Contents Management report Corporate governance Consolidated financial statements Financial statements Pillar 3
Obligations to issue loans at a specific interest rate for a set period
are included among the lender's obligations.They are accounted
for as such, unless these obligations do not continue after the
period expected to be needed to carry out suitable acceptance
procedures. After that period they are treated as transactions
according to standard market conventions. Rabobank is exposed
to credit risk when it promises to grant lending facilities.The size
of such losses is less than the total of the unused commitments
because the promises to grant credit facilities are made subject
to the clients meeting certain conditions that apply to loans.
Rabobank monitors the term to expiry of credit promises because
long-term commitments are generally associated with a higher
risk than short-term commitments.
4.4.4 Forbearance
Rabobank has developed a policy for monitoring its clemency
portfolio every quarter. This portfolio consists of the customers
of Rabobank for whom forbearance measures have been put
in place.The measures under that name comprise concessions
to debtors facing or about to face difficulties in meeting their
financial commitments. A concession refers to either of the
following actions:
A modification of the previous terms and conditions of
a contract the debtor is unable to comply with due to its
financial difficulties ('bad debt') in order to allow for sufficient
debt serviceability. A modification that would not have been
granted had the debtor not been in financial difficulty.
A total or partial refinancing of a bad debt contract, which
would not have been granted had the debtor not been in
financial difficulty.
Examples include postponements of repayments and extensions
of the term of a facility. The rationale for the focus on this portfolio
derives from the concerns of European regulators about the
deterioration of the quality of the portfolio; it is feared that
forbearance measures might camouflage this deterioration of the
portfolio as debtors are able to meet their financial obligations for
longer periods as a result of the concessions. The identification of
forbearance measures for the corporate portfolio is based on the
current Loan Quality Classification framework, with forbearance
measures only applying to the classified portfolio. If forbearance
measures are applied to a debtor, the debtor falls, by definition,
under the supervision of the Special Asset Management
department. Lastly, items in the forbearance category must be
reported on for up to two years after their recovery from 'non-
performing'to 'performing'. This period of two years is referred to
as'Forborne under probation'.
4.4.5 Trends in the real estate portfolio
Rabobank's portfolio of commercial real estate in
the Netherlands is managed by FGH Bank and the local
Rabobanks.The commercial real estate market showed some
signs of recovery in 2015. The demand of real estate users for
offices and business premises increased slightly, although it
remains low from a historical perspective. The supply of empty
buildings is decreasing, both for offices and retail space. This is
not the result of an increased growth in demand, but is due
to a combination of two factors: extra initiatives to convert
vacant buildings; and low levels of new housing development.
However, rental prices are still under pressure in areas outside
core locations in large cities.This has led to an increasingly
visible demarcation between hopeless, disadvantaged and high
potential properties. Long term trends such as demographic
ageing, the 'New Way of Working'and online shopping are
all important factors in this development.The pressure on
retail property will continue for the coming years, in particular
causing difficulties for mid-market retail chains.This is in
contrast to the positive demand on the investment side, in
which there is significant activity from both domestic and
international investors. Low interest rates and limited returns
on other investment segments are stimulating investments
in real estate. All real estate segments are in demand among
investors. Under the current market conditions, the quality
of the commercial real estate portfolio is showing signs of
stabilisation, especially in the second half of the year, whereby
the aforementioned division in the market shows differences at
sub-sector level.
Within Rabobank Group, more attention has been paid to
the management of the commercial real estate portfolio in
the Netherlands. Steps have already been taken in recent
years to tighten the financing, revision and appraisal policies.
At the beginning of 2015, within the context of One Rabobank,
a vision that will see the bundling of Rabobank's activities to
create optimal customer service, it was disclosed that FGH Bank
would be integrated with Rabobank as a centre of expertise.
The preparations for this process are in full swing.
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.
272 Rabobank Annual Report 2015
