Liquidity risk management
Several methods have been developed to measure and manage liquidity risk. Methods used include the
CA/CL method (Core Assets/Core Liabilities). This analysis is based on the cash flow schedule of all assets
and liabilities. Using various time periods, a quantification is made of the assets, unused facilities and
liabilities that will probably still be or appear on the balance sheet after assumed and closely defined
stress scenarios have occurred.These remaining assets and liabilities are referred to as core assets and
core liabilities, respectively, and their interrelationship is the liquidity ratio. Given the highly conservative
weightings used, a ratio below 1.2 is considered adequate. In 2008, this was again the case for the
scenarios used.
The Dutch supervisory authority also provides extensive guidelines for measuring and reporting the
liquidity position of Rabobank Group. Its liquidity position measured according to these guidelines is
more than adequate, with the available liquidity exceeding the requirement by 20% on average.
Rating and funding
For years now, Rabobank Group has enjoyed the highest rating by prominent rating agencies, including
Moody's and Standard Poor's, and these were reaffirmed late in 2008. Thanks to its high rating,
Rabobank Group has access to the money and capital market
even in difficult circumstances.
In 2008, more than EUR 20 billion in long-term
funding was raised in the international financial
markets. The need for long-term funding from
the capital market was mitigated by the large
inflow of savings in the retail banking business.
The dynamics on the financial markets also
ensured a large inflow of short-term funds from
the larger and more professional counterparties,
and Rabobank Group's triple A rating played a
major role in this. While the raising of long-term
funding is centralised within Rabobank Group, an
internal system of transfer pricing ensures that
costs are borne by the users.
Long-term funding
by currency in 2008
US dollar
37%
Euro
35%
Japanese yen
8%
Australian dollar
6%
Swiss franc
4%
Pound sterling
3%
Other
7%
Informing investors and capital providers
Rabobank also attaches great importance to good and transparent communications with institutional
investors and other professional financiers. The Investor Relations department informs this target group
about developments at Rabobank Group via a dedicated website and an electronic newsletter.
Further, this department is responsible for supplying and explaining all relevant information
requested by investors. In addition, institutional investors and other professional financiers are informed
through presentations about the financial developments at Rabobank Group. Since the onset of the
financial crisis, efforts in this field have been intensified because, more than ever before, investors want
to be convinced of Rabobank's low-risk profile.
Market risk
Market risk relates to changes in the value of the trading portfolio as a result of price movements in the
market. Value changes relate, inter alia, to interest rates, equities, credit spreads, 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 entities
that calculate and report market risk exposure on a daily basis. An appropriate system of limits has been
developed to control this risk. At a consolidated level, the exposure is measured by the 'Value at Risk'.
This measure, based on historic market developments for one year, indicates the maximum loss that
Rabobank Group can suffer subject to a certain confidence level and under'normal'market conditions.
In order to weigh the risks of'abnormal' market conditions as well, the effects of certain extreme events
- event risk - are calculated. To this end, both actual scenarios, e.g. the stock market crash of 1987, and
hypothetical scenarios, e.g. an assumed steep decline of all interest rates, are analysed. Sensitivity analyses
are also used. Limits have been set for these event risks, which, if exceeded, warrant management action.
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Rabobank Group Annual Report 2008
