savings products. In order to identify the potential impact on earnings caused by interest rate
changes, additional scenarios are worked out besides the two standard scenarios; these
additional scenarios include a yield curve steepening and flattening scenario. Rabobank Group
also calculates and maintains economic capital to cover interest rate risk and performs periodic
risk assessments in addition to the monthly interest sensitivity tests, in which process the
effects of one or more macro-economic scenarios on interest earnings are extrapolated.
BPV, EatR and latR were well within their set limits at group level in 2011. Rabobank Group's
BPV never exceeded EUR 25 million in 2011, with EatR ranging between 2.2% and 5.0% in the
year under review. latR stayed below EUR 384 million during 2011. This involved the scenario
whereby the yield curve shows a gradual decrease by 2 percentage points.The potential impact
of other types of changes in the yield curve, such as it steepening or flattening, did not cause
this amount to be exceeded either at year-end 2011The risk figures mentioned do not take
into account any changes in positions if the projected scenarios were to occur.
Funding and liquidity risk
Liquidity risk is the risk that a bank will not be able to fulfil all its payment and repayment
obligations on time, as well as the risk that it will at some time be unable to fund increases
in assets at a reasonable price, if at all. This situation might arise if clients or professional
counterparties suddenly withdraw more funds than expected, while at the same time, the
bank does not have sufficient cash resources, and no solution can be found in the form of
selling or lending assets or borrowing money from third parties. Maintaining sufficient cash
resources and retaining the confidence of both professional market parties and retail clients
have proved to be crucial in this respect. As a result over the past few years access to the
public money and capital markets was guaranteed.
Global Financial Markets, a Rabobank International division, is in charge of the day-to-day
management of the short-term liquidity position. Issuing long-term funding and managing
the structural position are responsibilities of Treasury Management, which reports to the CFO.
In line with the Basel principles, the policy is aimed at financing long-term loans by means of
stable funding, specifically amounts due to customers and long-term funding from the
professional markets. Rabobank Group's funding and liquidity risk policy also entails strictly
limiting outgoing cash flows within the wholesale banking business, by maintaining a large
liquidity buffer and by raising sufficient long-term funding in the international capital markets.
The international retail banking activities are considered to be largely self-funding by raising
money from customers.
Senior unsecured funding by currency
at year-end 2011
Euro
Pound Sterling
US dollar
Australian dollar
Japanese yen
Other
47%
16%
14%
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 2011this was once again the case in the scenarios used. Developments in the
second half of 2011 in particular fuelled an additional inflow of amounts due to customers,
specifically at the wholesale banking activities. These funds were used to further strengthen
the liquidity buffer. From the perspective of the liquidity
requirements of the Dutch Central Bank, our liquidity position
also qualifies as comfortable and our liquidity buffer as
sizable, with available liquidity exceeding the requirement by
40% on average. Our long-term funding activities were
successful too. Rabobank Group managed to issue EUR 42
billion in unsecured long-term bonds in 17 different
currencies. By operating on a global scale in this regard, we
prevent the bank from becoming too reliant on a single
source of funding. Equity was boosted by issuing hybrid
capital instruments for an amount of USD 4 billion in total.
50
Annual Report 2011 Rabobank Group
