Interest rate risk
Liquidity risk
Operational risk
Insurance risk
52 Rabobank Group Annual Report 2003
positions at any moment of the day.The Value at Risk fluctuated between
EUR 11 (10) million and EUR 18 (15) million in 2003, with an average of
EUR 14 (13) million.
Apart from its exposure to market risks in the trading environment,
Rabobank Group is also exposed to structural interest rate risk in its
balance sheet.This risk results from mismatches between the periods for
which interest rates are fixed on loans and funds entrusted. Short-term
interest rates showed a stable development last year and remained at a
low level, whereas the long-term interest rate was highly volatile. Its
strong fluctuations, added to the fact that the long-term interest rate
approached the record low of 1999 last year, caused the number of
premature redemptions to increase strongly in the last months of the
year. Longer-term risks are measured and managed using Equity at Risk.
This ratio expresses the sensitivity of the group equity's market value to
interest rate fluctuations. Short-term risks are measured and managed
using the Income at Risk concept. This is the maximum amount of net
interest income that is put at risk on an annual basis, with a reliability
level of 97.5%.The maximum risk during the year under review was
approximately 3.5% of net interest income.
In the past years, Rabobank Group has worked on a substantial diversifi
cation of its funding basis. For that purpose, the focus in raising funds
was shifted from other commercial banks to central banks, money market
funds, pension funds and asset managers.On the asset side of the
balance sheet, greater priority has been given to assets that can be
converted readily into cash. In 2003, group-wide global liquidity reporting
was introduced, enabling even better monitoring of liquidity risk.
Liquidity risk is an organisation-wide matter and managed centrally by
Group Treasury.
Operational risk is the risk of direct or indirect losses arising from
deficiencies in procedures and systems and from human failures or from
external events. In mid-2003, a group-wide operational risk policy was
introduced. Its implementation is now well under way. A start has been
made with the setting-up of decentralised databases at all entities for
recording operational incidents on the one hand, combined with a
reporting structure for recording all operational losses in a central data
base on the other. Likewise,a start was made with making sophisticated
instruments available to enable robust operational risk management
within the entities.The unchanged main feature in the operational risk
policy is that the management of the individual Rabobank Group entities
is responsible for developing policy, processes and procedures to
manage operational risk in line with Group policy.
At Interpolis, risk management is concerned mainly with insurance risks.
Using appropriate techniques, the risks associated with existing and
new products are estimated and changes in them are monitored.This
enables the insurer to ascertain whether future commitments can be
met with sufficient certainty and whether calamities can be absorbed
financially. In its policy, Interpolis takes into account a large number of
possible disaster scenarios.
'If the risk is too big for normal financing,
local banks can call on us for venture
capital.We provide this mainly for company
acquisitions, management buy-outs,
management buy-ins and expansion.
In such cases, we always take a minority
interest in the company's share capital.
Currently, we have EUR 130 million invested
in the capital of 30 companies. 2003 was a
successful year for us. Especially now, with
the struggling economy, it is an interesting
prospect to participate in companies. Such
investments are relatively cheap at the
moment. We hope that 2004 will again be
interesting from an investment perspective.
Our ambition is to build up a healthy
portfolio of attractive companies. And in
this way, we aim to contribute to the
