Continued commitment towards strategic and liquid benchmark curve In line with Rabobank s strategy of reducing its wholesale funding dependency, it is likely that Rabobank remains a net negative issuer (also including NPS) 3% 7% EUR 7% USD 6% 22% 55% AUD GBP JPY Other 56

57 Covered Bonds as integrated part of the strategy Characteristics Covered Bonds contribute to Rabobank's ongoing funding diversification and optimization Rabobank is building a benchmark curve after issuing its inaugural benchmark Covered Bond in May 2017 followed by three tranches in 2018 Rabobank is committed to the Covered Bond market and actively involved in investor meetings and market events Trade Opportunities Rabobank plans to be active with 1 or 2 benchmark issuances per annum and can also issue in private format Rabobank Covered Bond program functions as starting point for different trade opportunities Strategy The registered Covered Bond program is characterized as soft bullet The Cover Pool consists of high quality Prime Dutch residential mortgage loans Rabobank provides updated information related to the asset pool on the dedicated Covered Bond-website Dual recourse to Issuer and Cover Pool Rated Aaa by Moody s Strong Dutch legal Covered Bond framework in line with EBA s best practices ECBC Covered Bond Label Regulatory overcollateralization at 5% Periodic Asset Cover Test and Amortization Test (Extension Period of 12-months) Favorable regulatory treatment, a.o. UCITS, CRR and LCR Level I 57

58 CRD IV qualifying capital in bn Dec 2017 Jan 2018 Jun 2018 Common Equity Tier 1 capital Tier 1 capital Total capital Risk-weighted assets Common Equity Tier 1-ratio (transitional) 15.8% 15.4% 15.8% Common Equity Tier 1-ratio (fully loaded) 15.5% 15.4% 15.8% Tier 1-ratio 18.8% 18.5% 18.8% Total capital-ratio 26.2% 26.0% 26.1% Equity Capital-ratio 17.3% 17.0% 17.5% Leverage ratio (transitional) 6.0% 6.0% 6.0% Leverage ratio (fully loaded) 5.4% 5.4% 5.4% 58

59 Rabobank liquidity strategy Safe and sound liquidity profile (Jun 2018) LCR: 136%, well above >100% NSFR: 119%, well above >100% Cash remains a major component of HQLA Other level 1 assets 24% Level 2a 1% Level 2b 4% Strong liquidity buffer of 119bn Cash and central bank reserves Maturity profile short term debt (Jun 2018, in bn) 71% Liquidity strategy Rabobank manages the Group s liquidity positions according to an internally defined risk framework and external regulatory requirements The liquidity buffer strategy aims at high quality assets, with level 1 assets forming 95% of HQLA The 3bn increase of the liquidity buffer in H can be partly explained by a seasonal inflow of retail deposits (i.e. holiday allowances paid in May, boosting balances of accounts held by private individuals) The size of the liquidity buffer is comparable to June 2017 ( 122bn) Rabobank aims to have an optimal blend of different funding sources for an effective management of its liquidity position Rabobank maintains a smooth funding maturity profile in order to avoid refinancing concentrations With a solid track-record of issuance across different currencies and locations, Rabobank keeps on working on its funding products diversification 59

60 CET1 capital: Rabobank Certificates Breakdown CET1 capital in mn Dec 2017 Jan 2018 Jun 2018 Retained earnings 26,777 26,302 27,377 Expected distributions Rabobank Certificates 7,440 7,440 7,440 Non-controlling interests Reserves -1, Deductions -2,050-2,317-2,517 Transitional Guidance Common Equity Tier 1 Capital 31,263 30,510 31,425 Rabobank Certificates Rabobank Certificates are the most deeply subordinated capital of Rabobank and qualify as CET1 capital In January 2017 Rabobank issued 60mn new Rabobank Certificates with a nominal value of each The total outstanding number of Rabobank Certificates is 297.9mn, representing 7.4bn of CET1 capital Rabobank Certificates are listed on Euronext Amsterdam Distributions Distributions on Rabobank Certificates are fully discretionary As per the current payment policy, Rabobank intends to pay a quarterly distribution which is the higher of: (6.5% on annual basis) the 3-monthly average on an annual basis of the effective return on the most recent 10 year Dutch state loan +150bps calculated based on a nominal value of divided by 4 60

