9.3 Non-trading currency risk
Inhoudsopgave Voorwoord Bestuursverslag Corporate governance
Table 50: Income at Risk.
latR
31-Dec-2016
31-Dec-2015
10 basis points
2 basis points
Euro interest rates
decline
decline
Income at Risk
82
19
In 2016, Rabobank's net interest income was exposed to
a decline in interest rates throughout the year. On 31 December
2016 the latR ended up at EUR 82 million. Compared to end
of 2015, the income at risk was at a higher level the whole
of 2016.This is related to the change in the downward
shock assumption.
Per January 2016 the income at risk methodology was updated
to accommodate interest rate scenarios to go negative until
a floor of -0.5%, while in 2015 these downward scenarios were
floored at 0%. For the EUR and USD interest rates this meant
that the applied maximum shocks enlarged from -2 to -10 basis
points and -20 to -75 basis points respectively. In the last
quarter of 2016 the increasing USD rates made room for a larger
downward shock (i.e. -125 basis points) and consequently also
led to an additional increase in the income at risk.
Consolidated Financial Statements Company Financial Statements Pillar 3
Currency risk is the risk that the bank's financial result and/
or economic value could be negatively affected by changes
in exchange rates. The bank distinguishes two types of non-
trading currency risks: (i) Currency risk in the banking books
and (ii) Foreign Exchange (FX) translation risk.
Currency risk in the banking books
Currency risk in the banking books, is the risk where currency
cash flow commitments and receivables in the banking books
are unhedged. As a result, it could have an adverse impact on
the financial results and/or financial position of the Group, due
to movements in exchange rates. FX risk in banking books is
fully hedged.
FX Translation risk
Translation risk is an FX risk component that is resulting
from accounting rules and regulations and arises in the
preparation of the bank's consolidated financial statements,
in which all (non-trading) items in foreign currencies have to
be converted into the group reporting currency. This means
that the financial figures could be affected by fluctuations in
exchange rates.
Translation risk arises at the group in two different ways:
1. Investments in consolidated group entities where the
functional currency of the operation differs from the
functional currency of the entity holding the investment.
This type of risk reveals by translating the value of
an operation to euros;
2. The impact of currency fluctuation on solvency ratios at
group level.
FX Translation risk and currency risk in the Banking books are
covered by the Foreign Exchange Risk Policy Rabobank Group.
The policy is designed in order to protect the Rabobank Group
CET1 ratio against the effects of exchange rate movements.
Unhedged translation risks are measured within the internal
Pillar II framework.
358 Rabobank Jaarverslag 2016