10. Liquidity risk
edtf is Liquidity risk is the risk that the bank will not be able to meet all of its (re)payment obligations on
time, as well as the risk that the bank will not be able to fund increases in assets at a reasonable
price, if at all. This could happen if, for instance, clients or professional counterparties suddenly
withdraw more funds than expected, which cannot be absorbed by the bank's cash resources, by
selling or pledging assets in the market or by borrowing funds from third parties. Maintaining sufficient
cash resources and retaining the confidence of both professional market parties and retail clients have
proved to be crucial in this respect over the past few years, as Rabobank kept good access to public
money and the capital markets.
7 0.7 Liquidity risk management framework
10.2 Risk measurement
Contents Management report Corporate governance Consolidated financial statements Financial statements
Liquidity risk is a major risk type at Rabobank, which has to
be managed carefully. Rabobank's policy is to finance non-
liquid assets with stable funding, i.e. customer deposits and
long-term wholesale funding. Responsibility for the day-
to-day management of the liquidity position, the raising of
professional funding on the money and capital market, and the
management of the structural position lies within theTreasury
department.
Liquidity risk management is based on three pillars. The first
pillar sets strict limits for the maximum cash outflow of
wholesale funding.The expected cash inflows and outflows
for the next twelve months are daily measured and reported.
Limits have been set for these cash outflows, per currency
and per location. Detailed plans (the contingency funding
plans) have been drawn up for contingency funding to ensure
the bank is prepared for potential crisis situations. Periodic
operational tests are performed for these plans.
A large and high quality buffer of liquid assets is maintained
as a second pillar.These liquid assets otherthan central bank
deposits can be used to be pledged to central banks, in repo
transactions or be sold directly in the market as to generate
liquidity immediately. The size and quality of the liquidity
buffer is aligned with the risk Rabobank is exposed to resulting
from its balance sheet. Additionally, Rabobank has (internally)
securitised a portion of the loan portfolio, which is pledged to
the central bank and can be used as backup source of liquidity.
As these are retained securitisations, they are not shown in the
consolidated balance sheet of Rabobank Group.
The third pillar for managing liquidity risk is to have good
credit ratings, high capital levels and a prudent funding
policy. Key elements of this policy are to have a balanced
diversification of funding sources by maturity, currency, investor,
geography and market, to have a very high level of unsecured
funding, and therefore a limited asset encumbrance and
an active and consistent investor relations policy.This helps to
ensure that Rabobank does not become overly dependent on
any single source of funding.
Liquidity position
edtf 18 Rabobank's liquidity buffer remained robust in 2015.
The total liquidity buffer at 31 December 2015
measured in 'High Quality Liquid Assets' (HQLA) was
98 (2014: 80) billion.The increase (in absolute terms) is
a consequence of the increase in central bank deposits.
Measured in terms of the 'Liquidity Coverage Ratio' (LCR) of
128% (2014:144%) and 'Net Stable Funding Ratio'(NSFR) of
116% (2014:115%), the liquidity position remained comfortably
above current and future limits. Moreover, the available liquidity
exceeded the minimum DNB requirement by an average of 23%
(2014:26%).
363 10. Liquidity risk