Credit risk
Leveraged finance
In EUR million
US RMBS-related
Monoline insurer rating
AAA AA
A and lower
Non US RMBS related AAA AA
A and lower
Counterparty risk
Principal before value
31-Dec-08 adjustments 31-Dec-08
2,051
1,322
Value adjustments
charged to profit
(before taxes) 2008
35.7,.,
Counterparty risk after
value adjustments
31-Dec-08
9.6.5.
3,003778.
2,651633
.1.
246
777
387
lota I
Generic value adjustments
Total value adjustments
Aftertax
7,705
2,733
604
400.
1,004
653
2,129
-400
1,729
Based on the positions at year-end 2008 as reflected in the table, a further downgrade to CCC of the
A or lower rated monoline insurers would have an impact on net profit of EUR 355 million, and the
defaulting of CCC rated monoline insurers would have an impact of EUR 64 million. The generic provision
formed is sufficient to counterbalance most of this potential impact.
As regards the exposures mentioned, an actual exposure to a monoline insurer would arise only in the
event of the investments actually defaulting and a claim having to be filed with the monoline insurers
under the insurance they issued. Actual losses would be incurred only if both the investment and the
monoline insurer concerned were to default.
The Rabobank International leveraged finance portfolio amounted to EUR 3.4 (3.2) billion at year-end
2008. It is a diversified portfolio consisting of a large number of relatively small positions, notably in
Dutch and other West European businesses. The primary focus of the leveraged finance activities is on
Rabobank clients and the food agri sector.
Credit policy
Credit risk is defined as the risk that a counterparty will be unable to meet its financial or other
contractual obligations. Rabobank Group has a robust framework of policies and processes in place
designed to measure, manage and mitigate credit risks.
Rabobank Group pursues a prudent policy for accepting new clients. As a result, the credit loan
portfolio has a relatively low risk profile. Approval of larger credit applications is decided on by
committees. A structure consisting of various committee levels has been established, with the amount
of the total exposure including the requested financing determining the applicable committee level.
The Executive Board itself decides on the largest financing applications.
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 whose management,
including its integrity and expertise, is known and considered acceptable by Rabobank Group. In
addition, the Rabobank Group is thoroughly familiar with the industry in which a client operates and
can adequately assess its clients'financial performance. Sustainability in business also means sustainable
financing; corporate social responsibility guidelines accordingly apply to the lending process as well.
Rabobank Group has three policy credit committees (PCCs): the Rabobank Group PCC and the PCCs
Wholesale and Retail. The Group policy as established by the Rabobank Group PCC constitutes
the framework for all Group entities. Within this framework, the Group entities define and operate their
own credit policies. In this context, the Retail PCC is responsible for domestic retail banking and the
Wholesale PCC for wholesale banking and international retail banking. In the Rabobank Group PCC,
which is chaired by the CFO, the Executive Board is represented by three members. The CFO also chairs
the Wholesale and Retail PCCs.
58
Rabobank Group Annual Report 2008
