Executive Interview – Bruce Dick – Chief Executive, Rabobank Australia and New Zealand
(1 December 2005 – Australia) Food and agribusiness focussed Rabobank started life in the Netherlands 108 years ago. The Bank opened its Australian office in 1990 and bought the Primary Industry Bank of Australia and New Zealand in 1994. Today, the Bank is one of Australia’s leading lenders to a sector comprised of 120,000 farms, and provides corporate financial services, transaction banking and business banking services to the sector. Rabobank Australia and New Zealand chief executive Bruce Dick spoke to East & Partners senior consultant Paul Bartholomew about the Bank’s Australian business, operating in a sector that has experienced several tough years, but which offers plenty of growth.
Where does Rabobank differ from other banks operating in the agribusiness sector?
We’re pretty unique because we predominantly operate in just the one sector which is food and agribusiness. We do, to be fair, deal with some financial institutions and some of the banks around town. So in terms of what I would see as our strengths, it’s our focus and the niche we operate in, which is one we understand. There’s also the international bearing we bring in terms of our global knowledge of the food and agribusiness sectors.
A lot of differentiation is around the knowledge and the research that we do, and fundamentally it’s the people, the relationships and skills we have when dealing with clients.
What’s a typical Rabobank client?
In the rural banking side of the business, we define our clients on the sustainability of their farming operation; we want people who are going to be around long term in farming and have a business of a scale that can sustain a level of debt that we’re prepared to provide so we have minimum debt facilities that we don’t go underneath, so we stay away from the non economic commercial operation which might be dependent on off farm income to survive. Probably the best way of epitomising a Rabobank customer is by looking at the modern farmer: he’s probably someone who spends more time sitting behind a computer than sitting on a tractor and that’s probably a huge difference between people’s perception of what farming is. Similarly, those large enterprises have a different structure to the old way of doing things; they get involved with advisors be they legal or accounting whatever; there’s a lot more formality around running the business. Still the predominant ownership model would be the family, though, so it’s very much a mum and dad business albeit with a lot more commercial acumen involved.
Rabobank also runs a very established corporate banking business in Australia. The bank works with large corporate clients in the food, agribusiness, beverage and related manufacturing and service industries. This area of the bank provides corporate lending, M&A and corporate advisory services, structured finance, commodity finance, among other services, to large corporates in the sector.
Four years ago we also established a business banking operation which works with middle-market enterprises operating beyond the farm gate in the agri sector – typically clients include processors, wholesalers and exporters and the like. This business has been going from strength to strength in recent years. We also recently set up a Global Financial Markets operation here in Australia to help our clients manage currency, commodity price and interest rate risk. Next year the Asia Pacific region swaps book will be moved from Singapore to Sydney.
Rabobank’s home market is the Netherlands. How autonomous is the bank in Australia?
It’s pretty much an investment business from a Dutch perspective. We’ve got share capital paid up and branches that operate here; they treat it very much as a company. It has its own external board of directors, including two directors from Holland. It’s run as a normal standalone business and they make decisions around that. Where its strength lies, though, is that it is part of that international network and clearly we do fit into global strategies and global initiatives and we have access to global knowledge. But the business here has to stand on its own two feet, make money and it’s judged according to that. We’re no different to any other commercial operation.
Industry expertise is a catch cry of Australian commercial banks at the moment. Are you seeing increased competition in food and agribusiness because of this?
The difference with Rabobank is that we started 108 years ago in the rural market; those were the roots of the organisation. We’d argue that we have all that experience and we’ve stuck to it during that period. What we see with other participants is that when it rains everyone wants to lend money to farmers, but as soon as the drought arrives everyone wants their money back. Farming isn’t a business that you can sustain on a ‘one minute you give them money, the next you’re taking it away from them’ basis. It’s a long term business with its cyclical ups and downs and because of our experience over 108 years we understand those cycles probably a little bit better than some of our competitors.
So it’s essentially a case of being committed to the sector and the people in it?
Yes, but it’s a commitment that’s much deeper than that because it goes right to the core of what people are passionate about and what they believe in. Most of our staff comes from farming backgrounds or they have a very strong passion for what goes on in farming and agribusiness. That passion is not something you can instil in people through training. If you come from the land you probably have it, if you’re a city person then you possibly don’t have the affinity for the sector. That’s one aspect, another is because this is our core business it’s all we think about when we get up in the morning and all we do. We don’t have the luxury of saying ‘today, we’ll go and lend mortgages to the residential housing markets of Melbourne or Sydney’ because we don’t have that option. We have to live and breathe our core activity.
