actively further limited the risks of the activities in the financial markets in 2013. Various activities
in the financial markets remain necessary, however, for instance with a view to managing a
liquidity buffer, and they perform an essential function within Rabobank.These activities do not
just support the bank's customers but the entities of Rabobank Group as well.
Unexpected loan losses
Rabobank takes the costs of potential loan losses into account in its lending operations.
Assessments are also performed based on internal models, analyses and stress tests for losses
in less expected scenarios, the unforeseen losses.The remaining risk is that a highly negative
scenario unfolds in which the unforeseen loan losses prove to be higher than estimated.
This risk is partly mitigated by an effectively diversified business model and prudent lending
criteria. Forming buffers for unforeseen loan losses by strengthening the equity position and an
active policy for non-performing loans further reduce the risk of unforeseen loan losses.
Lack of access to sources of funding
Rabobank Group's access to the market for unsecured funding - i.e. the unsecured bond
market - is important for the bank and depends in part on its credit ratings. A downgrade or
an announcement of a potential downgrade in its credit ratings due to a changed outlook for
the financial sector or the bank itself, the sovereign rating, the rating methodology or another
change can adversely affect its access to sources of alternative funding and its competitive
position. This can lead to rising funding costs or requirements for additional security that can
have a material adverse impact on the earnings of a bank or financial institution. Another risk
in this connection is the risk of savings being withdrawn on demand. Savings can largely be
withdrawn on demand. Rabobank has a very comfortable liquidity buffer that limits the
above risk. A residual risk remains from withdrawals on demand. This can manifest itself as
a result of a change in the (perceived) solidity of the bank, reputation damage but also of
technological developments.
In addition to these specific residual risks in its core banking activities, Rabobank also identified
the following risks for the banking activities in 2013:
Business conditions and general economic conditions
The profitability of Rabobank Group could be adversely effected by a worsening of general
economic conditions in the Netherlands and/or globally. Banks are still facing persistent turmoil
in financial markets following the European sovereign debt crisis that arose in the first half of
2010 and has continued in 2013. Factors such as interest rates, exchange rates, inflation,
deflation, investor sentiment, the availability and cost of credit, the liquidity of the global
financial markets and the level and volatility of equity prices can significantly affect the activity
level of customers and the profitability of Rabobank Group. Also, a prolonged economic
downturn, or significantly higher interest rates for customers, could adversely affect the credit
quality of Rabobank Group's assets by increasing the risk that a greater number of its customers
would be unable to meet their obligations.
Effect of government policy and regulation
Rabobank Group's businesses and earnings can be affected by the fiscal or other policies and
other actions of various governmental and regulatory authorities in the Netherlands, the
European Union, the United States and elsewhere. A distinction can be drawn between on one
hand legislation and regulations with impact on the present form of the organisation and its
Fligh level of creditworthiness: risk management
