Risk in non-OECD countries
Government exposure at year-end 2012 (in millions of euros)
Interest rate risk
in millions of euros
31 December 2012
Latin
Asia/
Regions
Europe
Africa
America
Pacific
Total
As of total assets
Economic country (exclusive of derivatives)15
913
542
9,685
13,425
24,565
3.3%
Risk-mitigating components:
- local currency
154
124
6,532
3,646
10,457
- third-party coverage of country
154
187
288
285
914
- deductions for transactions with lower risk
0
57
490
1,911
2,457
Net country risk before allowance
605
174
2,375
7,582
10,737
1.4%
As of total
allowance
Total allowance for economic country risk 2 0 172 141 315 8.2%
Rabobank Group's exposure to government bonds issued by Ireland and Italy was EUR 202
(260) million at 31 December 2012. Rabobank no longer holds any government bonds issued
by other GIIPS countries. The exposure on bonds issued by banks in GIIPS countries are mainly
Spanish covered bonds backed by additional collateral provided by the issuer.
State- Bonds issued Cumulative changes
Government guaranteed by financial through profit or loss at
Country bonds bonds institutions Total 31 December 2012
Greece - 24 - 24 47
Ireland 54 41 95
Italy 148 - 56 204
Portugal -
Spain - - 1,338 1,338 67
Total 202 24 1,435 1,661 114
Based on the accounting policies, it was established that impairment losses needed to be
recognised in respect of the Greek state-guaranteed bonds and some bonds issued by banks;
these positions have been impaired based on their fair market value at 31 December 2012.
The effect on earnings was very limited in 2012. Next to exposures to Dutch, German and
French government bonds, exposures to government bonds issued by other European
countries are very low.
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 fluctuations
in the yield curve. Rabobank Group's interest rate exposure results mainly from differences
between interest rate maturities of loans granted and amounts due to customers. If interest
rates fluctuate, it is usually 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 characteristics described in the contract,
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 movements in the statement of financial position, among other things.
Group entities have limited freedom to make their own choices within the set constraints.
15 Total assets, plus guarantees
issued and unused committed
credit facilities.
58 Annual Report 2012 Rabobank Group
