6. Credit Risk
Credit risk is defined as the risk of the bank facing an economic loss because the bank's counterparties
cannot fulfil their contractual obligations.
Credit risk management within the bank is governed by the bank-wide central credit risk policy and
further detailed in underlying specific credit risk policies.The primary responsibility for managing and
monitoring credit risk lies with the business as the first line of defence.The business is required to
identify, assess and manage, monitor and report potential weaknesses in the credit risk portfolios in line
with the credit risk framework. Monitoring takes place on an ongoing basis to limit credit risk exposures
to a level in line with the business line's risk appetite.
In addition, risk in the credit portfolio is measured and monitored at bank-wide level and on entity level
on a monthly basis and by quarterly and ad-hoc portfolio reporting and analysis, with specific attention
for risk developments and concentrations.
6.1 Credit risk management
6.2 Credit risk measurement
Contents Management report Corporate governance Consolidated financial statements Financial statements
Credit committees and credit approval
Rabobank has various levels of credit committees. Very large
loans are approved by the Executive Board. Its judgement is
based on the advice of the Central Credit Committee Rabobank
Group. Most loans are subject to approval by a lower level
credit committee.The credit authority amounts are periodically
reviewed and are higher at each higher level of credit
committee. Entities have their own local credit committees
which are organised along the lines of the committees at the
central level. Their duties and responsibilities are clearly defined
in a charter. In general, the Local Credit Committee is chaired by
the general manager, with the head of credit risk management
as vice chairman. The charter also specifies the required
members and regulates the proper representation by front
office and credit risk management. Credit committee members
are appointed by the management of the entity based on
their position in the organisation, knowledge, experience and
management responsibilities. Rabobank considers it as a priority
that the credit committees are comprised of high level (senior)
management representation with a significant level of
experience in the respective credit area.
The credit committees play a key role in ensuring consistency
among Rabobank standards of credit analysis, compliance
with the overall Rabobank credit policy and consistent use of
the rating models. The credit policy sets the parameters and
remit of each committee, including the maximum amount
they are allowed to approve for limits or transactions. Policies
are also in place which restrict or prohibit certain counterparty
types or industries. As a rule, all counterparty limits and
internal ratings are reviewed once a year (corporate clients)
as a minimum. Where counterparties are assigned a low loan
quality classification they are reviewed on a more frequent
basis. Credit committees may request for more frequent reviews
as well.
Credit Risk Measurement Framework
Internal credit models are used to estimate PD, LGD and EAD
parameters. Rabobank uses different modelling methodologies
for the different portfolios. Ranging from statistical models to
expert-based models, taking into account quantitative and
qualitative risk drivers.The credit risk parameters are used in the
calculation of the capital requirements.
Decisions which determine the level of credit risk that is
accepted by Rabobank are not only based on quantitative
information or model output. Also practical and conceptual
limitations of metrics and models using a qualitative approach
including expert judgment and critical analysis are taken
into account.
326 Rabobank Annual Report 2015