Contents Management report Corporate governance Consolidated financial statements Financial statements Pillar 3
In external reports Rabobank focuses on non-performing loans.
These meet at least one of the following criteria:
They are material loans in arrears by more than 90 days.
The debtor is assessed as unlikely to pay its credit obligations
in full without realisation of collateral, regardless of the
existence of any past due amount or the number of days
past due.
Rabobank has developed a policy for monitoring its forbearance
portfolio on a quarterly basis. Forbearance can be understood
to mean 'clemency' or 'respite'. The forbearance portfolio
consists of Rabobank customers for whom such measures were
taken.The measures underthat name comprise concessions
to debtors with (imminent) financial problems. A concession
concerns one of the following actions:
A change to the originally agreed conditions for a loan
as an adequate solution as a result of financial problems
affecting the debtor ('problem loans').These solutions
or changes would not be applied if the debtor was not
experiencing financial difficulties.
A full or partial restructuring of the funding of a problem loan
which would not have been offered if the debtor had not
been experiencing financial difficulties.
The rationale for the monitoring of this part of the portfolio lies
in the concerns of the European regulators on the deterioration
of the quality of the portfolio. Forbearance measures would be
able to camouflage this deterioration of the portfolio because
thanks to the concession debtors can meet their financial
obligations for longer.
CRR (CRD IV) compliance
For the most part Rabobank uses the Advanced IRB approach in
its loan portfolio to calculate its regulatory capital requirements
in accordance with CRR (CRD IV). This is the most sensitive form
of the CRR (CRD IV) credit risk approaches and also means that
Rabobank uses internal rating models. Rabobank combines
CRR (CRD IV) compliance with an internal economic capital
framework. This working manner comprises the most important
risk components for internal risk management and for risk
management processes.The most important advantages are
a more efficient loan approval process, improved internal credit
risk monitoring and reporting and the use of economic capital.
Another important aspect of the credit application is the Risk
Adjusted Return on Capital (RAROC).This facilitates better
decisions on credit applications.The Advanced IRB approach
uses the Probability of Default (PD), Loss Given Default (LGD)
and the Exposure at Default (EAD).
The EAD is the bank's expected exposure at the time
a counterparty would default. At year-end 2015, the EAD of
Rabobank's total Advanced IRB loan portfolio was EUR 594 (582)
billion.This EAD includes the expected future usage of unused
credit lines.
At year-end 2015, the EAD weighted average PD of Rabobank's
total performing Advanced IRB loan portfolio stood at
0.98% (1.05%).The slightly improved PD was caused by
a change in the PD of existing debtors as well as by changes in
the composition of the portfolio (inflow and outflow of clients)
and the implementation of new models and policy changes.
The PD reflects the extent to which customers are expected
to be able to meet their obligations. The PD does not provide
any indication as to the potential losses, because Rabobank
has in many cases secured additional collateral.This additional
collateral is reflected in the LGD, which also takes the possibility
of restructuring into consideration. The LGD is the estimated
economic loss that will result if the debtor defaults, expressed
as a percentage of the EAD. At year-end 2015, the LGD
percentage of Rabobank's total Advanced IRB portfolio was
25.0% (23.2%).
Loan impairment charges and loan impairment allowances
After a loan has been granted, continuous credit management
takes place. New financial and non-financial information is
assessed. The bank ascertains whether the client complies
with the agreement made and whether it can be expected
that this will be the case in the future. If this is expected not
to be the case, credit management is stepped up, monitoring
becomes more frequent, and a closer eye is kept on credit
terms. Guidance is provided by a special department at
Rabobank if the business continuity is compromised for larger
and more complex loans: Special Asset Management. If it is
likely that a debtor will be unable to pay the amounts owed
to Rabobank in accordance with the contractual obligations,
this will give rise to an impairment (impaired loan). In addition
to the process of timely establishment of impairment in 2015
so-called impairment triggers were introduced bank-wide.
If necessary, an allowance is formed that is charged to income.
The allowance for loan losses consists of three components, as
described below:
The specific allowance is determined on an individual basis
for impaired corporate loans representing significant sums.
This allowance is equal to the exposure to the customer less
the cash value of future cash flows to be received (including
any selling off of collateral). Any specific provision with
an impact of 7.5 million euros or more on the results account
is dealt with by the Provisions committee.
88 Rabobank Annual Report 2015
