Contents Management report Corporate governance Consolidated financial statements Financial statements Pillar 3
4.3.1 Income at Risk
Income at risk is calculated once a month based on a standard
interest-rate-sensitivity analysis. This analysis shows the
main deviation, in a negative sense, of the projected interest
income over the next 12 months as a result of a scenario in
which all money market and capital market interest rates
gradually increase by 2 percentage points and of a scenario
in which all money market and capital market interest rates
gradually decrease by 2 percentage points.The projected
interest rate income is based on a scenario in which all
interest rates and other rates remain equal.Throughout the
whole of 2015, Rabobank's interest income was vulnerable
to a decrease in interest rates. On 31 December 2015, the
income at risk amounted to only EUR 19 million.This was
also the highest value measured in 2015.The income at risk
being so low is mainly due to the basic premise that interest
rates will no longer show a significant decline when they
are already (partially) in negative territory. For this reason, on
31 December, it was assumed that the euro interest rates would
only see a decline of a maximum 2 basis points instead of
a decline of 200 basis points. On 31 December 2014, a decline
of a maximum of 2 basis points was also implemented.
The effects on interest profit may be greater if not all interest
rates increase or decrease equally.
The low interest rate environment received extra attention
during 2015. For a bank in general a low interest rate
environment is challenging for the profitability. Obligations
without rate of interest, as the equity and current account
balances, are less profitable in the event of low interest rates.
In 2015 the interest rate was even negative on the short part
of the curve. In addition, a low interest environment is often
accompanied by a flattening of the curve resulting in that
a bank makes less profit on the transformation of short-time
obligations to longer term assets. Scenario analysis shows that
a further interest rate decline and flattening of the curve has
negative consequences for the interest income of especially the
retail business in case of unchanging margins. The impact of
this increases if this unique situation continues or if the curve
becomes more negative.
4.3.2 Equity at Risk
The equity at risk or duration of equity indicates by what
percentage the economic value of equity will fall if the money
market and capital market interest rates increase by one
percentage point.The Executive Board has set a lower limit
of 0% and an upper limit of 6% for this purpose. Additional
limits apply for the basis point sensitivity of equity and the
delta profile for equity. In 2015, equity at risk rose from 0.4% to
2.4%.This rise was mainly caused by an increase in the number
of mortgages, mortgage extensions and customers' shift in
preference towards longer fixed-interest periods.
Equity at Risk
31 December 31 December
2015 2014
2.4% 0.4%
4.4 Credit risk
Credit risk is the risk that a counterparty is unable to meet
a financial or other contractual obligation vis-a-vis the bank.
Credit risk is inherent to granting loans. Positions in tradeable
assets such as bonds and shares are also subject to credit risk.
Rabobank restricts its credit risk exposure by setting limits
for loans to an individual counterparty, or a group of
counterparties, as well as for loans to countries. The four-eyes
principle is a key factor when granting loans. A multi-level
committee structure is in place to make decisions on major loan
applications. The competent committee is chosen on the basis
of the size of the loan. Decisions on the largest loans are made
directly by the Executive Board.
The credit risk exposure relating to each individual borrower is
further restricted by the use of sub-limits to hedge amounts at
risk, not all of which are disclosed in the statement of financial
position, and the use of daily delivery risk limits for trading
items such as forward currency contracts. Most of the resulting
items are tested against the limits every day.
Once a loan has been granted, it is continually subject to credit
management as part of which new information, financial
and other, is reviewed.The credit limits are adjusted where
necessary. Rabobank obtains collateral or guarantees for the
majority of loans.
4.4.1 Maximum credit risk
The table below sets out the maximum credit risk to which
Rabobank is exposed on the reporting date in respect of the
various categories of risk, without taking into account any
collateral or other measures for restricting credit risk. It also
shows the financial effect of any collateral provided or other
types of credit risk reduction.
Income at Risk
31 December
31 December
in millions of euros
2015
2014
2 bp decline
2 bp decline
19
15
194 Rabobank Annual Report 2015
