-
-
-
-
Government exposure at year-end 2011 (in millions of euros)
Country
Government
bonds
State-
guaranteed
bonds
Bonds issued
by financial
institutions
Total
Cumulative changes
through profit or loss at
31 December 2011
Greece
49
38
87
227
Ireland
60
31
91
8
Italy
200
55
255
Portugal
19
60
42
121
23
Spain
21
23
1,450
1,494
116
Total
349
121
1,578
2,048
374
Based on our accounting policies, it has been established with respect to the Greek and
Portuguese government bonds and a number of bonds issued by financial institutions that
impairment losses need to be recognised; these positions have been impaired to their fair
market value at 31 December 2011. The average valuation of the Greek government bonds and
state-guaranteed bonds was 28% at year-end 2011Rabobank Group is currently exploring
different alternatives for its contribution to resolving the Greek debt crisis.
Exposure to European government bonds other than the Dutch, German and French is very
limited. There is no exposure to Cyprus, Hungary and Romania. The portfolio of French
government bonds was sharply reduced in 2011 to approximately EUR 6 (11) billion.
Interest rate risk
Interest rate risk is the risk that the bank's financial results and/or economic value - given the
structure of its statement of financial position - may be adversely affected by developments on
the money and capital markets. Rabobank Group's interest rate exposure results mainly from
differences between interest rate maturities of loans granted and funds entrusted. If interest
rates change, it is possible to adjust the rate for certain liabilities, such as deposits, immediately.
By contrast, 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, the
interest rate risk position is also affected by client behaviour. For example, clients may repay
loans ahead of schedule, or withdraw savings earlier than expected. A key component in the
management of interest rate risk is the treatment of variable savings. For these funds, the
behaviour differs from the contractual terms, which makes additional modelling necessary.
Where possible, Rabobank Group's interest rate risk is concentrated within treasury departments,
which manage the interest rate risk position using hedging transactions. The extent and timing
of any hedging is dependent on the view on future interest rates and the expected balance
sheet development, among other things. Group entities have limited freedom to make their
own choices within the set constraints.
Rabobank Group uses three key indicators for managing, controlling and limiting short and
long-term interest rate risk: Basis Point Value (BPV), Equity at Risk (EatR) and Income at Risk
(latR).These indicators measure potential losses due to interest rate changes on a monthly
basis. latR is a key interest rate risk indicator for the bank's short term earnings. BPV and EatR
are key interest rate risk indicators for economic value from a more longer-term perspective.
BPV is a measure of the absolute loss in market value of equity in the event of a 1-basis-point
increase across the yield curve. EatR measures the percentage decrease in the market value of
equity in the event of an increase in the yield curve by 1 percentage point. latR is a measure
that Rabobank uses to estimate the impact of the greatest negative variance with projected
interest income over the next 12 months in a scenario whereby the yield curve shows a gradual
increase by 2 percentage points over that period and a scenario whereby the yield curve shows
a gradual decrease by 2 percentage points. The scenarios do not consider active management
intervention, but they do allow for changes in the repayment and savings behaviours of
customers due to the interest rate developments and for changes in the pricing policy of
49
Strategic Framework High level of creditworthiness: risk management
