CQuntry risk
Interest rate risk
-
With respect tQ CQuntry risk, a distinctiQn is made between transfer risk and cQllective debtQr
risk. Transfer risk relates tQ the pQssibility Qf fQreign gQvernments placing restrictiQns Qn
funds transfers from debtürs in that cüuntry tü creditürs abrüad. Cüllective debtür risk relates
tü the situatiQn in which a large number Qf debtors in a cQuntry cannQt meet their
cQmmitments fQr the same reasQn (e.g. war, pQlitical and sQcial unrest, natural disasters,
but alsQ gQvernment pQlicy that dQes nQt succeed in creating macrQ-ecQnQmic and financial
stability). RabQbank GrQup uses a cQuntry limit system tQ manage transfer risk and cQllective
debtQr risk fQr all cQuntries. After careful review, relevant cQuntries get an internal cQuntry
risk rating, after which transfer limits and a general indicator are established.
Transfer limits are determined accQrding tQ the net transfer risk, which is defined as total
lQans granted less lQans granted in lQcal currency less guarantees and Qther cQllateral
Qbtained tQ cQver transfer risk and less a reduced weighting Qf specific products. The limits
are allQcated tQ the Qffices, which are themselves respQnsible fQr day-to-day monitoring Qf
the lQans granted by them and fQr repQrting Qn this tQ GrQup Risk Management.
At RabQbank GrQup level, the cQuntry risk Qutstanding, including additiQnal capital
requirement and prQvisiQn fQr cQuntry risks, is repQrted every quarter tQ the Balance sheet
and Risk Management CQmmittee RabQbank GrQup (BRMC-RG) and the CQuntry Limit
CQmmittee. The calculatiQn Qf the additiQnal capital requirement and the prQvisiQn fQr
cQuntry risk is made in accQrdance with Dutch Central Bank guidelines and cQncerns
cQuntries with a high transfer risk.
At 31 December 2007, the net transfer risk before prQvisiQns fQr nQn-OECD cQuntries was
1.2% (1.0%) Qf tQtal assets.
Risk in nQn-OECD cQuntries
(in millions Qf euros)
In Europe
In Africa
In Latin
America
In Asia Pacific
TQtal
In Qf balance
sheet tQtal
EcQnQmic rountrv risk (excluding derivatives)6
924
242
7,105
9,704
17,974
3.2%
Risk mitigating cQmpQnents:
-JQcaLcurIency.expQsure
7
3,088
3,171
6,266
-..thiId,par.ty.£QVêIagfi..Qf,cauntry.Iisk
373
44
1,179
1,534
3,130
-..d£d.uctiQn„fQr,.transactians..with,.lQweiiisk
294
16
773
713
1,796
Net cQuntry risk before provisfons
250
182
2,064
4,286
6,783
1.2%
In Qf tQtal
provisions
TQtal provisfons fQr economic cQuntry risk
117
179
46
342
14.5%
Interest rate risk means that the bank's financial result and/Qr ecQnQmic value - given its
balance sheet structure - may decline as a result Qf unfavQurable develQpments in the
money and capital markets. RabQbank Group's activities create an interest rate expQsure.
This interest rate risk results mainly from mismatches between maturities Qf lQans and funds
attracted. If interest rates increase, the rate fQr the liabilities, such as depQsits, will be
adjusted immediately, whereas the interest rate fQr the greater part Qf the assets cannQt be
adjusted until later. Many assets, such as mortgages, have lQnger fixed-interest periQds and
the interest rates fQr these lQans cannQt be adjusted until the next interest rate reset date.
In additiQn, client behaviQur affects the interest rate expQsure. FQr example, clients may
repay their lQans before legal maturity Qr withdraw their savings earlier than expected.
Any resulting interest rate expQsure can be addressed by means Qf hedge transactiQns, thus
mitigating the tQtal interest rate expQsure by taking QppQsite pQsitiQns. The extent and
6 TQtal assets, plus guarantees issued and unused timing Qf hedging depend Qn, inter alia, the bank's interest rate visiQn and the expected
cQmmitted credit facilities. balance sheet develQpment.
78
RabQbank GrQup Annual RepQrt 2007
