Contents Management report Corporate governance Consolidated financial statements Financial statements Pillar 3
Market risk in the trading environment
EDTF23 Market risk in the trading environment concerns
changes in the value of the trading books as a result of
factors including interest rates, credit spreads, foreign currencies
and equities.The trading books are located primarily in the
departments Markets and Treasury.
Risk management framework
An appropriate system of limits has been developed to
manage market risk. Each year the Executive Board, under the
supervision of the Supervisory Board, determines the total risk
appetite and the related limits.These limits are then translated
into limits at book level and monitored on a daily basis by the
market risk departments.
Risk measurement
edtf 24 At the consolidated level, the risk is represented by the
Value at Risk (VaR), interest rate delta and Event Risk.
TheVaR indicates, based on one year of historical market
movements, the maximum loss for a given confidence level and
horizon under 'normal' market conditions.
The daily management uses a confidence level of 97.5% and
a horizon of 1 day. Under this method, Value at Risk is calculated
on the basis of historical market movements and the positions
taken. In 2015, the VaR fluctuated between EUR 2.5 million and
EUR 8.7 million, the average being EUR 4.8 million.This means
that under normal circumstances, losses on any single day
can be expected not to exceed a maximum of EUR 8.7 million,
subject to a confidence level of 97.5%. The VaR amounted to
EUR 5.1 million as at year-end.
Value at Risk
in millions of euros
50
40
30
20
10
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Movements in the VaR were limited and mainly caused by
volatility on the financial markets, in particular in the first half of
2015. The VaR remained well within the internal 40 million euro
limit throughout the entire year.
The interest rate delta is a measure of the change in the value
of positions if there is a parallel increase in the yield curve of
1 basis point (i.e. 0.01 percentage point).The interest rate delta
table below shows the sensitivity to changes in the yield curves
for the major currencies. At the end of the year the interest
rate delta was 1.4 million euros negative.The interest rate delta
remained well within the set limit of EUR 2.5 million during the
reporting year.
Interest rate delta
in millions of euros
31-12-2015
Euro
(1.2)
US dollar
(0.4)
British pound
0.1
Other
0.1
Total
(1.4)
The event risk, which is measured by performing sensitivity
analyses and stress tests, was also well within the set limit of
EUR 200 million during the reporting year.
Interest rate risk in the banking environment
Rabobank considers transforming amounts and maturities
of money as a major source of earnings and economic value.
To meet the needs of its customers, the bank also offers options
and products including optionality.This exposes the bankto
interest rate risk in the banking environment. Interest rate risk is
the banking books is the risk that the earnings and/or economic
value of banking books, investment books and capital books
will be adversely affected by changes in interest rates on the
money and capital markets. Interest rate risk at Rabobank is
caused mainly by four factors:
Maturity mismatches between loans and funds
entrusted. Rabobank provides mortgages and commercial
loans with long fixed-interest terms. These mortgages and
loans are partly financed by customers' savings, customers'
current account balances and with funding provided by
professional money market and capital market players.
Quotation risk. The majority of homebuyers with
a mortgage proposal will pay the lowest of two rates: the rate
offered or the rate when the loan is drawn down;
Value at Risk by Group entity
in millions of euros
31-12-2015
31-12-2014
Markets
4.4
2.8
Treasury
1.0
1.1
Other
0.0
0.0
Diversification
(0.3)
(0.7)
Total
5.1
3.2
93 Risk management
