Measuring liquidity risk
Several methods have been developed to measure and manage liquidity risk. Methods used
include the CA/CL (core assets/core liabilities) method. This analysis is based on the cash flow
schedule of all assets and liabilities. Using various time periods, a calculation is made of the
assets, unused facilities and liabilities that are likely to appear on the balance sheet after
running implied, carefully defined stress scenarios.These remaining assets and liabilities are
defined as core assets and liabilities. The ratio of core assets to core liabilities is the liquidity
ratio. Given the highly conservative weightings used, a ratio of less than 1.2 is considered
adequate. In 2010, this was once again the case in the scenarios used.The Dutch regulator also
provides extensive guidelines for measuring and reporting the liquidity position of Rabobank
Group. According to these guidelines, the liquidity is more than adequate, with available
liquidity exceeding the requirement by 40% on average.
Senior unsecured funding
by currency in 2010
Euro
47%
US dollar
22%
Pound Sterling
11%
Australian dollar
7%
Japanese yen
4%
Other
9%
Rating and funding
For many years, Rabobank has been awarded the highest possible ratings by leading rating
agencies such as Standard Poor's and Moody's. These ratings did not change in 2010. Fitch
also ranks Rabobank among the banks with the highest ratings. Although 2010 was a very
tense year on the capital markets, Rabobank Group once again managed
to raise a record amount of long-term funding. Long-term bonds
worth over EUR 40 billion were issued during 2010.
An amount of EUR 1.25 billion was raised by issuing innovative
Senior Contingent Notes; in addition, Rabo Extra Member Bonds
were issued for an amount of EUR 900 million. The maturity profile
of short-term funding was also lengthened at the wholesale
banking division. Outstanding asset-backed commercial paper
amounted to EUR 14.0 (15.3) billion at year-end 2010.
Providing information to investors and financiers
Rabobank attaches great importance to high-quality, transparent communication with
institutional investors and other financiers and providers of capital. The Investor Relations
department is responsible for supplying and explaining all relevant information requested
by investors. On a global level, presentations are used to inform institutional investors, other
financiers and providers of capital of financial developments at Rabobank Group. In addition,
the department provides information on developments at Rabobank Group to institutional
investors and providers of capital through a website set up specifically for this target group as
well as through an electronic newsletter. Activities in this area were stepped up following the
onset of the credit crunch because today, more than ever before, investors want to be certain
that Rabobank continues to have a low risk profile.
Market risk
Market risk concerns changes in the value of the trading portfolio as a result of movements
in market prices relating to interest rates, equities, credit spreads, currencies and certain
commodities, among other things. Within Rabobank Group, most of the exposure to this risk
is to be found at Rabobank International and Robeco. There are therefore specific market
risk departments 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 manage this
risk. At a consolidated level, market risk is measured using Value at Risk (VaR). This measure,
which is based on historical market developments for one year, indicates the maximum
loss that Rabobank Group can suffer, subject to a specific confidence level, under 'normal'
market conditions.
In order to weigh the risk of'abnormal' market conditions as well, the effects of certain
extreme events are calculated (event risk). To this end, both historical scenarios and hypothetical
scenarios are analysed. Sensitivity analyses are also used. In the year under review, the outcome
of these sensitivity analyses and stress tests did not exceed their set limit of EUR 150 million.
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Risk management