This approach creates understanding, a degree of tolerance and with that the understanding to go through the good and the bad times. We don’t necessarily pull our hair out when things are tough. If you take the last three or four years where there’s been a severe drought going on, we really haven’t been having sleepless nights; we realise that farming goes through these difficult periods and we’re here to support the farmers through those times, and that’s what we’ve been doing.
Have you seen other service providers withdraw from the sector over the past few years because they weren’t prepared to support farmers through the bad times?
I think there’s a fair amount of stress in rural communities on the eastern seaboard because of drought issues and we’re not divorced from that; we see some of that among our own clients. But it’s having the understanding to be supportive rather than saying ‘I’m very nervous about my lending position’ because we don’t have that nervousness; we have the recognition that it’s going to take several seasons to get things sorted and you have to just work your way through it together.
Rabobank has added transaction banking capabilities to its offering. Can you tell me how this has been tracking and what are the Bank’s ambitions for this part of the business?
When we started looking at this issue about five years ago, we were principally a mortgage lender to the rural sector; we provided the term finance and the seasonal finance around crops and so on but we really didn’t do anything in the transaction banking area. All of our clients had banking relationships with one of the majors or one of the regionals, so they had split facilities. Our fundamental driver has always been to provide the right product and services that the business needs to run successfully. So we always recognised that there was something the client had a need for but we just didn’t provide it. So we took the decision to get into internet and transaction banking and that’s what we’ve completed. The product roll out started at the end of last year and very pleasingly we’re up to an almost 50 percent conversion rate on all our existing clients, so our transaction banking offering has had widespread acceptance. It’s a non fee paying activity so it’s basically a transaction banking account that is aimed at helping the farm run better.
Was it tough to convert almost a half of your customers to your transaction banking services?
Well, we enjoy very good relationships with our clients and they’ve always told us they’d love to do their transaction business with us, so we haven’t had to sell the product as such, it was more a case of coming up with a product that worked for them. Farmers at the end of the day prefer to have a lot of their business with people they want to do business with. So, if they have a good relationship, they tend to put more business there; we’ve enjoyed the benefits of having those good relationships and just built on them.
Is the plan to try and convert all of those lending relationships into transaction banking ones?
Our clients will largely dictate what happens. We’re not a hard sell organisation; what we try to do is it have a good relationship with clients, and on the back of that build the right products and services that the clients need to run their business. If they’re good products and services, the client will naturally gravitate towards them.
It doesn’t tend to be rocket science; most of what goes on in financial communities is about lending and borrowing money. It’s relatively simple but hopefully in a way that can work more effectively for the particular sector you’re banking. We’ll have specific products that might be good for a grains industry type client in terms of how we might finance the stock, so it’s quite customised, but generally speaking it’s quite client driven and client focussed.
From a sales perspective, we don’t set targets for our people to go and sell 25 widgets this month, that’s not really the name of the game. The name of the game is building the relationships and if you’re good at what you do, you get the business. It’s a case of focussing on what’s right as opposed to what’s expedient.
How many relationship managers do you have on the ground in these regional areas and how many branches does the Bank have?
We’ve got almost 750 people across Australia but not all of those are in the rural scene. We run 46 branches and have more than 280 people in the rural business. It’s a very diversified branch operation from where it was. If you go back just over five years ago when I joined the bank, there was something like 16 branches in Australia, so we’ve increased it to 46 and will probably do one or two more. The network’s largely getting to the configuration we want. At a time when other players in the banking community have been withdrawing from the bush and rural Australia, we’ve seen it as being important to get closer to our customers, and have opened 30 odd branches.
We offer a much broader understanding of our business through our relationship management approach whereby we do keep people in the field dealing with clients for many years, not just two, and they bring a whole knowledge regime that’s not available from our competitors, so you can’t really compare one with the other. The cheap and nasty way of going around trying to write business is that you simply offer it at a cheaper price but farmers are very discerning about that; they see price for what it is: if you pay peanuts, you get monkeys.
What’s your view of the growth and health of the rural sector?
