Inhoudsopgave Bestuursverslag Corporate governance
economic value caused by interest rate movements. Therefore,
the Executive Board, under the supervision of the Supervisory
Board, determines the interest rate risk appetite and the
corresponding limits on an annual basis. Reports on the actual
exposure to interest rate risk in the banking environment are
submitted to the responsible Asset Liability Management and
Risk Management Committees on a monthly basis.The actual
exposure is also periodically, i.e. on a quarterly basis, reported
to the supervisory authorities. The various treasury departments
within the bank are in charge of the operational management
of the exposure to interest rate risk in the banking environment.
They manage that exposure through hedging transactions.
The extent and timing of any hedging is, among other factors,
dependent on the view on future interest rates and the
expected movements in the size and the composition of the
balance sheet. Rabobank entities have limited freedom to make
their own choices within the set constraints.
Interest rate risk in the banking environment is not only
measured and managed on the basis of contractual maturities
and repricing dates (i.e. interest rate reset dates); the bank's
internal interest rate risk model also considers client behaviour.
For instance, premature mortgage repayments (prepayments)
are taken into account by applying conditional prepayment
rates and deposits that the depositors are free to withdraw
at any time, such as variable rate savings demand deposits
and current account balances, are modelled based on what is
known as the replicating portfolio method. Using this method,
portfolios of money market and capital market instruments are
selected that best replicate the behaviour of these items.
9.2.2 Risk measurement
Rabobank uses three standard measures:
1) Equity at Risk (EatR);
2) Basis Point Value (BPV) or the delta of equity (total and per
maturity); and
3) Income at Risk (latR);
to control and manage the interest rate risk in the banking
environment arising from changes in the level of interest rates.
The delta per maturity or the delta profile is used to control
and manage the risk of changes in the shape of the yield curve,
which shows the yield per maturity.These measures are also
used to express the risk appetite of Rabobank.
In addition to the three standard measures of interest rate risk
in the banking environment, Rabobank regularly analyses the
effect of one or more macroeconomic scenarios on its earnings
and economic value.The results of this analysis are important
for integrated interest rate risk management purposes and
are included in reports to senior management. Furthermore,
Jaarrekening Rabobank Groep Jaarrekening Rabobank
the amount of capital required to compensate forthe effect
of unfavourable interest rate developments on the books in
the banking environment is calculated on the basis of both
historical scenarios and scenarios based on the opinions
of experts.
Risk appetite and developments related to EatR and BPV
of equity
The key measure used by Rabobank to manage interest rate risk
from the perspective of economic value is the EatR. The EatR
shows the percentage decline in the economic value of equity
if money and capital market interest rates rise by 1 percentage
point. For 2015, the Executive Board determined a risk appetite
with a lower limit of 0% and an upper limit of 6%.
Table 54: EatR
EatR
31 -Dec-15
31-Dec-14
EatR
2.4%
0.4%
EatR changed from 0.4% at the end of 2014 to 2.4% at the end
of 2015.The increase in EatR was mainly due to the increased
volumes of new and extended mortgage loans and a shift in
customer preference to longer fixed-interest rate periods.
In addition to the EatR, Rabobank uses the BPV or delta of
equity to control and manage interest rate risk from the
perspective of value. The BPV of equity shows the change in
the economic value of equity if all interest rates in the money
and capital markets were to rise by 1 basis point (or 0.01 of
a percentage point).The application of the delta profile is
designed to control and manage the risk of changes in the
shape of the yield curve from the perspective of value. For each
individual maturity, the delta profile represents the change
in the economic value of equity as a result ofa 1 -basis point
increase in the market interest rate for the maturity concerned.
Both the BPV of equity and the delta profile remained within
their limits in 2015.
Risk appetite and developments relating to latR
The key measure used by Rabobank to manage interest rate risk
from the earnings perspective is the latR. The latR is the largest
deviation in negative terms of the expected net interest income
in the next 12 months as a result ofa gradual rise in all money
and capital markets interest rates in this period by 2 percentage
points and ofa gradual decline in all money and capital markets
interest rates in this period by 2 percentage points.The limit for
this measure was 500 in 2015.The latR analysis does not take
account of active management intervention, but it does take
371 9. Market risk
