6.3 Specific counterparty credit risk Inhoudsopgave Voorwoord Bestuursverslag Corporate governance Consolidated Financial Statements Company Financial Statements Pillar 3 Counterparty credit risk (CCR) arises from the credit risk in transactions such as repo and securities financing, and derivatives. It is the risk that a counterparty will default on a transaction prior to the expiration of the contract and will be unable to make all contractual payments. In this section we present disclosure requirements as set out in Article 439 of CRD IV/CRR, both from a qualitative and quantitative point of view. 6.3.1 Qualitative information counterparty credit risk and credit risk mitigation Credit limits on counterparty credit exposures Exposures arising from counterparty credit risk are monitored against specific limits set up at counterparty level for derivatives and repo and securities financing products. These limits are part of the overall credit limit of a counterparty. The limits are determined by considering parameters such as counterparty rating, close out netting documentation, collateral documentation, product restrictions and regulatory requirements. The amount of the limit is also dependent on Rabobank's overall risk appetite. Internally Rabobank measures exposure as the replacement cost at given time points overthe life of the transaction under the assumption that market rates move adversely. Rabobank uses a Monte Carlo simulation at 97.5% confidence level for calculating Potential Future Exposure (PFE) for the majority of the portfolio. For a few smaller portfolios an add-on approach is applied.The exposure will take into account netting and collateral when agreements are enforceable in the relevant jurisdictions. This exposure is subject to on-going monitored against the counterparty limits. Regulatory treatment of counterparty credit exposures Since 2011, Rabobank has used the Internal Model Method (IMM) to calculate Exposure-At-Default (EAD) for regulatory purposes for the majority of the portfolio. Portfolios currently not under IMM follow Mark-to-Market method and are expected to migrate to IMM in the near term. The same Monte Carlo simulation used to calculate PFE, is the basis for EAD calculations under IMM. The IMM model has been extended with a separate Credit Value Adjustment (CVA) capital model.This model is based on the advanced CVA Risk methodology.The CVA addresses potential deterioration in the creditworthiness of a counterparty. Mitigation effects from collateral and netting on counterparty credit risk exposures are incorporated when agreements are enforceable in the relevant jurisdiction. Effect of collateral is recognised in repo and securities financing transactions using Financial Collateral Comprehensive Method. Internal stochastic models are annually back tested by comparing the simulated results with the realised results. Any observed inefficiencies will be taken into account in the model recalibration. Wrong-way risk Specific wrong-way risk arises when the exposure on derivatives and repo/securities financing transactions is correlated with the creditworthiness of the counterparty. General wrong-way risk refers to the correlation of likelihood of default by counterparties is positively correlated with general market risk factors. Internal policies dictate for certain products that correlations between the counterparty and the underlying asset should be avoided. Correlations between the counterparty exposure and collateral posted should be avoided as well. As part of Rabobank's stress testing framework, wrong-way risk is addressed for all counterparties by calibrating the parameters on a stressed period with respect to our counterparties and assessing the impact on their EAD. Next to this, qualitative (e.g. based on the risk factor stress scenarios) and counterparty's exposure profile analysis are performed to gain additional insight into the general wrong-way risk towards counterparties. Impact of Rabobank rating downgrade on collateral The impact of a Rabobank rating downgrade for the Over- The-Counter (OTC) derivatives is reported on a monthly basis from a liquidity perspective. A rating downgrade could derive in additional margin calls under existing netting agreements. The overall impact is considered to be limited under current conditions. As per December 2016, one notch downgrade of Rabobank credit rating for OTC derivative translates into around EUR 51.6 million of additional posted collateral. EDTF30 Counterparty Credit Risk Mitigation Rabobank uses a wide range of credit mitigation techniques to reduce counterparty credit risk. The principal form of credit mitigation is close out netting and the use of collateral agreements. Rabobank has a strong preference for the International Swaps and Derivatives Association (ISDA) and Credit Support Annex (CSA) agreements for derivative portfolios. For the purposes of exposure calculation, only transactions governed by a clean netting/ collateral agreement, with positive legal opinion from the legal department, will be netted and subject to further reduction by any collateral held under CSA clauses. Rabobank also uses a number of other derivative risk mitigation techniques to limit 337 6. Credit Risk

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Jaarverslagen Rabobank | 2016 | | pagina 338