6. Credit Risk
Credit risk is defined as the risk of the bank facing an economie loss because the bank's counterparties
cannot fulfil their contractual obligations.
Credit risk management within the bank is governed by the bank-wide central credit risk policy and
further detailed in underlying specific credit risk policies.The primary responsibility for managing and
monitoring credit risk lies with the business as the first line of defence. The business is required to
identify, assess and manage, monitor and report potential weaknesses in the credit risk portfolios in line
with the credit risk framework. Monitoring takes place on an ongoing basis to limit credit risk exposures
to a level in line with the business line's risk appetite.
In addition, risk in the credit portfolio is measured and monitored at bank-wide level and on entity level
on a monthly basis and by quarterly and ad-hoc portfolio reporting and analysis, with specific attention
to risk developments and concentrations.
6.7 Credit Risk management
Inhoudsopgave Voorwoord Bestuursverslag Corporate governance Consolidated Financial Statements Company Financial Statements Pillar 3
Credit acceptance
Rabobank's prudent credit acceptance policy is typified by
careful assessment of customers and their ability to repay the
loan that was issued (continuity perspective). As a result, the
loan portfolio has an acceptable risk profile even in less than
favourable economic circumstances. Rabobank aims to have
long-term relationships with customers that are beneficial
for both the client and the bank. An important starting point
in acceptance policy for business loans is the 'know your
customer' principle.This means that the bank only issues
loans to business customers whose management Rabobank
considers to be ethical and competent. In addition, Rabobank
closely monitors developments in the business sectors in which
its customers operate and can properly assess the financial
performance of its customers. Corporate sustainability also
means sustainable financing. Sustainability guidelines have
been established for use in the credit process.
Although credit is usually granted on the cash flow generating
potential of the client or project, collateral will improve the
position of the bank in case a client defaults. Collateral can
be independent of the client's business and/or obtained from
the client's business. Rabobank has outlined its policies for
collateral valuation and management in the Global Standard
Credit Risk Mitigation. Compliant to CRR 181 1 .(e) all (eligible)
collateral is valued at market value or less than market value
and the collateral value is monitored frequently. The collateral
is sufficiently liquid and its value over time is sufficiently stable
to provide appropriate credit protection. Within the Rabobank
policy framework each type of collateral is addressed separately.
The main types of collateral that are recognised by Rabobank
are real estate, inventory (such as equipment, machinery, stock
etc.), commodities, receivables and guarantees.The quality
of the collateral is assessed in the initial credit request, and is
evaluated within the credit revision process.The frequency of
revaluation depends on the type of collateral and is in line with
the requirements set in the CRR.
The main types of guarantors are governments, local authorities,
(central) banks and corporate entities. For institutions, insurance
undertakings and export credit agencies, a minimum rating
is required.
Credit committees and credit approval
Rabobank has various levels of credit committees. Very large
loans are approved by the Central Credit Committee Rabobank
Group (CCCRG), which is chaired by the CRO. Most loans
are subject to approval by a lower level credit committee.
The credit authority amounts are periodically reviewed and are
higher at each higher level of credit committee. Entities have
their own local credit committees which are organised along
the lines of the committees at the central level.Their duties
and responsibilities are clearly defined in a charter. In general,
the Local Credit Committee is chaired by the general manager,
with the head of credit risk management as vice-chairman.
The charter also specifies the required members and regulates
the proper representation by front office and credit risk
management. Credit committee members are appointed
325 6. Credit Risk