Contents Management report Corporate governance Consolidated financial statements Financial statements Pillar 3
Gross non- Loan
Net loan performing impairment
in millions of euros portfolio loans Provisions charges Write-downs
On 31 December 2014
Investment property of domestic retail banking business 8,586 1,509 673 249 152
Investment property of property segment 15,099 3,394 1,098 544 333
Total investment property 23,685 4,903 1,771 793 485
Property development of domestic retail banking business 1,062 586 342 23 26
Property development of property segment 1,211 146 43 8 2
Total property development 2,273 732 385 31 28
*The table above only presents the specific costs of credit losses and specific provisions.
In recent years, the developments in the market caused
a significant deterioration in the quality of the portfolio, which is
reflected in the increased level of costs for credit losses. The year
2015 has been characterised by a clear bifurcation of the
portfolio. On the one hand, the increased interest from investors
has caused some sub-markets to bottom out or to even show
signs of recovery. The provisions already made in respect of this
part of the portfolio proved to be adequate. On the other hand,
structural problems in other sub-markets has caused continuing
higher costs for credit losses.
Nearly the entire real estate portfolio outside the Netherlands
is provided by ACC Loan Management. This portfolio is being
gradually scaled down. In 2015, the additional allocations to
the provision for credit losses for this portfolio were limited
(EUR 40 million). Rabobank expects to make a few further
provisions in 2016, albeit at a lower level than in previous years.
4.5 Currency risk in the banking environment
Currency risk is the risk that the bank's financial result and/
or economic value will be negatively affected by changes in
exchange rates.
Rabobank is exposed to the effect of fluctuations in exchange
rates on its financial position and cash flows. In the trading
environment, currency risk, like other market risks, is managed
on the basis ofValue at Risk (VaR) limits set by the Executive
Board. In the banking environment, there is a currency risk in
the banking books and a translation risk.
Currency risk in the banking books is the risk that manifests
itself at the moment receivables and liabilities are not covered,
due to which currency fluctuations may have a negative impact
on the financial results of the bank. Rabobank's policy is to fully
hedge the material currency risk on the banking books.
Translation risk becomes evident when the bank's consolidated
balance sheet and results are prepared, whereby all items in
foreign currencies must be valued in euros.This makes the
financial data sensitive to exchange rate fluctuations. Translation
risk manifests itself in two different ways within Rabobank:
Exchange rate fluctuations can potentially affect the value of
consolidated entities of which the functional currencies are
not euros.
Exchange rate fluctuations may affect the solvency ratios
of Rabobank as a result of differences in the exchange rate
composition of the capital and the risk-weighted assets.
Translation risk and currency risks in the banking books are
monitored and managed on the basis of a policy which serves
the prime purpose of protecting the Common Equity Tier 1 ratio
against the adverse effects of exchange rate volatility.
4.6 Liquidity risk
Rabobank is exposed to liquidity risk i.e. the risk that the bank is
unable to meet all of its (re)payment obligations in good time,
as well as the risk that the bank is unable to (re)finance assets
at reasonable prices or at all. This could happen if clients or
professional counterparties suddenly withdraw more funds than
expected, which cannot be met by the bank's cash resources
and when selling or pledging assets or borrowing funds from
third parties also provides no solution.
Rabobank has long recognised liquidity risk as a major risk
type. Rabobank therefore has a policy whereby the term of
the funding matches the term of the loans granted. Long-term
loans must be financed through funds entrusted by customers
or long-term funding through professional markets.
Liquidity risk is managed on the basis of three pillars.The first
of these pillars sets strict limits for the outgoing cash flows
within the wholesale banking business. Among otherthings,
Rabobank measures and reports on a daily basis what incoming
and outgoing cash flows can be expected during the first
twelve months. A limit framework applies here too. In order to
be prepared for potential crisis situations, a number of detailed
contingency funding plans (CFPs) are in place. These CFPs are
included in the internal test procedures.
The second pillar is used to maintain a substantial buffer of
liquid assets. In addition to the funds held at central banks,
200 Rabobank Annual Report 2015
