Development of the loan portfolio
g
Rabobank Group, which is chaired by the CFO, the Executive
Board is represented by three members. The CFO is also
chairman of both Policy CC Wholesale and Policy CC Retail.
For corporate loans, a key concept in Rabobank Group's
policy for accepting new clients is the "know your customer"
principle, meaning that loans are granted only to corporate
clients of which the management, including its integrity
and expertise, is known to the bank. In addition, the bank is
familiar with the industry in which a client operates and
can adequately assess its clients' financial performance.
51% of Rabobank Group's private sector lending consists of
loans to private individuals, mainly based on residential
mortgages, of which losses are historically very low.
Furthermore 33% of Rabobank Group's loan portfolio
consists of loans to the trade, industry and services sector
and 16% of loans to the food agri sector.
The graph below illustrates the distribution by main
industries of Rabobank Group's food agri portfolio and
illustrates diversification of this portfolio. In turn, these main
sectors are subdivided in a large number of subindustries.
In its financing approval process, Rabobank Group uses the
Rabobank Risk Rating, which reflects the counterparty's
probability of default (PD) over a one-year period.
The counterparties have been assigned to one of the 25
rating classes, including four default ratings.
The table below shows a distribution of the Rabobank Risk
Rating and the exposure at default (EAD), which is an
estimate of the bank's total exposure at the time of a
counterparty's defaulting. It concerns all loans granted to
private individuals and to large and small enterprises.
As the table illustrates, the main part of the loans across the
Rabobank Risk Rating is in the category R11-R14. This leads
to a loans-weighted average probability of default (PD) of
1.34%. For 1% of this portfolio, the commitments are not
being fully met and an adequate allowance has been made
for this part of the portfolio. It should be noted that this
table indicates only the extent to which the bank expects
that clients can or cannot meet their commitments.
In many cases, the bank has obtained adequate collateral
that can be enforced if clients would no longer meet their
commitments, ensuring that the loan is eventually fully or
partly repaid. It can be concluded that Rabobank Group
has a healthy loan portfolio.
Lending food agri by industry,
at year-end 2006
Dairy
20%
Animal protein
17%
Fruit and vegetables
11%
Other food agri
11%
Grains and oil seeds
10%
Other crops
9%
Food retail
7%
Farm inputs
6%
Flowers
5%
Beverages
2%
Sugar
2%
Once a loan has been granted, ongoing credit management
takes place while reference is made to new information,
both financial and non-financial. The bank monitors if the
client meets all obligations and can be expected to do so
in the future. If the client does not fulfil its obligations or if
it is expected that they will not be met, credit management
will be intensified, with a higher monitoring frequency and
more strict limit monitoring. If necessary, new agreements
Distribution of Rabobank Risk Rating
Rating
PD (in basis points)
Description
Loans in of total
R0
0 - 0
No risk
0%
R1
0 - 1.6
Exceptionally strong
1%
R2-R4
1.6 - 4.5
Very strong
2%
R5-R7
4.5 - 12
Strong
6%
R8-R10
12 - 40
Adequate
31%
R11-R14
40 - 210
Acceptable
42%
R15-R19
210 - 1,600
Vulnerable - commitments are being met
17%
R20
1,600 - 10,000
Very weak
0%
D1-D4
10,000
Impaired loan - commitments are not
being met
1%
Total
100%
72 Rabobank Group Annual Report 2006
