Contents Management report Corporate governance Consolidated financial statements Financial statements Pillar 3
The overview presented on the previous page, has been
composed on the basis of contractual information. No account
has been taken of the actual amount of the various balance
sheet items. This is taken into account for the day-to-day
management of the liquidity risk. Customer savings are
an example. Under contract, these are payable on demand.
Experience has shown that this is a very stable source of
long-term financing that Rabobank has at its disposal.
The regulations of the supervisory authority also factor this in.
On 31 December 2015, on the basis of the liquidity criteria set
by the Dutch Central Bank, Rabobank had a substantial liquidity
surplus.This was the case throughout 2015. The average
liquidity surplus was 23% (2014: 26%) ofthe total 1-month
liquidity requirement. On 31 December 2015, the surplus was
25% (2014: 23%).
The liquidity requirements to meet payments under financial
guarantees are considerably lower than the amount ofthe
liabilities because Rabobank does not generally expect that
third parties to such arrangements will draw funds.The total
outstanding amount in contractual obligations to provide credit
does not necessarily represent the future cash resource needs
of Rabobank because many of these obligations will lapse or
terminate without financing being required.
4.7 Market risk in the trading environment
'Market risk in the trading environment' refers to changes in the
value ofthe trading book as a result of, among other things,
changes in interest rates, credit spreads, foreign currencies
and share prices. Analyses ofthe market risk in the bank book
are included in Paragraph 4.3 interest-rate risk in the banking
environment'and Paragraph 4.5 'Currency risk in the banking
environment'.
At the consolidated level, the risk is represented by the Value at
Risk (VaR), basis point sensitivity and event risk.The Executive
Board annually ratifies the risk appetite and the corresponding
limits. These limits are converted into limits at book level
and are monitored daily by the market risk management
departments. In addition to the VaR, basis point sensitivity
and event risk limits, an extremely detailed system of trading
controls per book is in place, including rotation risk (i.e. risk that
the yield curve will shift), delta limits per bucket, nominal
limits and the maximum number of contracts. The risk position
is reported to the senior management on a daily basis and
discussed in the various risk management committees on
a monthly basis.
The VaR indicates, based on one year of historical market trends,
the maximum loss for a given reliability level and horizon
under 'normal' market conditions.The internal VaR model
forms an integral part ofthe risk management framework at
Rabobank.This internal model has also been approved by DNB
to determine the solvency requirement for market risk in the
trading book. Rabobank has opted to apply a VaR based on
historical simulation for which one year's worth of historic data
is used.The VaR is calculated overtime horizons of both one day
and ten days. For internal risk management purposes, Rabobank
has opted for a confidence level of 97.5%. Furthermore, the VaR
with a confidence level of 99% is also calculated on a daily basis.
A significant advantage of a VaR model based on historical
simulation is that no assumptions need to be made with
regard to the distribution of potential value adjustments for
the various financial instruments. A drawback is that a choice
needs to be made with regard to the period of historical
market trends which could potentially affect the amount of
the VaR as calculated. Based on the requirements imposed by
the regulator and following our own research, it was decided
to use an historical period of one year. Back testing is used in
order to test the actual outcomes on a regular basis in order
to determine the validity ofthe assumptions and parameters/
factors used in calculating the VaR.
The table below presents the composition of the VaR. The VaR
is divided into a number of components. A diversity advantage
is achieved in this case by the opposing positions of various
books which partially cancel each other out. The average VaR
rose from EUR 3.8 million in 2014 to EUR 4.8 million in 2015.
The VaR remained well within the limit of EUR 40 million
throughout 2015.
VaR (1 day97.5%)
in millions of euros
Interest
Credit
Currencies
Shares
Commodities
Diversification
Total
2015 -31 December
4.3
1.2
0.4
0.4
0.1
(1.3)
5.1
2015 - average
4.2
1.3
0.2
0.7
0.3
n/a
4.8
2015 - highest
8.0
2.0
0.6
1.0
0.7
n/a
8.7
2015 - lowest
2.5
0.7
0.1
0.2
0.2
n/a
2.5
2014-31 December
2.6
0.7
0.1
0.7
0.3
(1.2)
3.2
2014 - average
3.5
1.3
0.2
0.8
0.4
n/a
3.8
2014 - highest
15.6
7.2
0.9
1.1
0.9
n/a
22.5
2014- lowest
2.4
0.6
0.0
0.3
0.3
n/a
2.4
203 Notes to the consolidated financial statements
