Value adjustments
At year-end 2011, the EAD weighted average PD of Rabobank Group's total performing
Advanced IRB loan portfolio stood at 1.06% (1.21%).The improvement in the PD was caused by
a change in the PD of existing debtors as well as by changes in the composition of the portfolio
(inflow and outflow of clients), the implementation of new models and policy changes.
It should be noted that this PD only reflects the extent to which the bank expects clients to be
able to fulfil their contractual obligations. The PD says nothing about the potential loss, as in
many cases Rabobank Group has obtained additional collateral. This is reflected in the LGD,
which also takes the possibility of restructuring into consideration. The LGD is the estimated
economic loss that will result if the debtor defaults, expressed as a percentage of the EAD.
At year-end 2011, the LGD percentage of Rabobank Group's total Advanced IRB portfolio was
22.0% (22.0%).
Impaired loans and allowance for loan losses
Once a loan has been granted, ongoing credit management takes place, as part of which new
information, both financial and non-financial, is assessed. The bank monitors whether the client
is fulfilling all its obligations and whether it can be expected that the client will continue to do
so in future. If not, credit management is stepped up, monitoring becomes more frequent, and
a closer eye is kept on credit terms. Guidance is provided by a special unit within Rabobank
Group, particularly in the case of larger, more complex loans granted to businesses whose
ability to continue as a going concern is at stake. If it is likely that the debtor will be unable
to fulfil all its contractual obligations to Rabobank Group, this is considered impairment.
If necessary, an allowance is formed that is charged to income.
The provision for loan losses consists of three components, as described below.
- The specific allowance is determined on an individual basis for impaired corporate loans
representing significant sums.This allowance is equal to the exposure to the client less the
discounted value of future cash inflows.
- The collective allowance is determined for impaired loans which individually are not
significant, i.e. primarily loans to private individuals and small businesses.The allowance is
set at portfolio level, using IFRS-adjusted Basel II parameters.
- The general allowance is determined for loans that are actually impaired at the balance sheet
date but have not yet been identified as such (IBNR: 'Incurred But Not Reported'). In this case,
too, IFRS-adjusted Basel II parameters are used to determine the amount of the allowance.
Any loans, amounts due from banks and loan-related obligations that have been provided for
qualify as impaired. At year-end 2011, this involved an amount of EUR 9,958 (8,049) million. The
allowance for loan losses stood at EUR 3,222 (2,779) million, which corresponds to a 32% (35%)
coverage. Over and above this allowance, additional coverage was raised through collateral
and other securities. It should be noted that Rabobank Group takes allowances at an early
stage and applies the one-obligor principle, which means that the exposure to the debtor and
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 2011, impaired loans corresponded
to 2.2% (1.8%) of the private sector loan portfolio.
in millions of euros
2011
2010
Domestic retail banking
648
358
Wholesale banking and international retail banking
686
597
Leasing
144
214
Real estate
129
63
Other
-1
2
Rabobank Group 1,606 1,234
46
Annual Report 2011 Rabobank Group
