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Asset encumbrance
EDTF19 The encumbrance of assets is a standard element of a bank's business. An asset is to be treated
as 'encumbered' if it has been pledged or if it is subject to any form of arrangement to secure,
collateralize or credit enhance any transaction from which it cannot be freely withdrawn.
At year-end 2014, EUR 54 billion of Rabobank's balance sheet assets were encumbered.
This corresponds to 8.0% (7.4%) of the total balance sheet. The encumbered on-balance sheet
items were mainly due to the clearing of derivatives positions and funding-related transactions,
such as securitisations and asset backed commercial paper, for which loans are placed as
collateral. The proportion of encumbered assets compared to the bank's funded assets was
4.8% (4.4%) at year-end 2014.
In the event of a downgrade to Rabobank's credit rating, the bank could be required to provide
additional collateral. The table below shows the potential maximum outflow in the worst-case
scenario in the event of a of one, two or three notches downgrade.
31-Dec-14
in millions of euros
Funding
Derivatives
Other
Total
Rating downgrade
Total
funding
Of which
EIB funding
Of which
GIC
accounts
Total
derivatives
Of which swap
guarantees
internal
Of which swap
guarantees
external
Total other
Of which
letter of
credit
Of which
liquidity
facility
Cumulative
0 notch
245
76
245
1 notch
1,238
102
377
331
180
180
2,041
2 notch
1,765
1,109
1,096
970
57
900
328
497
5,802
3 notch
2,338
1,750
101
1
1
8,242
Total for 3 notches
5,587
1,750
1,287
1,574
970
388
1,081
509
497
8,242
These outflows are based on rating triggers that will be hit in the event of a credit rating
downgrade. In case rating triggers are agreed for several rating agencies, the amount for the
first rating to be hit is reported in this table. Short-term ratings are translated to their long-term
rating equivalents.
In this table a split has been made between funding transactions, derivatives and credit related
instruments. In this table, funding instruments are any kind of instrument that could lead to an
independent repayment obligation of Rabobank. Examples of funding instruments include, but
are not limited to: any kind of deposits, bonds, loans or wholesale funding. Two important
categories within the funding category presented here are funding from the European
Investment Bank (EIB) and Guaranteed Investment Contracts (GIC) accounts.
Derivative documentation can also contain rating triggers on Rabobank that could potentially
result in additional liquidity risk for Rabobank. This could apply on termination of a contract
(payment of the market value) or due to the placement of additional collateral as a result of a
downgrade. Swap guarantees constitute a specific product in the derivatives category, in which
Rabobank acts as the central counterparty in two opposing swap transactions. In this
transaction, one of Rabobank's counterparties is a SPV and the other counterparty in this swap
is the sponsor of the SPV. This table distinguishes between SPVs originated by Rabobank and
third party sponsored SPVs.
Rating triggers could also be included in credit related instruments or in a guarantee/letter of
credit, which means that the beneficiary of the guarantee, under certain conditions could
request payment under the guarantee upon a rating downgrade of Rabobank. In that case,
Rabobank has direct claim on the customer for whom the guarantee was provided. This initial
outflow is recognised under 'Other'.
102 Annual Report 2014 Rabobank Group
