Loan quality drags on Rabobank

Rabobank New Zealand's impairment provisions rose sharply in the fourth quarter of 2009 and the bank warned that further credit provisioning could be expected in 2010 due to a decline in credit quality of the rural loan portfolio.

"There are indications of more favourable economic conditions emerging, and the decline in portfolio credit quality is expected to stabilise; however further credit provisioning is expected in 2010," Rabobank wrote in the quarterly disclosure statement.

In the December quarter, the bank made further provisions of NZ$42.8 million, which was nearly as much as the provisions it made during the first nine months of the year.  Total impairment charges for the year ended December 2009 was NZ$80.9 million, compared with NZ$23.1 million the year before.

Rabobank also made a separate provision for risk of NZ$17.6 million, which, according to the directors, is "to allow for economic and financial risks inherent in the business". The bank didn't make such a provision in 2008 but the accounts show an opening balance of NZ$6.45 million, reflective of a similar provision made in the past.

The two provisions, totalling NZ$98.6 million, offset the increase in net interest income that the bank made in 2009, causing a sharp drop in net profit to NZ$8.5 million from NZ$28.6 million the year before.

Total deposits fell about 22 per cent, highlighting the shift in positioning for a business that at one stage was seeking to be a market leader in household savings.

Rabobank increased its reliance on funding from related entities. Related-entity funding rose to NZ$4.54 billion from NZ$3.17 billion the year before.