Economic capital
Capital requirements
in billions of euros
Other risks
Operational and business risk
Interest rate and market risk
Credit and transfer risk
Rabobank Group uses the Advanced Internal Ratings Based
Approach, which has been approved by the Dutch Central
40 Bank, to calculate the regulatory capital for credit risk for
35 virtually the entire loan portfolio. The standard approach is
30 still being applied, in dialogue with the Dutch Central Bank,
25 to portfolios with relatively limited exposure and to a few
20 smaller foreign portfolios that are not subject to the
is Advanced Internal Rating Approach. Operational risk is
io measured using the regulator-approved internal model
5 based on the Advanced Measurement Approach. Where
o market risk is concerned, Rabobank has been granted
■a -s -a permission to calculate the general and specific position
g g risk using its own internal Value-at-Risk (VaR) models, based
o on the rules of CAD (Capital Adequacy Directive) II. New risk
8 !i H weights have been implemented for securitisation exposures.
LU 01 Q
In addition, new internal models have been developed and
implemented for counterparty credit risk, Stressed VaR and
Incremental Risk Charge.
Economic capital
RAROC2 (in billions of euros)
2011
2010
31-Dec-11
31-Dec-10
Domestic retail banking
24.0%
23.8%
7.2
8.1
Wholesale banking and international retail banking
10.3%
10.1%
8.8
7.4
Asset management
7.4%
21.4%
0.3
0.8
Leasing
25.4%
18.3%
1.3
1.1
Real estate
2.4%
2.6%
1.7
1.6
Other (including associates)
-12.5%
-7.6%
3.6
3.2
Rabobank Group
11.8%
12.5%
22.8
22.3
Over and above the regulatory capital, Rabobank Group uses an internal capital requirement
based on an economic capital framework. The key difference with the regulatory capital is
that all material risks and Rabobank's credit rating are taken into account. Rabobank applies a
higher confidence level for economic capital (99.99%) than dictated by the regulatory capital
(99.90%). A broad spectrum of risks is measured consistently to gain a more complete
understanding of risks and to allow a more rational weighing of risk and return. A series of
models has been developed to weigh the risks incurred by Rabobank Group. These are credit,
2 The raroc ratio was calculated transfer, operational, business, interest rate and market risk. Market risk breaks down into
by relating net profit to the average trading book, private equity, currency, property and residual value risk. A separate risk model is
economic capital for the year. used for the participation in Achmea.
Economic capital by group entity
at year-end 2011
Wholesale banking and
international retail banking 38%
Domestic retail banking 32%
Real estate 7%
Leasing 6%
Asset management 1
Other 16%
Economic capital by category
at year-end 2011
Credit and transfer risk 67%
Operational risk and business risk 16%
Interest rate and market risk 10%
Other risks 7%
9
Financial developments
