Committee applies additional limits for the basis point sensitivity of equity and the delta profile
for equity. Incurring risks on interest rate movements is essential to banking operations, which
inherently mean that a portion of interest income is achieved by consciously incurring interest
rate risk and profiting from interest rate differentials between maturities.
Equity at Risk increased from 1.4% to 2.3% in the course of 2013.There has been hardly any
increase of the interest rate risk position from lending operations. The reason is the low level
of new mortgages and business lending in combination with an increase in the volume of
tax-privileged blocked savings accounts with long fixed-interest periods. The interest rate risk
position was also actively managed to a limited extent. In addition, the equity level required to
absorb unexpected interest rate shocks is calculated on the basis of historical interest rate
scenarios and expert-based scenarios derived from them.
Funding and liquidity risk
EDTF recommendation 21 Liquidity risk is the risk that a bank will not be able to fulfil all its payment and repayment
obligations on time, as well as the risk that it will at some time be unable to fund increases
in assets at a reasonable price, if at all. This situation might arise if clients or professional
counterparties suddenly withdraw more funds than expected, the bank does not have
sufficient cash resources, and no solution can be found in the form of selling or leasing assets
or borrowing money from third parties. Maintaining sufficient cash resources and retaining the
confidence of both professional market parties and retail clients have proved to be crucial in
this respect over the past few years as access to the public money and capital markets was
guaranteed as a result.
Risk management framework
EDTF recommendation 21 Liquidity risk has long been recognised as a major type of risk by Rabobank. In line with CRDIV,
policy is aimed at financing long-term lending with stable funding, i.e. funds entrusted by
customers and long-term funding provided by the professional markets. Responsibility for the
day-to-day management of the liquidity position, the raising of professional funding in the
money market and the capital market, and the management of the structural position lies with
Rabobank Group's Treasury department, which reports to the CFRO.
Liquidity risk management is based on three pillars. The first pillar sets strict limits for the
maximum cash outflow within the wholesale banking division. This includes daily measurement
and reporting of expected cash inflows and outflows for the next twelve months. Limits have
been set for these cash outflows, per currency and per location. Detailed plans have been drawn
up for contingency funding to be prepared for possible crisis situations. Periodic operational
tests are performed for these plans. An operational test of the Rabobank Group contingency
funding took place in 2013.
An extensive buffer of liquid assets is maintained as a second pillar. In addition to the credit
balances held at central banks, these assets can be used as security for loans with central banks,
in repo transactions or to be sold directly in the market so as to generate liquidities immediately.
The amount of the liquidity buffer is correlated to the risk incurred by Rabobank in its balance
sheet. In the past few years, Rabobank Group has (internally) securitised a portion of the loan
portfolio, which can therefore be used as security for loans with the central bank and accordingly
acts as an extra liquidity buffer. As these are internal securitisations for liquidity purposes only,
they are not shown in the balance sheet for financial reporting purposes but they do count
towards the liquidity buffer in place.
76 Annual Report 2013 Rabobank Group