61 Overview of Additional Tier 1 instruments Additional Tier 1 Capital (Public) CRD IV Compliant AT1 Nominal Coupon Issue date 1 st call date Capital Securities EUR 1bn 4.625% Sep 2018 Dec 2025 Capital Securities EUR 1.5bn 5.50% Jan 2015 Jun 2020 Capital Securities EUR 1.25bn 6.63% April 2016 Jun 2021 Grandfathered AT1 (public) Capital Securities NZD 280mn applicable 5-yr swap rate % May 2009 Jun 2019 Capital Securities USD 2.9bn 11% Jun 2009 Jun 2019 TPS IV GBP 350mn 5.56% Oct 2004 Dec 2019 Capital Securities GBP 250mn 6.91% Jun 2008 Jun 2038 CRD IV compliant instruments As at 3o June bn of CRD IV compliant instruments were outstanding The temporary write down capital securities have a dual trigger of 7% CET1 on Rabobank Group and 5.125% CET1 on Issuer level* respectively The announced intention by the Ministry of Finance to cancel tax deductibility of CoCo coupons does not currently trigger any change in our views with regards to the role of CoCo s as part of Rabobank s capital strategy, nor does Rabobank intend to exercise a Tax Call if the Government s intention or the materialization therefore would constitute a Tax Law Change (as defined in the relevant T&Cs) Grandfathered instruments As at 30 June 2018, all grandfathered instruments ( 3.3bn) qualified as Additional Tier 1 capital In June 2018 Rabobank redeemed the CHF 5.5% Capital Securities, and in July 2018 ILS 323mn of Capital Securities at the first call dates * Jun 2018: actual CET1 on Issuer level = 15.8%. 61

62 Tier 2 instruments totaling 16.4bn Tier 2 issues Coupon Issue date Maturity Call date EUR 1bn 5.88% May 2009 May 2019 EUR 1bn 3.75% Nov 2010 Nov 2020 EUR 1bn 4.13% Sept 2012 Sept 2022 GBP 500mn 5.25% Sept 2012 Sept 2027 USD 1.5bn 3.95% Nov 2012 Nov 2022 EUR 1bn 3.88% July 2013 July 2023 USD 1.75bn 4.63% Nov 2013 Dec 2023 USD 1.25bn 5.75% Nov 2013 Dec 2043 EUR 2bn 2.50% May 2014 May 2026 May 2021 GBP 1bn 4.63% May 2014 May 2029 JPY 50.8bn 1.42% Dec 2014 Dec 2024 AUD 475mn 3m BBSW* + 2.5% July 2015 July 2025 July 2020 AUD 225mn 5.00% July 2015 July 2025 July 2020 USD 1.5bn 4.38% Aug 2015 Aug 2025 USD 1.25bn 5.25% Aug 2015 Aug 2045 USD 1.5bn 3.75% July 2016 July 2026 USD 500mn 4.00% March 2017 April 2029 April 2024 Tier 2 All Tier 2 instruments are CRD IV compliant Qualifying Tier 2 represents 7.3%-point of the total capital ratio (including transitional adjustments) 1,670mn of Tier 2 is subject to amortization. 848mn of the amortized Tier 2 s have a remaining maturity >1yr and therefore fully qualify for MREL In addition to its main currencies, Rabobank will remain focused on a diversified Tier 2 investor base Rabobank intends to maintain a best-in-class Tier 2 layer protecting NPS holders * Bank Bill Swap Benchmark Rate (Australian Financial Markets Association) 62

63 Globally diversified wholesale funding portfolio Public market Rabobank is committed to liquid benchmark curves and has excellent access to short-term as well as long-term funding Issuance is done in over 20 different currencies enabling investors to diversify their portfolios Capital instruments enjoy participation from a global investor base Global funding team works closely to the market base and adheres to latest market practices and regulatory requirements Private Placements Active in all local markets Possibility of different trade formats Rabobank is a prominent issuer in structured MTNs, issuing about 10% of funding in this format Ability to issue in the most innovative products 63

64 Topics Update on strategy H results Appendix: Dutch economy, housing market and credit ratings Financial results Loan portfolio Capital, funding & liquidity Current & future developments 64

65 Rabobank will meet Basel IV requirements Assessment of December 2017 Basel IV proposals Rabobank supports a robust, simple and transparent banking system. When transposing the Basel proposals into European law, Rabobank calls for: a level playing field to avoid an unwanted disproportionate impact on banks with large, strongly collateralized loan portfolios consistency with current initiatives such as the ECB s TRIM. Improvement of internal risk models is key and Rabobank remains in favor of a risk sensitive approach rather than a simplified standardized model that does not fairly reflect the risks Rabobank strategy / response Upcoming new capital regulations (including Basel IV) were one of the drivers of the development of Rabobank s current Strategic Framework The indicative impact of the current Basel proposals falls within the assumptions used in developing the Strategic Framework The continued execution of our strategy, including balance sheet optimization, will ensure that Rabobank will be able to absorb the impact of Basel IV Rabobank will continue growing regulatory capital by retaining future profits The underlying risks in our current assets and consequently our inherent risk profile are not impacted by the implementation of Basel IV Continue servicing our clients is core to our strategy and will not be materially impacted. This also applies to our lending operations Indication of impact Pro forma calculations indicate an ~30-35% RWA increase. The following should be taken into account when assessing the indicated impact: The new regime will be implemented as of 2022 at the earliest The output floor will be fully phased-in by 2027 The indication is based on our current interpretation of the proposals and based on expected choices to be made as included in the proposals The indication excludes any technical, data-quality and strategic (balance sheet) management actions, which could mitigate the ultimate impact Current Basel Committee proposals still to be reviewed and approved by the EU and, following that, enacted into Dutch law and regulations With an indicative ~50% RWA increase the impact of our large residential mortgage portfolio on the total indicative RWA increase is relatively high 65

