Rabobank Nederland

1
Rabobank Nederland

• Management Control Systems
• 
  
• Group3
• Lilit Babayan
• Meri Hakobyan
• Arthur Orbelyan
• Anna Yengibaryan

Professor P. Sen
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Overview of Rabobank Group

• Rabobank Group was established in 1972 as a
  merger of two agricultural banks.
• One of 50 largest banks in the world
• Monopoly in home market
• 40 of deposits
• 90 of agricultural loans
• 40 of residential real estate loans
• The group has top financial ratings due to
• AAA for bonds
• A1/P1 for commercial papers

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The New York Branch

• Established in 1981 in New York
• The main goals
• Serve organizational goal of becoming
  international bank
• Strategy
• competing in agribusiness area
• cooperation with other agribusiness banks
• priority to big customers

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• Simple organizational structure
• Highly independent from Rabobank Nederland
• Standardized products
• Informal

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Analysis of Rabobank Financial state

• Low equity levels (0.05) in 1982 and 0.04 in
  1981. This indicates a huge financial risk.
• Contingent liabilities have increased nearly
  twice compared to 7 increase in commissions.
• Net income to net interest ratio has decreased
  from 17.86 in 1981 to 15.12 1982.

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Analysis of NTCC proposal for loan

• NTCCs business area cotton industry, is
  declining
• Moral commitment to members makes NTCC less
  flexible
• Times interest earned was 0.52 in 1982 and 0.47
  in 1981
• Losses have increased by 33 from 1981-1982
• All these factors increase risks of not getting
  the loan back

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Roger Barrs performance evaluation

• Roger did well as he tried to achieve the banks
  goals
• Agribusiness area
• Cooperation with other agribusiness banks
• Preference given to large size cooperatives
• Rogers performance was highly evaluated by Hugo
  Steensma, although the latter did not go much
  into the detail

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Control Strategy of The New York Branch

• No tough control over account managers. Goals are
  set in terms of the amount of loan that they
  should give and no attention is paid to assets
  quality
• Measurement of the results and tracking are
  subjective.
• Hugo Steensma does not evaluate performance on
  specific criteria and uses expressions like I
  trust him in feedback evaluations

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Control Strategy of The New York Branch

• No clear reward and punishment system
• For example, no reward is given for such
  important goals as contribution to a more
  efficient operational process, product
  development, better administrative efficiency

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Recommendations

• Evaluation of loan proposals should be based on
  financial criteria, like
• interest coverage ratio
• liquidity ratios
• profitability, etc
• Standardized procedures- There must be an
  established form of credit applications, which
  can be compared. This will result in better
  control over assets quality.

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Recommendations

• Performance evaluation should be based on
  specific criteria rather than on subjective
  judgments
• Procedures and the structure should be more
  formal
• The reward system should match with the control
  system
• The tasks of the account managers should be
  divided.
• Prioritization of organizations should be based
  not on the size but on potential of growth

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Epilog

• After analyzing the case, our group found out
  in the Internet that in reality NTCC went
  bankrupt next year. New-York branch was closed
  after two years and the strategy of becoming
  international bank was achieved by buying a US
  bank in 1996.