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