EUR 15.5 billion
The total amount of assets under management, including Triodos Bank and the investment funds and Private Banking, grew by EUR 1 billion, or 7% to EUR 15.5 billion.
In 2018, Triodos Bank’s income grew by 11% to EUR 266 million (2017: EUR 240 million). This increased revenue was realised despite the high pressure on income caused in the Eurozone by the European Central Bank. Triodos Investment Management contributed EUR 39 million to this figure (2017: EUR 34 million). In 2018, commission income amounted to 35% (2017: 35%) of total income, in line with expectations.
The total amount of assets under management including Triodos Bank and the investment funds and Private Banking grew by EUR 1 billion, or 7%, to EUR 15.5 billion. Triodos Bank’s balance sheet total grew by 10% to EUR 10.9 billion thanks to a steady growth of the funds entrusted, lending and new capital raised during the year, in all branches. Growth of between 5 and 10% was expected.
Triodos Bank’s total number of customers increased by 5%, against expected growth between 10 and 15%, and now numbers 715,000 customers. The lower than expected growth was mainly caused by lower inflow of customers in the UK and a higher outflow of customers in Spain due to the introduction of fees and the clean-up of unused accounts. While we continue to attract new customers in some of our markets our relatively low interest rate offering and reduced product marketing have contributed to limited growth in 2018.
Continuing growth in loans, deposits, and equity despite low interest rates and returns, shows that Triodos Bank’s commitment to values-based banking is more relevant than ever to a growing number of people and businesses who choose to make a much more conscious choice about their bank and the sustainable direction of their money.
Operational expenses increased by 11% to EUR 212 million (2017: EUR 190 million) during the year. This was mainly a consequence of an increase in co-worker costs of 11% to EUR 121 million (2017: EUR 109 million) as a result of an increase in FTE mainly driven by investments in ICT and compliance with new and existing regulation. Additionally, fees for external advisors and the auditor increased by 15% to EUR 11 million (2017: EUR 10 million), mainly due to several strategic projects including Brexit. Externally driven regulatory expenses including Deposit Guarantee Scheme, banking tax and resolution costs increased by 20% to EUR 12 million (2017: EUR 10 million).
Triodos Bank has upgraded, and continues to improve, its control framework to cope with the implementation of changing regulations and increased regulatory supervisory requirements. Significant investments were required to obtain a UK banking licence, in the context of Brexit with total estimated costs amounting to over EUR 5 million. Strategic investments in the development of the business, such as developments in our Socially Responsible Investment Offering, Personal Current Account in the UK were responsible for further growth in costs.
The ratio of operating expenses against income was 80% (2017: 79%). This increase occurred despite efficiency gains in the business. Regulatory pressure, high costs of Brexit preparation and higher tax levies in certain countries have prevented a decrease in the pace of growth of the expenses.
Improving our efficiency continues to be a key focus area for the business. This work needs to accelerate and deepen across the organisation. We intend to go further, faster to improve efficiency in Triodos Bank because that means, ultimately, we can deliver greater impact. Nevertheless we have managed to deliver a reasonable return on equity during the year, as detailed below.
Profit before tax, loan impairments and value adjustments to participating interests increased to EUR 54.4 million (2017: EUR 50.1 million). Impairment for the loan portfolio and other receivables increased to EUR 3.5 million (2017: EUR 1.8 million). This represents 0.05% of the average loan book (2017: 0.03%). This relatively low historical impairment ratio is influenced by both cautious management and the wider economic cycle.
EUR 38.6 million
Net profit of EUR 38.6 million, up 3% on 2017
The net profit is EUR 38.6 million, up by 3% (2017: EUR 37.4 million) for the reasons highlighted above. Triodos Bank delivered a Return on Equity of 3.6% 2018 (2017: 3.9%), in line with expectations.
In recent years market conditions have changed and, given these developments, adjusting a long-term target of 7% has been under consideration. In the light of this wider context the medium-term objective has been revised to a Return on Equity of 3-5% of Triodos Bank’s equity in normal economic conditions. This target should be seen as a realistic, long-term average for the type of banking activity that Triodos Bank engages in.
In the current market, while Triodos Bank will continue to work on improving its profitability, it does not expect to easily outperform this target over the next three years.
As capital and liquidity requirements may increase even further and given uncertain regulatory developments, we prefer to continue to maintain a relatively high equity base and a substantial liquidity surplus which puts additional downward pressure on the Return on Equity.
Earnings per share, calculated using the average number of outstanding shares during the financial year, were EUR 2.99 (2017: EUR 3.19), a 6% decrease. The profit is placed at the disposal of the shareholders.
Triodos Bank’s total number of customers increased by 5%, against expected growth of between 10 and 15%, and now numbers 715,000 customers.
Triodos Bank proposes a dividend of EUR 1.95 per share (2017: EUR 1.95). This means that the pay-out ratio (the percentage of total profit distributed as dividends) will be 65% (2017: 61%). Our policy is to have a pay-out ratio of between 50% and 70%.
Triodos Bank increased its share capital by EUR 83 million, or 11%, thanks to depository receipt issues targeting retail investors in particular, which ran throughout the year in The Netherlands, Belgium, the UK, Spain and Germany.
The number of individual depository receipt holders continued to increase in 2018. Overall growth has been satisfactory and sufficient to meet capital requirements. The number of depository receipt holders increased from 40,077 to 42,416. Equity increased by 12% from EUR 1,013 million to EUR 1,131 million. This increase includes net new capital and retained net profit. In 2018, Triodos Bank’s platform for trading in depository receipts continued to operate effectively. At the end of 2018, the net asset value for each depository receipt was EUR 84 (2017: EUR 83).
At the end of 2018 the total capital ratio and the Common Equity Tier 1 ratio were 17.7% (2017: 19.2%). Triodos Bank aims for a Common Equity Tier 1 ratio of at least 16% in a stable and predictable regulatory context. The decrease in 2018 was mainly caused by an increase in risk weighted assets, due to the growth of the sustainable loan portfolio. This trend was coupled with relatively lower growth in capital in 2018 and the fact that Triodos Bank has increased its capital buffer related to the trading in its depository receipts.