Market risk
To manage the short-term liquidity risk, the bank measures
and reports on a daily basis which incoming and outgoing
cash flows are to be expected over the next thirty days and
how much collateral is available in which location. In
addition, limits have been set for such outgoing cash flows
for each currency. In order to be prepared for unexpected
crises, detailed contingency plans are in place, formulating
the procedures to be followed.
The supervisory authority also has extensive guidelines for
measuring and reporting the Group's liquidity position.
The liquidity position of the Group as a whole, measured
according to the guidelines of the supervisory authority, is
more than adequate, with the available liquidity exceeding
the requirement by on average 8%. Rabobank Group's
comfortable liquidity position is reflected in the balance
sheet by the substantial asset items 'Financial assets available
for sale', 'Trading financial assets' and 'Other financial assets
carried at fair value through profit or loss, together totalling
EUR 107 (105) billion. In principle, these assets are directly
available to create liquidity.
Long-term funding in 2006, by currency
^Kuro 44%
US dollar 26%
Other 7%
Swiss franc 5%
Pound sterling 5%
Japanese yen 5%
Australian dollar 4%
Canadian dollar 4%
Rabobank Group's funding policy is to meet the funding
requirements of the Group entities at an acceptable cost.
In this context, diversification of funding sources and
currencies, flexibility of funding instruments and active
investor relations play an important role. Rabobank Group
has been assigned the highest possible credit rating by
leading rating agencies. This top rating enables Rabobank
Group to raise funds at a relatively low cost.
In 2006, over EUR 25 billion of long-term funding was raised
in the international financial markets. The Investor Relations
unit is in place to provide full information to investors in
Rabobank paper about the bank's risk profile and financial
and strategic developments.
In addition, alternative sources for long-term funding are
increasingly being used. For example, in 2006 EUR 2.5 billion
of Rabohypotheekbank's centrally available mortgages
portfolio was securitised internally for liquidity purposes.
Herewith non-liquid mortgages have been converted into
liquid (tradable) bonds.
Market risk relates to changes in the value of the trading
portfolio as a result of price movements in the market. Price
changes include prices of interest rate products (interest
rate), equities, currencies and certain commodities. Within
Rabobank Group, Rabobank International and Robeco in
particular are exposed to this risk. Therefore, specific market
risk management departments are in place within these
Group units that calculate and report market risk exposure
on a daily basis. An appropriate system of limits and trading
controls has been developed for the control of this risk. At a
consolidated level, the exposure is measured by the 'Value at
Risk'. This measure, based on historic market developments,
indicates the maximum loss that Rabobank Group can suffer
76 Rabobank Group Annual Report 2006
