Sustained exceptional interest rate movements
The bank's interest rate risks are managed by defining limits for potential losses of income or
value adjustments in equity in the event of interest rate shocks. Banks are currently in an
economic environment with historically low interest rate levels. Rabobank has opted to mitigate
the impact of a potential sharp rise in interest rates.
The risk is a sustained low level of interest rates. In addition, low interest rate levels generally
have an adverse impact on the profitability of interest rate-sensitive operations.
The residual risk consists of a sustained low level of interest rates in combination with a
relatively low interest rate risk that would put pressure on Rabobank's profitability. This is mainly
due to the impact on the result from Rabobank's interest rate business. In addition, low interest
rate levels generally have an adverse impact on the profitability of interest rate-sensitive
operations, since there is less potential for achieving a margin.
Sustained exceptional market developments
Rabobank is exposed to market risks that are monitored on a daily basis with strict limits based
on the Value at Risk (VaR) model that provides a risk measure for the potential losses, on
the basis of historical fluctuations. Despite the fact that extreme shocks and uncertainties
concerning historical losses are taken into account, sustained negative development of markets
remain a residual risk. This risk is mitigated by adjusting the market risk position.
Unexpected loan losses
Rabobank takes the costs of potential loan losses into account in its lending operations 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.
Lack of access to sources of funding
Since the loan portfolios of the Dutch banks are generally larger than the amount of savings
they can attract, they have to turn to the capital markets to fill this funding gap. It is therefore
important that Rabobank has good access to the capital markets. Rabobank raises funds via
unsecured funding - or the issuance of unsecured bonds - and via Rabobank Certificates,
which were publicly listed in 2014. A bank's access to the capital markets depends in part on its
credit ratings and reputation.
Access to sources of alternative funding and a deterioration in our competitive position may be
caused by an actual or potential downgrade of our credit rating due to a changed outlook for
the financial sector or the bank itself, the creditworthiness of the country in which the bank is
located, the rating methodology or another change.
Distribution of dividend to certificate holders and other capital providers is essential for the
protection of the reputation of and confidence in Rabobank. If it were impossible to provide
this distribution, this could lead to rising funding costs or the provision of collateral and could
have a material adverse impact on the earnings of Rabobank.
In addition to the above-mentioned specific residual risks in its core banking activities,
Rabobank also identified the following risks:
Rock-solid bank: risk management
