Contents Management report Corporate governance Consolidated financial statements Financial statements Pillar 3
comply with obligations due to the same reason. For example
war, natural disasters, political or social unrest but also
government policy that does not allow for macro-economic
and financial stability to be realised.
Transfer risk relates to the possibility of foreign governments
placing restrictions on fund transfers from debtors in their own
country to creditors in other countries. Rabobank uses a country
limit system to manage collective debtor risk and transfer risk.
After careful review, relevant countries are given an internal
country risk rating, after which general limits and transfer limits
are set. The transfer limits are set at the so-called net transfer
risk. This is equivalent to the total loans granted less loans
granted in local currency, guarantees, other collateral obtained
to cover transfer risk and a deduction related to the reduced
weighting of specific products. The limits are allocated to the
offices, which are themselves responsible for the day- to-day
monitoring of loans that have been granted and for reporting
on this to the Risk Management department. At Rabobank
Group level, the country risk outstanding is reported every
quarter to the RMC Group and to the Country Limit Committee.
Since concerns about the euro increased, the outstanding
country risk, including the sovereign risk for relevant countries,
has been reported on a monthly basis. Special Basel II
parameters, specifically EATE (Exposure atTransfer Event), PTE
(Probability ofTransfer Event) and LGTE (Loss Given Transfer
Event), are used to calculate the additional capital requirement
fortransfer risk.These calculations are made in accordance with
internal guidelines and cover all countries where transfer risk
is relevant.
Market risk
Market risk is the risk that the bank's earnings and/or economic
value may be negatively affected by changes in interest rates
or market prices. Exposure to a certain degree of market risk is
inherent in banking and creates the opportunity to realise profit
and value.
In the management and monitoring of market risk, a distinction
is made between market risk in the trading environment and
market risk in the banking environment.The various market
risks are discussed in the sections below.
edtf 22 A large part of the structural interest rate and currency
risks arising from the banking activities are transferred
through internal derivative transactions to the trading
environment. Within the trading environment these risks are for
the most part hedged in the market.
It is not possible to make a direct link between the items on
the bank's balance sheet and the various figures for market
risk.This is because the bank's balance sheet only contains
transactions with third parties. The published market risk figures
for the trading books are based on both transactions with third
parties and transactions with internal parties in the banking
environment.The same applies for the published interest and
currency risk figures for the books in the banking environment.
These are based on both transactions with third parties and
transactions with internal parties in the banking environment.
Paragraph Description Most important risk indicators Monitoring
Market risk trading
environment
Market risk arising from the bank's trading activities. The trading
activities are customer-focused or for the bank's balance sheet
management and take place at the Markets and Treasury departments.
Value at Risk, Event Risk, interest
rate delta
Daily
Interest rate
risk banking
environment
Interest risk arising from the bank's non-trading activities. Mainly in the
Retail banking business because of the difference in interest typical
term between assets and liabilities and implicit options in various
customer products.
Equity at Risk, Income at Risk, Basis
point sensitivity
Weekly/Monthly
Currency
risk banking
environment
Currency risk arising from the bank's non-trading activities. In particular
translation risk that is run on capital invested in foreign activities.
Value at Risk
Monthly
92 Rabobank Annual Report 2015
