Risk management principles
interest rate, market, liquidity, currency and operational risks, as well as for the credit risk
policy at portfolio level. Credit Risk Management is in charge of the policy for accepting new
clients in terms of credit risk at individual customer level. Moreover, within each group entity,
risk management is the responsibility of independent risk management departments.
Within Rabobank Group, an extensive system of limits and controls has been put in place to
manage risk. The primary objective of risk management is to protect Rabobank Group's
reputation and financial soundness. The following principles embed the risk policy
throughout Rabobank Group.
- Protecting Rabobank's financial robustness: risks need to be managed in order to limit the
impact of adverse potential events on equity and earnings. As risk appetite must be
proportional to available capital; it is defined annually. An internal framework has been
developed to quantify risks.
- Protecting Rabobank's reputation: reputation is of paramount importance in banking,
and it needs to be managed prudently.
- Risk transparency: identifying all risks is essential in order to obtain a good understanding
of Rabobank Group's exposures. Risks must be weighed as accurately as possible to enable
sound commercial decisions to be made.
- Management accountability: each division of Rabobank Group is individually accountable
for its results as well as for the risks associated with its operations. A balance must be struck
between risk and return, and this must of course comply with the relevant risk limits.
- Independent risk control: this is the structured process of identifying, measuring, monitoring
and reporting risk. In order to ensure integrity, the risk management departments operate
independently of the commercial activities.
Stress testing
At Rabobank, stress tests form an essential part of the risk management framework.
Stress tests are used to measure the impact of extreme, yet plausible events on Rabobank.
The stress scenarios that are expected to affect Rabobank most were reviewed in 2012.
In addition, DNB requested two stress tests to be performed in the second half of the year.
The first request related to Rabobank Group as a whole and the second to the Dutch
mortgage loan portfolio. The results of the two stress tests were submitted to DNB as part
of the Supervisory Review and Evaluation Process (SREP). In addition to the stress testing
activities at group level, a number of internal stress scenarios were also developed for the
bank's portfolios and sub-portfolios in the year under review. The results of the scenarios
were reported to, and discussed with, the Executive Board, the Supervisory Board and the
Audit, Compliance Risk Committee.
Risk appetite
Rabobank identifies and manages the risks it incurs on an ongoing basis. This has led to
a comprehensive risk management model, which starts from a risk management cycle
consisting of several steps: determining the risk appetite, preparing full-scope top-down
and bottom-up risk assessments for each group entity and for the Group as a whole, and
measuring and monitoring risks. As part of this, Rabobank follows a risk strategy that is
designed to ensure its continuity as a going concern and is aimed at protecting earnings,
maintaining sound balance sheet ratios and protecting its identity and reputation. Rabobank
revised its Strategic Framework in 2012, which resulted in the further development of the risk
appetite, among other things. In addition, the process of measuring and reporting the risk-
return profile was fleshed out, both at group and division level. This is the next step towards
the integration of risk into management information.
Risk appetite: external factors and key themes in 2012
The economic and political environment is the context in which Rabobank operates.
The volatility and uncertainty of economic developments greatly affects our operations.
Political factors play a major role in shaping solutions, especially when it comes to resolving
the debt crisis in the eurozone. European government finances are under stress and Rabobank
is suffering the consequences, not only directly, but indirectly too. Rabobank's risk management
is keyed into developments around us, which is why Rabobank focused on the following
topical issues in 2012: compliance, new regulatory requirements, (macro) economic
developments, sectors under threat and technological developments.
52 Annual Report 2012 Rabobank Group
