Inhoudsopgave Voorwoord Bestuursverslag Corporate governance Consolidated Financial Statements Company Financial Statements Pillar 3 developed credit risk models.These models are developed by taking into account various risk factors including the sector, country, size of the counterparty and type of counterparty. When using the credit risk model, specific customer information is entered, such as general customer behaviour, customer financial data and market data. The credit risk models are used as a credit decision supporting tool. The outcome of the credit risk model is used as a starting point for determining the RRR. Model results are combined with professional judgment and risk management (e.g. credit committee) to take into account relevant and material information, including those aspects which are not (sufficiently) taken into account by the credit risk model. External agencies'credit ratings do not imply a specific PD, although one can observe a default frequency for each Standard Poor's (S&P) grade. The observed default frequency is a backward-looking measure of PD. By matching the observed default frequencies of the S&P grades with the average default probabilities of associated internal RRR, a mapping has been obtained from the external ratings by S&P to our internal ratings for reference purposes. The portfolio's average RRR is around R13 (PD between 0.92% and 1.37%). For 2.4% of the portfolio, the commitments are not fully met. If such a situation is expected an adequate allowance will be formed for this part of the portfolio. The IRB models calculate a client PD, which is subsequently mapped to the RRR. For the IRB advanced portfolio, each entity/type of credit facility has its own FGD models, which are based upon the Rabobank FGD principles. Estimates for PD and FGD, together with the exposure value (EAD), feed into the calculation of EE and unexpected loss (UL).The latter is used to determine regulatory and economic capital requirements. Quality assurance credit risk models Model governance edtf 17 The Model Governance Committee (MGC) has the responsibility to sign-off on credit risk models before implementation (for De Lage Landen (DLL) a separate arrangement on model validations is in place). Before MGC sign-off is requested, all models are validated by an independent Model Validation team. Implemented models are reviewed on at least an annual basis including back testing of predictions against realisations. The Model Validation team assesses model performance annually, based on statistical review complemented with an in-depth analysis of model risks arising from changes in model internal and external changes. For example, there can be relevant changes in internal model usage, business model, changes in external regulations and market conditions. This periodic validation aims to assess the quality of the model in terms of prudence, methodology, validity of key assumptions, fit-for-purpose and compliance.The overall conclusions on performance of the models are reported to the MGC with a recommendation to either extend the usage of the model, or to redevelop the model if necessary. If models are tested as non-prudent, the MGC is informed and decides on an appropriate capital add-on until the model is recalibrated to a prudent level. Besides these internally reviewed risk models, there are some risk models that are periodically reviewed by external parties under supervision of the Model Validation team. Assumptions used in our models are not disclosed as these are considered proprietary. Future Model Landscape In 2016, it was decided to overhaul the credit modelling landscape of Rabobank (excluding DLL) in light of the strategical framework objectives, increased use of data- analytics, new regulation and new modelling techniques. In the coming years, new models will be built for the different portfolios of Rabobank. In 2016, Rabobank started the development of the following models: The redevelopment of the PD, LGD and EAD models for mortgages in the Netherlands is currently ongoing. The new models improve the use of client behaviour, re-valuation of collateral, downturn LGD, and using information from defaulted exposures which are still in the workout process. The new models will be submitted to the regulator for a material change process at the end of June 2017. The re-development of the PD, LGD and EAD models for SME Retail in the Netherlands was recently initiated. It will lead to a similar improvement of the models as the new mortgage models. Credit risk reporting Credit risk reporting is based on the product administration systems and the rating systems, which hold PD, LGD and EAD information. Risk reporting is reconciled with financial reporting data both at entity and Group level. Risk Management compiles a Credit Quarterly Rabobank (CQR) report on the developments in the credit portfolio, which is distributed among senior management. Key risk indicators in this quarterly credit risk report such as PD, EAD, LGD, EC and EL, are used to monitor developments within the portfolio. Furthermore, trends in loan impairment charges, loan impairment allowances, non- performing loans, and number and amount of exposures are analysed by Financial Restructuring Recovery (FR&R). Another important periodic report is the semi-annual provisioning report. 327 6. Credit Risk

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Jaarverslagen Rabobank | 2016 | | pagina 328