3 Rabobank Group solvency and
capital management
Contents Management report Corporate governance Consolidated financial statements Financial statements Pillar 3
and other post-employment benefits, provisions for loan losses
and other impairment and tax losses, and, in connection with
business combinations, the fair values of the net assets acquired
and their tax bases. Deferred income tax assets and liabilities
are measured at the tax rates that have been enacted or
substantively enacted on the reporting date.
Deferred tax assets are recognised to the extent that it is
probable that future taxable profits will be available, against
which the temporary differences can be utilised.
Provisions are formed in respect of taxable temporary
differences associated with investments in subsidiaries,
associates and interests in joint ventures, unless the timing of
the reversal of the temporary differences can be controlled and
it is probable that the temporary differences will not reverse in
the foreseeable future.
Taxes on profit are calculated in accordance with the tax
legislation ofthe relevant jurisdiction and recognised as
an expense in the period in which the profit is realised. The tax
effects of carrying forward unused tax losses are recognised
as an asset if it is probable that future taxable profits will be
available against which the losses can be utilised.
Deferred tax assets or deferred tax liabilities are included for the
revaluation of available-for-sale financial assets and cash flow
hedges that are directly taken to equity. Upon realisation, they
are recognised in the profit and loss account together with the
respective deferred gain or loss.
2.24 Due to banks, amounts due to customers and debt
securities in issue (including subordinated liabilities)
These borrowings are initially recognised at fair value i.e.
the issue price less directly allocable and non-recurring
transaction costs, and subsequently carried at amortised cost,
including transaction costs.
If Rabobank repurchases one of its own debt instruments, it
is de-recognised, with the difference between the carrying
amount of a liability and the consideration paid being
recognised in the profit and loss account.
2.25 Rabobank Certificates
The proceeds from the issue of Rabobank Certificates are
available to Rabobank Group in perpetuity and are subordinate
to all liabilities and to theTrust Preferred Securities and the
Capital Securities. As the payment of planned distributions is
fully discretionary, the proceeds from the issue of Rabobank
Certificates are recognised as equity. As a result of this, their
dividends are treated as part of equity.
2.26 Capital Securities
Capital Securities are recognised as 'Equity' because there is
no formal obligation to (re)pay the principal sum or to pay the
dividend.The dividends paid on these instruments are shown as
part of equity.
2.27 Financial guarantees
Financial guarantee contracts require the issuer to compensate
the holder for a loss the latter incurs because a specified debtor
fails to meet its obligations in accordance with the terms of
a debt security. Such financial guarantees are recognised the
first time at fair value and subsequently at the value ofthe
discounted obligation. Under the guarantee or the higher value
the first time, the amount is reduced by the already recognised
cumulative result to show the accounting principles for
the income.
The ratios that apply to Rabobank Group are set out below.
Rabobank aims to maintain a proper level of solvency. For this
purposea number of solvency ratios are utilised.The principal
ratios are the common equity tier 1 ratio (CET1), the tier 1 ratio,
the total capital ratio and the equity capital ratio. Rabobank
uses its own internal objectives that extend beyond the
minimum requirements ofthe supervisors. It takes market
expectations and developments in legislation and regulations
into account. Rabobank strives to be better than other financial
institutions. Rabobank manages its solvency position based on
policy documents. The solvency position and the objectives are
periodically on the agenda ofthe Risk Management Committee
and the Balance Management Committee ofthe Executive
Board and Supervisory Board.
The 'Capital Requirements Regulation (CRR)'and 'Capital
Requirements Directive IV (CRD IV)'together constitute the
European implementation ofthe Basel Capital and Liquidity
Accord of 2010.These rules, which became effective on
1 January 2014, are applied by Rabobank.
Rabobank must comply with a number of minimum solvency
positions as stipulated under law.The solvency position
is determined on the basis of ratios.These ratios compare
the qualifying capital (total capital ratio), the tier 1 capital
(tier 1 ratio) and thecorecapital (common equity tier 1 ratio)
ofthe bank with the total ofthe risk-adjusted assets.
268 Rabobank Annual Report 2015
