Country risk
that Rabobank Group takes allowances at an early stage and applies the one-obligor principle,
which means that the exposure to all counterparties belonging to the same group is taken into
account. In addition, the full exposure to the client is qualified as impaired, even if adequate
coverage is available for part of the exposure in the form of security or collateral. At year-end
2010, impaired loans corresponded to 2.1% (2.3%) of the private sector loan portfolio.
Impaired loans and allowance for loan losses (in millions of euros)
31-Dec-10 31-Dec-09
Impaired loans
Allowances
Impaired loans
Allowances
Domestic retail banking
4,462
2,261
4,305
2,030
Wholesale banking and international
retail banking
2,999
1,130
3,559
2,029
Leasing
960
464
1,066
407
Real estate
793
95
295
45
Other
70
64
69
58
Rabobank Group
9,284
4,014
9,294
4,569
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 particular country cannot meet their
commitments for the same reason (e.g. war, political or social unrest, natural disasters, or
government policy that fails to create 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 set.
Transfer limits are introduced based on the net transfer risk, which is defined as total loans
granted less loans granted in local currency, guarantees, other coverage obtained to cover
transfer risk and a deduction related to the reduced weighting of specific products. The limits
are allocated to the offices, which are themselves responsible for day-to-day monitoring of
loans granted by them and for reporting on this to Group Risk Management.
At Rabobank Group level, the country risk outstanding, including the additional capital
requirements for transfer risk, is reported every quarter to the Balance Sheet and Risk
Management Committee Rabobank Nederland and the Country Limit Committee. Since
concerns about the euro are raised, the outstanding country risk, including the debtor risk
regarding the governments of relevant countries, has been reported on a monthly basis.
Special Basel II parameters, specifically EATE (Exposure At Transfer Event), PTE (Probability of
Transfer Event) and LGTE (Loss Given Transfer Event), are used to calculate the additional
ii Total assets, plus guarantees capital requirements for transfer risk. These calculations are made in accordance with internal
issued and surety bonds and unused guidelines and cover all countries where a transfer risk is relevant. At year-end 2010, the net
committed credit facilities. transfer risk before allowances for non-OECD countries was 1.4% (1.3%) of total assets.
Risk in non-OECD countries (in millions of euros)
31-Dec-10
In Latin In Asia/ In of balance
Regions In Europe In Africa America Pacific Total sheet total
Economic country risk (excluding derivatives)11 696 353 10,714 12,019 23,783 3,6%
Risk mitigating components,:
- local currency exposure 82 83 5,335 3,847 9,347
- third party coverage of country risk 102 117 915 2,219 3,352
- deduction for transactions with lower risk 53 3 805 927 1,788
Net country risk before provisions 460 150 3,659 5,026 9,295 1.4"o
In of total
provisions
Total provisions for economic country risk - - 173 93 266 6.6%
62
Annual Report 2010 Rabobank Group
