Inhoudsopgave Voorwoord Bestuursverslag Corporate governance Consolidated Financial Statements Company Financial Statements Pillar 3
Currency risk in the banking books is the risk that manifests
itself at the moment receivables and liabilities are not covered,
due to which currency fluctuations may have a negative impact
on the financial results of the bank. Rabobank's policy is to fully
hedge the material currency risk on the banking books.
Translation risk becomes evident when the bank's consolidated
balance sheet and results are prepared, whereby all items in
foreign currencies must be valued in euros.This makes the
financial data sensitive to exchange rate fluctuations. Translation
risk manifests itself in two different ways within Rabobank:
Exchange rate fluctuations can potentially affect the value of
consolidated entities of which the functional currencies are
not euros.
Exchange rate fluctuations may affect the solvency ratios
of Rabobank as a result of differences in the exchange rate
composition of the capital and the risk-weighted assets.
Translation risk and currency risks in the banking books are
monitored and managed on the basis of a policy which serves
the prime purpose of protecting the Common Equity Tier 1 ratio
against the adverse effects of exchange rate volatility.
4.5 Interest rate risk in the banking environment
'Interest rate risk in the banking environment' refers to the risk
that the financial results and/or the economic value of the
banking book are adversely affected by changes in market
interest rates.
Interest rate risk at Rabobank arises as a result of repricing
and maturity mismatches between loans and funding,
and optionality in client products. Customer behaviour is
an important determining factor with respect to interest rate
risk in the banking environment. The modelling of customer
behaviour is therefore one of the core elements of the interest
rate risk framework. There are behavioural models in place
for mortgage prepayments, savings accounts and current
accounts. Movements in interest rates may also affect the
creditworthiness of customers. Higher interest rates might
for example lead to higher borrowing costs and, hence, have
a negative impact on the creditworthiness of a customer.
Any such effects are however regarded as credit risk rather than
interest rate risk.
Rabobank accepts a certain amount of interest rate risk in the
banking environment; this is a fundamental part of banking.
But at the same time the bank also aims to avoid unexpected
material fluctuations in the financial result and the economic
value as a result of interest rate fluctuations. The Executive
Board, overseen by the Supervisory Board, therefore annually
approves the interest rate risk appetite and the corresponding
interest rate risk limits.
At group level, Rabobank's interest rate risk is managed by
the Asset and Liability Committee Rabobank Group chaired
by the Chief Financial Officer. The Treasury is responsible for
implementing the decisions of this committee, while Risk
Management is responsible for measuring and reporting the
interest rate risk position.
The definition used for managing interest rate risk varies from
the IFRS definition of equity. For interest rate risk management,
the economic value of equity is defined as the present value
of the assets less the present value of the liabilities together
with the present value of the off-balance-sheet items.Through
the use of hedge accounting and because a large proportion
of the balance sheet is carried at amortised cost (in IFRS terms)
and (except from the inherent counterparty risk) is therefore not
exposed to value changes, the effects of the value changes on
IFRS capital will largely impact only interest income.
As part of its interest rate risk policy, Rabobank uses the
following two key indicators for managing and controlling
interest rate risk:
Equity at risk, duration of equity; and
Income at risk; the sensitivity of net interest income to
gradual increases or decreases in interest rates during the
coming 12 months.
Paragraphs 4.5.1 and 4.5.2 provide further details on 'Income at
risk' and 'Equity at risk' developments.
4.5.1 Income at Risk
Income at risk is calculated once a month based on a standard
interest-rate-sensitivity analysis. This analysis shows the main
deviation, in a negative sense, of the projected interest income
over the next 12 months as a result of a scenario in which
all money market and capital market interest rates gradually
increase by 2 percentage points and of a scenario in which
all money market and capital market interest rates gradually
decrease by 2 percentage points.The projected interest rate
income is based on a scenario in which all interest rates and
other rates remain equal.
Throughout 2016, Rabobank's interest income was vulnerable
to a decrease in interest rates. On 31 December 2016, the
Income at Risk amounted to EUR 82 million. Compared to
the end of 2015, the Income at Risk was at a higher level the
whole of 2016. This is related to the change in the downward
shock assumption.
198 Rabobank Jaarverslag 2016