Inhoudsopgave Voorwoord Bestuursverslag Corporate governance
Per January 2016 the Income at Risk methodology was updated
to accommodate interest rate scenarios to go negative until
a floor of-0.5%, while in 2015 these downward scenarios were
floored at 0%. For the EUR and USD interest rates this meant
that the applied maximum shocks enlarged from -2 to -10 basis
points and -20 to -75 basis points respectively. In the last
quarter of 2016the increasing USD rates made room fora larger
downward shock (i.e. -125 basis points) and consequently also
led to an additional increase in the Income at Risk.
In 2016 the EUR swap curve showed a downward parallel
shift with a flattening tendency: the 3M Euribor rate and the
10 year swap rate dropped from -13bp to -32bp and 92bp to
54bp respectively. In general, a low interest rate environment
accompanied by a flattening of the curve, is challenging for the
profitability of the bank, especially the retail business in case of
unchanging margins.
Income at Risk
in millions of euros
31 December 2016
31 December 2015
EUR interest rate
10 bp decline
2 bp decline
82
19
4.5.2 Equity at Risk
The equity at risk (EatR) or duration of equity indicates by
what percentage the economic value of equity will fall if the
money market and capital market interest rates increase by one
percentage point.The Executive Board has set a lower limit of
0% and an upper limit of 6% for this purpose. Additional limits
apply for the basis point value (BPV) of equity and the delta
profile (BPV per term point) for equity.
In the first half of 2016, the EatR decreased from 2.4% to 1.1%
due to the fall in market interest rates and model adjustments
regarding mortgage prepayments and on-demand savings
deposits. During the course of 2016, the upward pressure on
the EatR, caused by mortgage extensions and customers' shift
in preference towards longer fixed interest periods, was largely
hedged by entering into payer swaps leading to an EatR of
1.4% by year end.
Equity at Risk
31 December 2016 31 December 2015
1.4% 2.4%
Consolidated Financial Statements Company Financial Statements Pillar 3
4.6 Market risk in the trading environment
Market Risk arises from the risk of losses on trading book
positions affected by movements in interest rates, equities,
credit spreads, currencies and commodities.These movements
have an impact on the value of the trading portfolios and
could lead to losses. Risk positions acquired from clients can
either be redistributed to other clients or managed through risk
transformation (hedging).The trading desks are also acting as
a market-maker for secondary markets (by providing liquidity
and pricing) in interest rate derivatives and debt, including
Rabobank Bonds and Rabobank Certificates.
Market risk in the trading environment is monitored daily
within the market risk framework, which is put in place to
measure, monitor and manage market risk in the trading books.
An important part of the framework is an appropriate system of
limits and trading controls.The relevant risk appetite limits are
translated into limits and trading controls at book level and are
monitored on a daily basis by the market risk departments.
Due to Rabobank's strategy of client risk redistribution, risk
transformation (hedging) and the low secondary market
activity, the real market risk exposure of the trading portfolio is
well within the risk appetite boundaries. If limits are breached,
remedial actions will be stipulated which decrease the chance
of large actual losses. The risk position is reported to senior
management and discussed in the various risk management
committees each month.
At consolidated level, the market risk appetite is represented by
the Value at Risk (VaR), Interest Rate Delta and Event risk.
The VaR indicates the maximum loss for a given confidence
level and horizon under 'normal' market conditions, based
on one year of historical market movements. Daily risk
management uses a confidence level of 97.5% and a horizon
of 1 day. Under this method, VaR is calculated on the basis
of historical market movements and the positions taken.
The table below presents the composition of the VaR. The VaR
is divided into a number of components. A diversity advantage
is achieved in this case by the opposing positions of various
books which partially cancel each other out. In 2016, the
VaR fluctuated between EUR 3.5 million and EUR 6.9 million,
the average being EUR 4.4 mil lion. The VaR amounted to
EUR 4.3 million on 31 December 2016. VaR has moved during
the year with some fluctuations being driven by client related
deals and volatility in the financial markets.
199 Notes to the consolidated financial statements