Risk, returns and capital
For Rabobank Group, the disappointing economic
developments in 2003 resulted in only a limited
increase of bad debts. Accordingly, the addition
to the provision for expected losses was relatively
modest. In addition, Rabobank Group holds capital
to cover unexpected losses, which comfortably
exceeds the capital required by the supervisory
authorities.The internally applied standard of
economic capital is a more appropriate measure
for the capital requirement. In 2003, the return
on available capital was 9.4% and the return on
economic capital (RAROC) after tax was 12%.
Balance Sheet and Risk Management Committee
Credit risk
50 Rabobank Group Annual Report 2003
The year under review was characterised by further development and
implementation of methods and techniques for translating the various
risk categories into a single heading: economic capital.The minimum
economic capital to be held by a bank is an internal capital requirement
that is based on the Bank's actual risk profile and desired credit rating.
By putting all risk categories under the same heading, the results on
specific risks can be compared, allowing more efficient use of capital.
At Group level, the Balance Sheet and Risk Management Committee
(BRMC) is responsible for balance sheet management, risk policy, setting
risk measurement standards, broadly determining limits and monitoring
developments. Rabobank Group has extensive procedures in place for
systematic risk management.
Rabobank's policy on credit risk puts the clients' interests first, with
clients offered the greatest possible continuity in services.To this end,a
prudent acceptance policy is pursued.Once granted, loans are carefully
managed so that there is a continuous insight into the credit risks.
Around 50% of the loan portfolio consists of loans to private individuals,
which have a very low risk profile in relative terms.The remaining 50% is
a highly diversified portfolio of loans to business clients in the
Netherlands and abroad. In the year under review, further progress was
made with the development of advanced methods for quantifying
credit risks. A start has been made on implementing these methods, a
process that will continue in the coming year. Within Retail banking, the
authorisation arrangement for corporate lending was revised in the year
under review to create more scope for the local Rabobanks to provide
adequate services to the corporate market within the framework of a
professional risk management organisation at local level. In 2003, the
Special Management Rabobank Group directorate was established,
combining different units that previously focused independently on the
aj Georgia's velvet
revolution.