It’s actually an industry that’s growing quite substantially. People can lose sight of the growth rates. If you look at the amount of debt out there now, it’s sitting at just over A$40 billion and it’s been growing at a compound rate of nine to 10 percent, year in year out, so it’s been a good opportunity for financing for bankers, and a great place to do business.
If you stand back and ask what is it about Australia that makes food and agribusiness a good industry to be in, I’d argue several things: Firstly, if you look at world population growth, more people need food and produce, and a lot of that growth is occurring in the Asian region, right on our doorstep. Also, generally speaking the GDPs of those countries have been improving over the years so you’re getting a much greater part of the population able to access more refined food, or processed foods that we’re good at producing, so proximity wise we’re good at making it and the populations are there who can pay for it. We have a good, clean green image and those sorts of things and fundamentally we’re still very good at farming. Australian farmers are as good as any farmers in the world, they’re very resourceful people, are relatively low cost producers, you put that all together and I say it’s still a great place to do business.
How competitive is the sector right now?
I think the financial markets in Australia are very competitive, and it’s even more competitive in New Zealand but there would be very few proposals where you are the sole banker and nobody else is aware of the deal. You can expect that every transaction you’re competing for, that there will be at least one other, and probably two or three others all trying to get that business. Now we’re fortunate in that the size of our business means we get a lot of organic growth with our existing client base because we’ve put a lot of store into having very good relationships with our clients, they tend to come to us and tell us what they’re doing and we’re very much involved in the decisions and the opportunities they’re facing. That gives you a very good organic core growth and then on top of that we’re out there competing with everyone else on the good farming businesses, and that’s a tough market.
Rabobank has a global research centre. What’s its role primarily and what advantages does it bring the bank?
We run an international food and agribusiness research group and that’s spread across the world. They look at global trends and what’s happening in these industries so we are able to comment, for example, on the grains industry, not only here but offshore, we get macro statistics on what’s occurring. We’re then able to translate that locally by asking what it means for a wheat producer in Australia, what they should be aware of in terms of those local trends. And we bring in global experts who we share with our clients. They’ll go around and give them insight about how they should be thinking about their business for the next 20 or 30 years, not just the next month. It’s a skill and an opportunity which basically nobody else in the market can replicate because nobody is dedicated to the sector like us. We have many experts in most sectors who would be world renowned in terms of their standing and reputation. We bring them here and they’ll drag in large audiences from all the major companies and producers because they are so well respected. I think that’s quite unique.
We also do specific work for companies. So, for example, if a company wants to employ us for a piece of advisory work on what’s happening in an industry we’re happy to provide that consultancy type arrangement.
We’re pretty unique because we predominantly operate in just the one sector which is food and agribusiness. We do, to be fair, deal with some financial institutions and some of the banks around town. So in terms of what I would see as our strengths, it’s our focus and the niche we operate in, which is one we understand. There’s also the international bearing we bring in terms of our global knowledge of the food and agribusiness sectors.
A lot of differentiation is around the knowledge and the research that we do, and fundamentally it’s the people, the relationships and skills we have when dealing with clients.
What’s a typical Rabobank client?
In the rural banking side of the business, we define our clients on the sustainability of their farming operation; we want people who are going to be around long term in farming and have a business of a scale that can sustain a level of debt that we’re prepared to provide so we have minimum debt facilities that we don’t go underneath, so we stay away from the non economic commercial operation which might be dependent on off farm income to survive. Probably the best way of epitomising a Rabobank customer is by looking at the modern farmer: he’s probably someone who spends more time sitting behind a computer than sitting on a tractor and that’s probably a huge difference between people’s perception of what farming is. Similarly, those large enterprises have a different structure to the old way of doing things; they get involved with advisors be they legal or accounting whatever; there’s a lot more formality around running the business. Still the predominant ownership model would be the family, though, so it’s very much a mum and dad business albeit with a lot more commercial acumen involved.
Rabobank also runs a very established corporate banking business in Australia. The bank works with large corporate clients in the food, agribusiness, beverage and related manufacturing and service industries. This area of the bank provides corporate lending, M&A and corporate advisory services, structured finance, commodity finance, among other services, to large corporates in the sector.
Four years ago we also established a business banking operation which works with middle-market enterprises operating beyond the farm gate in the agri sector – typically clients include processors, wholesalers and exporters and the like. This business has been going from strength to strength in recent years. We also recently set up a Global Financial Markets operation here in Australia to help our clients manage currency, commodity price and interest rate risk. Next year the Asia Pacific region swaps book will be moved from Singapore to Sydney.
