As regards the above exposures, an actual exposure to a monoline insurer would arise only in
the event of the relevant investments actually go into default and an insurance claim has to
be filed with the monoline insurer. Actual losses would be incurred only if both the investment
and the relevant monoline insurer are in default.
Monoline insurer rating
(in millions of euros)
Investment grade
Non-investment, grade
Principle
amount
31-Dec-2009
2,668
5,009
Counterparty risk before
provisions 31-Dec-2009
Total
provisions
31-Dec-09
1,138
Counterparty risk after
provisions 31 -Dec-09
12
171
12
1,309
1.321
Based on the positions at year-end 2009 as shown in the above table, any further downgrades
will only have a limited impact as provisions have been formed for most of the counterparty risk.
Leveraged finance
The leveraged finance portfolio of Rabobank International amounted to EUR 3.1 (3.4) billion
at year-end 2009. This portfolio is diversified and consists of a large number of relatively
small positions, notably in Dutch and other Western European businesses. Leveraged finance
activities focus primarily on Rabobank clients and the food and agri sector.
Interest rate risk
Interest rate risk means that Rabobank Group's financial result and/or economic value
- given the structure of its statement of financial position - may be affected by unfavourable
developments in the money and capital markets. Rabobank Group's interest rate exposure
results mainly from mismatches between maturities of loans granted and funds entrusted to it.
If interest rates fluctuate, the rate for certain liabilities, such as deposits, will be adjusted
immediately, whereas many assets, such as mortgages, have longer fixed-interest periods
and the interest rates for these loans cannot be adjusted until the next interest reset date.
In addition, client behaviour affects the interest rate exposure. For example, clients may repay
their loans prematurely or withdraw their savings earlier than expected. A key component in
the management of interest rate risk is the treatment of variable savings. For these funds,
reality may differ significantly from the contract terms, and this calls for additional modelling.
For example, as a result of fierce competition and other exceptional conditions in the financial
markets, client rates on savings were far higher last year than monetary and capital market
trends would lead one to expect under normal circumstances.This had a negative effect on
interest income.
Any resulting interest rate exposure can be addressed by means of hedge transactions.
The extent and timing of hedging depend, inter alia, on Rabobank Group's interest rate vision
and the expected movements in the statement of financial position.
Rabobank Group uses three indicators when managing, controlling and limiting interest
rate risk: Basis Point Value (BPV), Equity at Risk (EatR) and Income at Risk (latR). These measure
the loss that could result from changes in interest rates. The BPV is the absolute loss of market
value of equity in case of a parallel, one basis point, increase of the entire yield curve. The BPV
did not exceed EUR 26 million during 2009. The EatR indicates the percentage decrease in the
market value of equity in the event of a parallel increase of 1 percentage point of the yield
curve. The EatR did not exceed 6.6% during 2009.The latR represents, within a defined
confidence level, the maximum loss of interest income over the next twelve months in the
event of a sharp rise or fall in money market rates and capital market rates. The latR did not
exceed EUR 112 million during 2009. The maximum values of these indicators remained well
within set limits during the year under review. Further, economic capital is calculated and
maintained for interest rate risk purposes.
Each month, Rabobank Group performs complementary scenario analyses to assess its
sensitivity to strong increases and decreases in interest rates.
55
Risk management
