EUR 17.7 billion
The total amount of assets under management, including Triodos Bank and the investment funds and Private Banking, grew by EUR 2.2 billion, or 14% to EUR 17.7 billion.
In 2019, Triodos Bank’s income grew by 12% to EUR 292 million (2018: EUR 261 million). This increased revenue was realised despite a low interest rate environment. Triodos Investment Management contributed EUR 51 million to this figure (2018: EUR 39 million) including the one-off positive effect of the sale of a participation generating additional fee income of net EUR 5.4 million. In 2019, commission income amounted to 36% (2018: 33%) of total income, in line with expectations.
Triodos Bank’s balance sheet total grew by 11% to EUR 12.1 billion thanks to a steady growth of the funds entrusted, lending and new capital raised during the year, in all banking entities. Growth of between 5 and 10% was expected.
Triodos Bank’s total number of customers increased by 1% and now numbers 721,000 customers. In 2019 we adjusted the definition of customers which resulted in a reduction in the reported number of customers in Spain. Surplus liquidity lead to a reduced marketing spend during the year. This, plus further work to improve data quality, resulted in lower growth in new customers.
Continuing growth in loans, deposits, and equity despite low interest rates and returns, shows that Triodos Bank’s commitment to values-based banking continues to be relevant to people and businesses who choose to make a much more conscious choice about their bank and the sustainable contribution their money makes to the economy.
Operational expenses increased by 11% to EUR 235 million (2018: EUR 212 million) during the year. This is mainly due to an increase in the number of co-workers working on Customer Due Diligence (CDD) and Anti-Money Laundering (AML) issues and related ICT investments. The remediation plan, developed in response to the formal DNB-instruction of 6 March 2019, is on track. Co-worker costs, partly related to these efforts, increased by 11% to EUR 134 million (2018: EUR 121 million) as a result of an increase in FTE mainly driven by investments in ICT and compliance with new and existing regulation. ICT costs are focussed on helping to optimise and standardise our business model. A provision has also been created in relation to the decision not to establish a banking branch in France. In addition, fees for external advisors and the auditor remained high amounting to a total of EUR 10 million (2018: EUR 11 million). This was mainly due to several strategic projects including Brexit and a transition to a new financial reporting standard from Dutch GAAP to IFRS, explored later in this chapter. Externally driven regulatory expenses including Deposit Guarantee Scheme, banking tax and resolution costs were EUR 14.4 million (2018: EUR 12.1 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 6 million in the last three years. Strategic investments in the development of the business in 2019, such as developments in our Impact Equities and Bonds Offering, were responsible for further growth in costs.
The ratio of operating expenses against income was 80% (2018: 81%). This ratio remained at a similar level as the previous year due to a combination of co-worker, governance and IT related costs, despite continuing efficiency gains in the business. Regulatory pressure, costs associated with the Depository Guarantee Scheme, AML activities, creating a local subsidiary in the UK in preparation for Brexit, the transition to a new financial reporting standard (explained below) and higher tax levies in certain countries have also prevented a decrease in the pace of growth of the expenses.
Improving our efficiency continues to be a key focus area for the bank, particularly through this context we are pleased to have delivered 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 57.5 million (2018: EUR 49.0 million). Impairment for the loan portfolio and other receivables increased slightly to EUR 3.9 million (2018: EUR 3.5 million). This represents 0.05% of the average loan book (2018: 0.05%). This relatively low historical impairment ratio is influenced by both cautious management and the wider economic cycle.
EUR 39 million
Net profit of EUR 39 million, up 12% on 2018
The net profit is EUR 38.8 million, up by 12% (2018: EUR 34.7 million) primarily because of loan growth and growth of the funds under management and includes the contribution of some one-off items. Triodos Bank delivered a Return on Equity of 3.4% in 2019 (2018: 3.3%), in line with expectations.
In light of the wider context of our activity the medium-term objective has been revised to a Return on Equity of 3-5% of Triodos Bank’s equity in the current conditions of the European financial sector. This target should be seen as a realistic, long-term average for the type of banking activity that Triodos Bank engages in.
Triodos Bank will continue to work on improving its profitability.
We prefer to continue to maintain a solid equity base and capital ratio, and a substantial liquidity surplus. A consequence of this is 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 2.78 (2018: EUR 2.69), a 3% increase. The profit is placed at the disposal of the shareholders.
Triodos Bank’s total number of customers increased by 1% and now numbers 721,000 customers.
Triodos Bank proposes a dividend of EUR 1.35 per share (2018: EUR 1.95). This means that the pay-out ratio (the percentage of total profit distributed as dividends) will be 50%. Our policy is to have a pay-out ratio of between 50% and 70%.
Triodos Bank increased its equity by EUR 54 million, thanks to depository receipt issues targeting retail investors in particular, which ran throughout the year in The Netherlands, Belgium, Spain and Germany.
Having reviewed the legal and financial implications of the creation of a new UK subsidiary it became apparent that it would be significantly more complex and costly to administer depository receipts in the UK. Therefore, Triodos Bank UK reluctantly discontinued the sale of new depository receipts to UK residents, including the issue of new depository receipts as part of the stock dividend scheme.
The number of individual depository receipt holders increased overall in 2019. Growth has been sufficient to meet capital requirements. The number of depository receipt holders increased from 42,416 to 44,401. Equity increased by 8% from EUR 1,112 million to EUR 1,200 million. This increase includes net new capital and retained net profit. Due to Triodos Bank’s increasing growth, internationalisation and in line with developments on reporting in the banking sector, Triodos Bank has decided to change its financial reporting standard from Dutch Generally Accepted Accounting Principles (GAAP) to IFRS with effect from 1 January 2020.
The price of the depository receipts for Triodos Bank shares (the Issue Price) is based on a financial model that derives the calculated net asset value of Triodos Bank (the NAV) divided by the number of Depository Receipts (the NAV per Depository Receipt). This means that as of 1 January 2020 the net asset value (NAV) of Triodos Bank is calculated in accordance with IFRS. Triodos Bank decided that the Issue Price calculated under Dutch GAAP should already be adjusted, during 2019, for the estimated effect IFRS would have on the NAV of Triodos Bank and, consequently, on the Issue Price, as of the date of the most recent prospectus published at that time. The buying and selling of depository receipts was, therefore, suspended from 4 June to 3 July 2019. This was done to obtain the approval of the Dutch supervisory authority on the new prospectus and to be able to calculate the new Issue Price taking into account the estimated effect of the envisaged transition to the accounting standard IFRS.
The Issue Price under Dutch GAAP, corrected for the estimated IFRS impact, was set on 3 July 2019 at EUR 82, in line with the new prospectus. This was EUR 1.00 lower than when trading was suspended on 4 June 2019. At the end of 2019, the net asset value for each depository receipt was EUR 83. Because of changes in accounting principles under Dutch GAAP the comparative net asset value on 31 December 2018 has been adjusted from EUR 84 to EUR 82 in line with the new accounting principles.
At the end of 2019 the Total Capital Ratio and the Common Equity Tier 1 ratio were 17.9% (2018: 17.5%). Triodos Bank aims for a Common Equity Tier 1 ratio of at least 16% in the current regulatory context.