Country risk
Interest rate risk
Risk in non-OECD countries
(in millions of euros)
The loans for which an allowance has been taken are impaired loans and amounted to EUR 6,573 (3,470)
million at year-end 2008.The allowance for bad debts amounted to EUR 3,299 (2,355) million at year-end
2008, corresponding to a 50% (68%) coverage. It is to be noted that Rabobank Group takes allowances
at an early stage and applies the one-obligor principle, meaning that the exposure of all counterparties
belonging to the same group is taken into account. In addition, the full exposure vis-a-vis the client is
regarded as impaired, even if full coverage is available for part of it in the form of collateral. Impaired loans
as a percentage of private-sector lending amounted to 1.6% (1.0%) as at the end of 2008.
31-Dec-08
Regions
In Europe
In Africa
In Latin
America
In Asia/
Pacific
Total
In of balance
sheet total
Economic countrv risk (excludina derivatives)13
1.413
379
8.872
8.300
18,963
3.1%
Risk mitiaatina components:
- local currency exposure
91
68
3,894
2,313
6,366
- third party coverage of country risk
368
123
1,258
1,626
3,376
- deduction for transactions with lower risk
142
9
1,178
661.
1,990
Net country risk before provisions
812
179
2,541
3,700
7,232
1.2%
In of total
provisions
Total provisions for economic country risk
102
6
169
52
328.
9.9%
With respect to country risk a distinction is made between transfer risk and collective debtor risk.
Transfer risk relates to the possibility of foreign governments placing restrictions on funds transfers
from debtors in that country to creditors abroad. Collective debtor risk relates to the situation in which
a large number of debtors in a country cannot meet their commitments for the same reason (e.g. war,
political and social unrest, natural disasters, but also government policy that does not succeed in
creating macro-economic and financial stability). Rabobank Group uses a country limit system to
manage transfer risk and collective debtor risk. After careful review, relevant countries are given an
internal country risk rating, after which transfer limits and general limits are established.
Transfer limits are determined according to the net transfer risk, which is defined as total loans granted,
less loans granted in local currency, less guarantees and other collateral obtained to cover transfer risk,
and less a reduced weighting of specific products. The limits are allocated to the offices, which are
themselves responsible for day-to-day monitoring of the loans granted by them and for reporting on
this to Group Risk Management.
At Rabobank Group level, the country risk outstanding, including additional capital requirement and
provision for country risks, is reported every quarter to the Balance Sheet and Risk Management
Committee Rabobank Group (BRMC-RG) and the Country Limit Committee. The calculation of the
additional capital requirement and the provision for country risk is made in accordance with internal
guidelines, and concerns countries with a high transfer risk.
At 31 December 2008, the net transfer risk before provisions for non-OECD countries was 1.2% (1.2%)
of total assets.
Interest rate risk means that the Rabobank Group's financial result and/or economic value - given its
balance sheet structure - may decrease as a result of unfavourable developments in the money and
capital markets. Rabobank Group's activities create an interest rate exposure. This interest rate risk
results mainly from mismatches between maturities of loans granted and funds raised. If interest rates
13) Total assets, plus guarantees issued and unused committed credit facilities.
60
Rabobank Group Annual Report 2008
