Risk management
Strategy and target
Banking means deliberately taking well-considered
risks. Rabobank Group pursues a prudent risk
policy which entails a modest risk profile. This is
confirmed by the initial calculations of the out
comes based on the Basel II accord. In addition to
the external capital adequacy requirements as
formulated in the Basel II accord, the internal
capital adequacy requirement, 'economic capital',
is the principal indicator in terms of risk manage
ment and capital allocation. In 2005 Rabobank
Group again made substantial progress with the
implementation of a comprehensive internal
framework for economic capital.
Risk management organisation
Principles of risk management
54 Rabobank Group Annual Report 2005
Risk management takes place at various levels within the organisation.
Under the supervision of the Supervisory Board and advised by the
Balance sheet and Risk Management Committee Rabobank Group
(BRMC-RG), the Executive Board determines the risk strategy, policy prin
ciples and limits. The Supervisory Board regularly reviews the exposure
of Rabobank Group's activities and portfolio. The Chief Financial Officer,
who is a member of the Executive Board, is responsible for the imple
mentation of the risk policy within Rabobank Group and is chairman of
the BRMC-RG. Risk management at Rabobank Group is particularly
performed within the Group Risk Management and Credit Risk
Management directorates. Group Risk Management is responsible for the
policy regarding interest rate, liquidity, market, currency and operational
risk, as well as for credit risks at portfolio level. Credit Risk Management
is responsible for credit risk management at the individual customer level.
In addition, independent risk control departments within the Group
entities monitor the risks that are relevant for the entity in question.
The primary objective of risk management is to protect Rabobank
Group's financial soundness. Risk management is based on the following
principles:
- Protecting the Group's financial soundness: Rabobank Group controls
risks in order to limit the impact of potential adverse events on both
its capital and its financial results. The risk appetite is required to be
proportional to the available and desired risk capital. An economic
capital framework has been developed to quantify this.
- Protecting the Group's reputation: reputation is essential for the proper
performance of a banker's profession and needs to be diligently
preserved.
- Risk transparency: for a good insight into the bank's positions, it is vital
to identify all risks. Risks must always be considered in order to be able
to make sound commercial decisions.
- Management responsibility: Rabobank Group's separate business
entities are individually responsible for their results as well as the risks
associated with their operations. A balance must be found between
risk and return, while of course duly observing the relevant risk limits
set by the Group.
- Independent risk control: this is the structured process of identifying,
measuring, monitoring and reporting risks. In order to ensure integrity,
the risk control departments operate independently of the commercial
activities.
An extensive system of limits and controls has been put in place within
Rabobank Group to manage all the different risks.
Embedding risk management as an integral part of the
Rabobank Groep aims to qualify for
banking process as a whole.
the most advanced method of the
Building on Economic Capital, Rabobank intends to pro
new capital accord (Basel II)
fessionalise its risk management further.
