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Things used to be much easier for Rabobank. The Dutch mutual group has always been under much less pressure to boost return on equity than listed banks. During the crisis, it was the only big Benelux bank not to need an injection of state capital. Subsequently, it managed to avoid the kind of all-out restructuring its main rivals had to undergo. After 2008, Rabobank’s cost-of-funding advantages only widened, as it maintained its triple-A status. Even after this year’s sell-off, yields on its additional tier-1 instruments were exceptionally low compared with peers, according to CreditSights, although the eurozone crisis brought its ratings down a notch.
But just as the restructuring of fellow Dutch lenders ABN Amroand ING has started to show benefits, Rabobank is now facing equal or bigger challenges than those banks. The largest lender in one of Europe’s biggest mortgage markets, Rabobank is in danger of losing its competitive edge, as new Basel risk-weighting rules kick in.
Citing high credit quality, the Dutch mortgage industry as a whole virulently defends its relatively low risk weightings: just 12% on average in Rabobank’s case last year, according to Moody’s. Now Rabobank fears the new capital rules will impact on its provision of credit to both households and small and medium-sized businesses by increasing its risk-weighted assets by 40%.