Rabobank’s home market is the Netherlands. How autonomous is the bank in Australia?
It’s pretty much an investment business from a Dutch perspective. We’ve got share capital paid up and branches that operate here; they treat it very much as a company. It has its own external board of directors, including two directors from Holland. It’s run as a normal standalone business and they make decisions around that. Where its strength lies, though, is that it is part of that international network and clearly we do fit into global strategies and global initiatives and we have access to global knowledge. But the business here has to stand on its own two feet, make money and it’s judged according to that. We’re no different to any other commercial operation.
Industry expertise is a catch cry of Australian commercial banks at the moment. Are you seeing increased competition in food and agribusiness because of this?
The difference with Rabobank is that we started 108 years ago in the rural market; those were the roots of the organisation. We’d argue that we have all that experience and we’ve stuck to it during that period. What we see with other participants is that when it rains everyone wants to lend money to farmers, but as soon as the drought arrives everyone wants their money back. Farming isn’t a business that you can sustain on a ‘one minute you give them money, the next you’re taking it away from them’ basis. It’s a long term business with its cyclical ups and downs and because of our experience over 108 years we understand those cycles probably a little bit better than some of our competitors.
So it’s essentially a case of being committed to the sector and the people in it?
Yes, but it’s a commitment that’s much deeper than that because it goes right to the core of what people are passionate about and what they believe in. Most of our staff comes from farming backgrounds or they have a very strong passion for what goes on in farming and agribusiness. That passion is not something you can instil in people through training. If you come from the land you probably have it, if you’re a city person then you possibly don’t have the affinity for the sector. That’s one aspect, another is because this is our core business it’s all we think about when we get up in the morning and all we do. We don’t have the luxury of saying ‘today, we’ll go and lend mortgages to the residential housing markets of Melbourne or Sydney’ because we don’t have that option. We have to live and breathe our core activity.
This approach creates understanding, a degree of tolerance and with that the understanding to go through the good and the bad times. We don’t necessarily pull our hair out when things are tough. If you take the last three or four years where there’s been a severe drought going on, we really haven’t been having sleepless nights; we realise that farming goes through these difficult periods and we’re here to support the farmers through those times, and that’s what we’ve been doing.
Have you seen other service providers withdraw from the sector over the past few years because they weren’t prepared to support farmers through the bad times?
I think there’s a fair amount of stress in rural communities on the eastern seaboard because of drought issues and we’re not divorced from that; we see some of that among our own clients. But it’s having the understanding to be supportive rather than saying ‘I’m very nervous about my lending position’ because we don’t have that nervousness; we have the recognition that it’s going to take several seasons to get things sorted and you have to just work your way through it together.
Rabobank has added transaction banking capabilities to its offering. Can you tell me how this has been tracking and what are the Bank’s ambitions for this part of the business?
When we started looking at this issue about five years ago, we were principally a mortgage lender to the rural sector; we provided the term finance and the seasonal finance around crops and so on but we really didn’t do anything in the transaction banking area. All of our clients had banking relationships with one of the majors or one of the regionals, so they had split facilities. Our fundamental driver has always been to provide the right product and services that the business needs to run successfully. So we always recognised that there was something the client had a need for but we just didn’t provide it. So we took the decision to get into internet and transaction banking and that’s what we’ve completed. The product roll out started at the end of last year and very pleasingly we’re up to an almost 50 percent conversion rate on all our existing clients, so our transaction banking offering has had widespread acceptance. It’s a non fee paying activity so it’s basically a transaction banking account that is aimed at helping the farm run better.
Was it tough to convert almost a half of your customers to your transaction banking services?
Well, we enjoy very good relationships with our clients and they’ve always told us they’d love to do their transaction business with us, so we haven’t had to sell the product as such, it was more a case of coming up with a product that worked for them. Farmers at the end of the day prefer to have a lot of their business with people they want to do business with. So, if they have a good relationship, they tend to put more business there; we’ve enjoyed the benefits of having those good relationships and just built on them.
Is the plan to try and convert all of those lending relationships into transaction banking ones?
