Government exposure at year-end 2013
-
-
-
-
-
-
-
-
-
-
-
-
obtained to cover transfer risk and a deduction related to the reduced weighting of specific
products. The limits are allocated to the offices, which are themselves responsible for the
day-to-day monitoring of loans that have been granted and for reporting on this to Group Risk
Management. At the Rabobank Group level, the country risk outstanding, including the
additional capital requirement for transfer risk, is reported every quarter to the Rabobank Group
Balance Sheet and Risk Management Committee and the Country Limit Committee.
Since concerns about the euro increased, the outstanding country risk, including the sovereign
risk for relevant countries, has been reported on a monthly basis. Special Basel II parameters,
specifically EATE (Exposure atTransfer Event), PTE (Probability ofTransfer Event) and LGTE (Loss
Given Transfer Event), are used to calculate the additional capital requirement for transfer risk.
These calculations are made in accordance with internal guidelines and cover all countries
where transfer risk is relevant.
Rabobank Group's exposure to government bonds issued by Ireland, Italy and Spain was
EUR 174 (202) million at 31 December 2013.The exposure on bonds issued by banks in these
countries relates mainly to Spanish covered bonds backed by additional collateral provided by
the issuer.
Amounts 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 2013
Greece
42
42
8
Ireland
6
42
48
Italy
124
52
176
Portugal
Spain
44
1,390
1,434
6
Total
174
42
1,484
1,701
14
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 2013.
The effect on the result was very limited in 2013. Next to exposures to Dutch, German and
French government bonds, exposures to government bonds issued by other European
countries are very low in relative terms.
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 fluctuations in
money and capital market interest rates. Accepting a certain degree of interest rate risk is an
essential element of banking operations and can be a major source of income and value creation.
Within Rabobank, the Executive Board defines the risk appetite and the limits this entails for
the following risk measures: (1Equity at Risk, duration of equity, and (2) Income at Risk, an
interest rate sensitivity analysis, for which purposes a gradual interest increase or decrease
are respectively assumed for the next twelve months.
74 Annual Report 2013 Rabobank Group
