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

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Jaarverslagen Rabobank | 2016 | | pagina 359