Interest rate risks are managed by Rabobank Group's Balance Sheet and Risk Management
Committee, which is chaired by the CFRO.The Central Treasury implements the decisions of this
Committee, while measurement and reporting are performed by Group Risk Management.
Rabobank's interest rate risks derive mainly from mortgage loans and business lending provided
with long fixed-interest periods. These loans are financed in part by savings operations, from the
credit balances held by customers in payment accounts and in current accounts and external
professional funding.
Interest rate risk at Rabobank originates in:
1maturity mismatches between loans and funds entrusted;
2. quotation risks, the lower of the rates offered in the proposal and the rate at the time the loan
is taken out is applied for homebuyers to whom a mortgage proposal has been made;
3. risks of early repayment, customers are not required to pay redemption penalty interest
in all cases;
4. withdrawal risks, this applies mainly for customers' credit balances in current accounts,
payment accounts and savings accounts.
Interest rate trends in 2013
Sentiment in the eurozone improved in 2013. Share prices on stock exchanges rose.
Swap interest rates also increased, partly because of the FED's announcement that it would
phase down the bond buying programme over time. In the end, a decision was taken in
December to initiate this as from January 2014. The ECB cut its official interest rate twice,
from 0.75% to 0.50% in May and from 0.50% to 0.25% in November.The ECB's policy is aimed
at continuing to keep interest rates low for a long time.
Interest rate risk in 2013
The interest rate risk position at the start of 2013 was already very low in historical terms, and
has remained low owing to developments in customer operations. Low levels of lending for
mortgages for homebuyers and for business lending in combination with developments within
funds entrusted have resulted in a stable or falling interest rate risk position. Movements in the
interest rate risk position in 2013 are discussed below by reference to two key indicators,
Income at Risk and Equity at Risk.
Risk appetite and developments relating to Income at Risk
The maximum acceptable potential interest income loss in the banking book - the Income at
Risk (latR) - was set at EUR 575 million for 2013 by the Executive Board.
latR is calculated on a monthly basis using a standard interest income sensitivity analysis.
This analysis depicts the effect on interest income of a gradual parallel interest decrease and
increase by 200 basis points in the next twelve months compared to a scenario with stable
market interest rates and fees and commission. Income at Risk is equal to the largest negative
impact on interest income. Rabobank's interest income was susceptible to a decrease in interest
rates for the whole of 2013. latR in 2013 peaked at EUR 54 million and closed 2013 at EUR 50
million. This low level was partly due to the internal assumption that interest rates cannot fall
below 0%.This meant that the assumed decrease was 10 basis points versus an assumed
decrease of 5 basis points at the end of 2012.
Risk appetite and developments relating to Equity at Risk
The Equity at Risk (EatR) or duration of equity expresses the percentage by which the economic
value of equity falls in the event of a parallel increase in the yield curve by 1%.The Executive Board
has set a lower limit of 0% and an upper limit of 10%.The Balance Sheet and Risk Management
Fligh level of creditworthiness: risk management
