3 Risk exposure on financial instruments Inhoudsopgave Voorwoord Bestuursverslag Corporate governance Consolidated Financial Statements Company Financial Statements Pillar 3 3.1 Solvency and capital management Rabobank aims to maintain a proper level of solvency. For this purposea number of solvency ratios are utilised.The principal ratios are the common equity tier 1 ratio (CET1), the tier 1 ratio, the total capital ratio and the equity capital ratio. Rabobank uses its own internal objectives that extend beyond the minimum requirements of the supervisors. It takes market expectations and developments in legislation and regulations into account. Rabobank manages its solvency position based on policy documents. The solvency position and the objectives are periodically reviewed by the Risk Management Committee and the Asset Libaility Committee of the Executive Board and the Supervisory Board. The 'Capital Requirements Regulation (CRR)'and 'Capital Requirements Directive IV (CRD IV)'together constitute the European implementation ofthe Basel Capital and Liquidity Accord of 2010.These rules, which became effective on 1 January 2014, are applied by Rabobank. Coöperatieve Rabobank U.A. solo (local Rabobank Group) must comply with a number of minimum solvency positions as stipulated under law.The solvency position is determined on the basis of ratios.These ratios compare the qualifying capital (total capital ratio), the tier 1 capital (tier 1 ratio) and the corecapital (common equity tier 1 ratio) with the total ofthe risk-adjusted assets. Effective 1 January 2014, the minimum required percentages are determined on the basis of CRD IV/CRR.The legal buffers below are applicable as from 2016.These buffers will gradually increase until the year 2019. Rabobank is already allowing for these changes in its capital planning.The table below shows the minimum legal buffers based on the planned final situation under CRD IV/CRR. 1 These buffers will phase in during the years 2016-2019. The countercyclical buffer is capped at a maximum of 2.5%. In most countries, including the Netherlands, the countercyclical buffer for 2016 has been set at 0%. The CET1-ratio of Coöperatieve Rabobank U.A. solo (local Rabobank Group) is 16.4% (2015:16.0%). 3.2 Risk organisation Rabobank Group manages risks at various levels within the organisation. At the highest level, the Executive Board (under the supervision ofthe Supervisory Board) determines the risk strategy it will pursue, the risk appetite, the policy framework as well as the limits.The Supervisory Board regularly assesses the risks attached to the activities and portfolio of Rabobank Group. The Chief Risk Officer, as Member ofthe Executive Board, is responsible for the risk management policy within Rabobank Group. Risk appetite Identifying and managing risks for its organisation is an ongoing process at Rabobank. For this purpose an integrated risk management strategy is applied. The risk management cycle includes determining risk appetite, preparing integrated risk analyses, and measuring and monitoring risk.Throughout this process Rabobank uses a risk strategy aimed at continuity and designed to protect profitability, maintain solid balance-sheet ratios and protect its identity and reputation. 3.3 Strategy for the use of financial instruments Rabobank's activities are inherently related to the use of financial instruments, including derivatives. As part ofthe services it offers, Rabobank takes deposits from customers at varying terms and at both fixed and variable interest rates. Rabobank attempts to earn interest income by investing these funds in high-value assets as well as by making loans to commercial and retail borrowers. Rabobank also aims to increase these margins through a portfolio approach of short- term funds at lower interest rates and the allocation to loans for longer periods at higher interest rates, maintaining sufficient cash resources in hand to meet obligations as they fall due. Rabobank improves its interest income by achieving rental margins after deduction of provisions and by issuing loans with a variety of credit ratings and inherent risk profiles. Not only is Rabobank exposed to credit risk on the on-balance sheet loans, it is also exposed to credit risk on the off-balance sheet guarantees it provides, such as letters of credit, letters of performance and other guarantee documents. 3.4 Credit risk Credit risk is the risk that a counterparty is unable to meet a financial or other contractual obligation vis-a-vis the bank. Credit risk is inherent to granting loans. Positions in tradeable assets such as bonds and shares are also subject to credit risk. Rabobank restricts its credit risk exposure by setting limits for loans to an individual counterparty, or a group of counterparties, as well as for loans to countries. The four-eyes principle is also a key factor when granting loans. A multi-level committee structure is put in place to make decisions on major Minimum capital buffer CET1 Tier 7 Total capital Pillar 1 4.5% 6.0% 8.0% Pillar 2 1.75% 1.75% 1.75% Capital conservation buffer1 2016-2019 2.5% 2.5% 2.5% Countercyclical buffer1 2016-2019 C - 2.5% 273 Notes to the company financial statements

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Jaarverslagen Rabobank | 2016 | | pagina 274