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 the Risk
Management department. At the Rabobank Group level, the country risk outstanding, including
the additional capital requirement for transfer risk, is reported every quarter to the BRMC-RG
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 has conducted an extremely restrictive country risk policy with respect to Russia
since early 2014. Monitoring has now been intensified. At year-end 2014, there was EUR 0.7
billion outstanding, which relates primarily to trade financing of Russian exports and, to a lesser
degree, leasing. Rabobank considers the risk position on Russia to be acceptable.
Market risk
Market risk is the risk that the bank's earnings and/or economic value may be negatively
affected by changes in interest rates or market prices. Exposure to a certain degree of market
risk is inherent in banking and creates the opportunity to realise profit and value.
In the management and monitoring of market risk, a distinction is made between market risk in
the trading environment and market risk in the banking environment. The various market risks
are discussed in the sections below.
Section
Description
Key risk indicators
Monitoring
Market risk trading
environment
Market risk arising from the bank's trading
activities. Rabobank's trading activities are
customer driven or for the purpose of the
bank's own balance sheet management and
take place within the departments Markets
and Treasury.
Value at Risk,
event risk,
basis point value
Daily
Interest rate risk
banking
environment
Interest rate risk arising from the bank's
activities not related to trading. Occurs mainly
within the retail banking business as a result of
the difference in interest periods between
assets and liabilities and implicit options in
various customer products.
Equity at Risk,
Income at Risk,
basis point sensitivity
Weekly/ Monthly
Currency risk
banking
environment
Currency risk arising from the bank's activities
not related to trading. This mainly concerns
translation risk resulting from capital invested
in foreign operations.
Value at Risk
Monthly
EDTF 22 A large part of the structural interest rate and currency risks arising from the banking activities
are transferred through internal derivative transactions to the trading environment. Within the
trading environment these risks are for the most part hedged in the market.
It is not possible to make a direct link between the items on the bank's balance sheet and
the various figures for market risk. This is because the bank's balance sheet only contains
transactions with third parties. The published market risk figures for the trading books are based
on both transactions with third parties and transactions with internal parties in the banking
environment.The same applies to the disclosed interest rate and currency risk figures for the
banking books, which are based on both transactions with third parties and transactions with
internal parties in the trading environment.
93 Rock-solid bank: risk management