Our clients will largely dictate what happens. We’re not a hard sell organisation; what we try to do is it have a good relationship with clients, and on the back of that build the right products and services that the clients need to run their business. If they’re good products and services, the client will naturally gravitate towards them.
It doesn’t tend to be rocket science; most of what goes on in financial communities is about lending and borrowing money. It’s relatively simple but hopefully in a way that can work more effectively for the particular sector you’re banking. We’ll have specific products that might be good for a grains industry type client in terms of how we might finance the stock, so it’s quite customised, but generally speaking it’s quite client driven and client focussed.
From a sales perspective, we don’t set targets for our people to go and sell 25 widgets this month, that’s not really the name of the game. The name of the game is building the relationships and if you’re good at what you do, you get the business. It’s a case of focussing on what’s right as opposed to what’s expedient.
How many relationship managers do you have on the ground in these regional areas and how many branches does the Bank have?
We’ve got almost 750 people across Australia but not all of those are in the rural scene. We run 46 branches and have more than 280 people in the rural business. It’s a very diversified branch operation from where it was. If you go back just over five years ago when I joined the bank, there was something like 16 branches in Australia, so we’ve increased it to 46 and will probably do one or two more. The network’s largely getting to the configuration we want. At a time when other players in the banking community have been withdrawing from the bush and rural Australia, we’ve seen it as being important to get closer to our customers, and have opened 30 odd branches.
We offer a much broader understanding of our business through our relationship management approach whereby we do keep people in the field dealing with clients for many years, not just two, and they bring a whole knowledge regime that’s not available from our competitors, so you can’t really compare one with the other. The cheap and nasty way of going around trying to write business is that you simply offer it at a cheaper price but farmers are very discerning about that; they see price for what it is: if you pay peanuts, you get monkeys.
What’s your view of the growth and health of the rural sector?
It’s actually an industry that’s growing quite substantially. People can lose sight of the growth rates. If you look at the amount of debt out there now, it’s sitting at just over A$40 billion and it’s been growing at a compound rate of nine to 10 percent, year in year out, so it’s been a good opportunity for financing for bankers, and a great place to do business.
If you stand back and ask what is it about Australia that makes food and agribusiness a good industry to be in, I’d argue several things: Firstly, if you look at world population growth, more people need food and produce, and a lot of that growth is occurring in the Asian region, right on our doorstep. Also, generally speaking the GDPs of those countries have been improving over the years so you’re getting a much greater part of the population able to access more refined food, or processed foods that we’re good at producing, so proximity wise we’re good at making it and the populations are there who can pay for it. We have a good, clean green image and those sorts of things and fundamentally we’re still very good at farming. Australian farmers are as good as any farmers in the world, they’re very resourceful people, are relatively low cost producers, you put that all together and I say it’s still a great place to do business.
How competitive is the sector right now?
I think the financial markets in Australia are very competitive, and it’s even more competitive in New Zealand but there would be very few proposals where you are the sole banker and nobody else is aware of the deal. You can expect that every transaction you’re competing for, that there will be at least one other, and probably two or three others all trying to get that business. Now we’re fortunate in that the size of our business means we get a lot of organic growth with our existing client base because we’ve put a lot of store into having very good relationships with our clients, they tend to come to us and tell us what they’re doing and we’re very much involved in the decisions and the opportunities they’re facing. That gives you a very good organic core growth and then on top of that we’re out there competing with everyone else on the good farming businesses, and that’s a tough market.
Rabobank has a global research centre. What’s its role primarily and what advantages does it bring the bank?
We run an international food and agribusiness research group and that’s spread across the world. They look at global trends and what’s happening in these industries so we are able to comment, for example, on the grains industry, not only here but offshore, we get macro statistics on what’s occurring. We’re then able to translate that locally by asking what it means for a wheat producer in Australia, what they should be aware of in terms of those local trends. And we bring in global experts who we share with our clients. They’ll go around and give them insight about how they should be thinking about their business for the next 20 or 30 years, not just the next month. It’s a skill and an opportunity which basically nobody else in the market can replicate because nobody is dedicated to the sector like us. We have many experts in most sectors who would be world renowned in terms of their standing and reputation. We bring them here and they’ll drag in large audiences from all the major companies and producers because they are so well respected. I think that’s quite unique.
We also do specific work for companies. So, for example, if a company wants to employ us for a piece of advisory work on what’s happening in an industry we’re happy to provide that consultancy type arrangement.
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