RAROC Risk, returns and capital 59 system to analyse the capital requirement has been constructed that enables better and more efficient risk assessment, provides insight into the degree of risk diversification and is a pricing instru ment for loans granted. More than before, debtor risk will be transla ted into the rate charged.This rate can be derived directly from the minimum return deemed necessary by the bank on the economic capital that must be set aside for the debtor. Relating the profit achieved on a certain activity to the capital required for that activity produces RAROC, the risk adjusted return on capital.The RAROC instrument enables a proper balance to be struck between risk, returns and capital for both the Group and its constituent parts.This approach encourages the individual entities to limit risks wherever possible and to ensure appropriate compen sation, properly commensurate with the actual exposure. It is thus an essential instrument for positioning products in the market at the right price. Besides the formulated strategy and the synergy to be achieved, the RAROC of the activities concerned also plays a significant part in the allocation of equity to the various Group entities and the different risk categories. If the calculated RAROC lags behind the formulated minimum result to be achieved, which is a reflection of the costs of the capital employed, economic value is destroyed. A higher RAROC implies the creation of economic value. RAROC is a better measure of the performance of the Rabobank Group and its entities than return on equity. It is our intention to publish informa tion on this subject in the Annual Report for 2003. For the Rabobank Group, prudent management of scarce capital is a logical consequence of its co-operative mission.

Rabobank Bronnenarchief

Annual Reports Rabobank | 2002 | | pagina 61