66 Impact of implementation of IFRS 9 Change in credit quality since origination Stage 1 Transfer Stage 2 Stage 3 if credit risk has increased 12-months ECL significantly since origination Lifetime ECL Lifetime ECL No significant deterioration Move back if transfer conditions above are no longer being met Significant deterioration Defaulted CET 1 ratio The implementation of IFRS 9 had a negative impact of 14 bps on Rabobank s CET1 ratio Main driver is the adoption of new Classification & Measurement rules, resulting in a reduction of CET 1 capital For regulatory capital calculation purposes the increased level of impairment allowances was offset by the existing IRB Shortfall Impairment allowances IFRS 9 may result in a higher volatility of impairment charges, reflecting the forward-looking nature of impairments, using new frameworks which forecast losses based on 12-month and lifetime performing metrics (Expected Credit Losses) 66

67 Impact IFRS 9 on balance sheet minimal Impairment allowances Dec 2017 / Jan 2018 (in mn) 5,594* 1,304 4, IAS39 C&M ECL IFRS 9 * Including Impairment Allowances regarding Treasury related assets and contingent liabilities IFRS capital Dec 2017 / Jan 2018 (in mn) 39, ,584 IAS39 C&M ECL IFRS 9 Impact Classification & Measurement (C&M) Adoption of new Classification & Measurement rules on the asset side led to reclassification of non-core portfolios to Fair Value through P&L This reclassification resulted in a decrease in the level of impairment allowances by 1.3bn Impact Expected Credit Losses (ECL) Model-based allowances under IFRS 9 increased vs. IAS39 Impact on individually assessed allowances is negligible Impact on IFRS capital C&M positively impacted IFRS capital, as positive impact of reclassification of structured notes to amortized cost more than compensated negative impact of other C&M adjustments Impact on CET1 ratio For CET1 calculation purposes the increased level of impairment allowances was fully offset by the existing IRB Shortfall Total impact on CET1 ratio was -14 bps, driven by new C&M rules (due to existing prudential filters, the reclassification of structured notes to amortized cost had no impact on CET1 capital) 67

68 Limited UK exposure and low direct impact of Brexit Rabobank s direct exposure to clients in the UK is limited Total exposure UK (June 2018): 9.0bn (excluding deposits at the BoE and sovereign exposure) Rabobank London s franchise in the UK includes products and services for international clients in the fields of corporate banking, commercial financing and operations related to global financial markets The bank continues to monitor the (potential) impact of Brexit and has prepared contingency plans on the basis of (scenario) analyses. As per the UK regulator PRA guidance, and to continue its banking activities in the UK post-brexit, in Q Rabobank has submitted a Third Country Banking License application to the PRA/FCA and is actively engaged with home and host regulators (ECB, PRA and FCA) on the topic of Brexit preparedness We do not expect a significant adverse impact on our loan portfolio Indirect effect of Brexit could be negative for the Dutch economy. The UK is an important trade partner of the Netherlands. In value added terms, around 8% of Dutch exports go to the UK, and they contribute 2% to Dutch GDP. In addition, around 11% of total Dutch imports come from the UK 68

69 Rabobank ready for PSD2 access to payment accounts We have supplied our customers with updated Terms & Conditions, and updated our products, processes and systems in compliance with PSD2 PSD2 was to become effective as of 13 January The Netherlands missed their planned timeline of June 2018 and aims now for Q PSD2 (re)levels the playing field and aims for more innovation and competition in the payment market. It widens the scope of PSD1 by covering new services and players, enabling third party access to payment accounts as well as by extending the scope of existing services Timeline third party access to payment accounts: 14 September 2019 Current Customer PSD2 Customer PSD2 enables licensed parties, with explicit consent of the customer, to: 1. Directly initiate transactions on the payment accounts held at account holding banks Online offering Account holder Rabo app Rabo account 1 2/3 Rabo app Rabo account 1 2/3 Rabo account 2. Retrieve payment transactions data from payment accounts with other banks 3. Get confirmation on the availability of sufficient funds on the payment accounts held at the account holding banks 69

70 Updates and changes to this presentation The latest version of this presentation is always available online on: Please note that a FAQ section addressing additional topics that might be of interest is available on the IR website of Rabobank. Date Slide Content / change 17/9/ Updated key figures Dutch economy based on latest economic quarterly report (Sep 2018) 17/9/2018 4; 34 Removed footnote on expected rating NPS as first instrument has been issued / rated 10/10/ Updated key figures Dutch economy based on latest economic forecast RaboResearch (Oct 2018) 31/10/ Added EUR 1bn, 4.625% AT1 issued in Sep /11/ Added NPS transactions 15/11/ Update house price developments based on latest housing market quarterly (Nov 2018) 12/12/ Updated key figures Dutch economy based on latest economic forecast RaboResearch (Dec 2018) 70

71 More information Rabobank Group Telephone Website Bloomberg RABO NA 71