Contents Management report Corporate governance Consolidated financial statements Financial statements Pillar 3
Risk appetite and developments in relation to EatR and BPV
of the equity
In order to manage interest rate risk from the perspective of
economic value, Rabobank uses the EatR as main standard.
The EatR shows the percentage decline in the economic value
of equity if money and capital market interest rates rise by 1
percentage point. For 2015, the Executive Board set a lower
limit of 0% and an upper limit of 6%.
EatR
31-12-2015 31-12-2014
EatR 2.4% 0.4%
In 2015, the EatR increased from 0.4% to 2.4%.This rise was
mainly caused by an increase in the volume of new mortgages,
mortgage extensions and customers' shift in preference towards
longer fixed-interest periods.
In addition to the EatR, Rabobank uses the BPV or delta of
equity to control and manage interest rate risk from the
perspective of value. The BPV of equity shows the change in
the economic value of equity if all interest rates in the money
and capital markets were to rise by 1 basis point (or 0.01 of
a percentage point).The application of the delta profile is
designed to control and manage the risk of changes in the
shape of the yield curve from the perspective of value. For each
individual maturity, the delta profile represents the change
in the economic value of equity as a result ofa 1 -basis point
increase in the market interest rate for the maturity concerned.
In 2015, both the BPV of equity and the delta profile remained
within the limits set.
Risk appetite and developments with regard to latR
In order to manage the interest rate risk from the earnings
perspective, Rabobank uses the latR as main standard. The latR
is the largest negative deviation of the expected net interest
income in the next 12 months as a result ofa gradual rise in
all money and capital market interest rates in this period by 2
percentage points and of a gradual decline in all money and
capital markets interest rates in this period by 2 percentage
points. The limit for this measure was EUR 500 million in 2015.
The latR analysis does nottake account of active management
intervention, but it does take account of the changes in savings
behaviour of customers associated with this interest rate
development and of changes to the pricing policy for savings
products.
latR
Euro interest rates
Decline by
2 basis points
Decline by
2 basis points
31-12-2015
31-12-2014
latR in millions of euros
Throughout 2015, Rabobank's net interest income was
exposed to an interest rate decrease. On 31 December 2015,
the latR stood at EUR 19 million. This low level was mainly due
to the basic premise that interest rates will no longer show
a significant decline when they are already (partially) in negative
territory. For this reason, the assumed maximum decline in
Euro interest rates as of 31 December 2015 was 2 basis points
instead of 200 basis points. This assumption was the same as at
31 December 2014.
Currency risk in the banking environment
Currency risk is the risk that the bank's financial result and/
or economic value will be negatively affected by changes in
exchange rates.
Rabobank is exposed to the effect of fluctuations in exchange
rates on its financial position and cash flows. In the trading
environment, currency risk, like other market risks, is managed
on the basis ofValue at Risk (VaR) limits set by the Executive
Board. In the banking environment, there is a currency risk in
the banking books and a translation risk.
Currency risk in the banking books is the risk that manifests
itself at the moment receivables and liabilities are not covered,
due to which currency fluctuations may have a negative impact
on the financial results of the bank. The policy of Rabobank is to
fully hedge the currency risk in the banking books.
Translation risk becomes evident when the bank's consolidated
balance sheet and results are prepared, whereby all items in
foreign currencies must be valued in euros.This makes the
financial data sensitive to exchange rate fluctuations. Translation
risk manifests itself in two different ways within Rabobank:
Exchange rate fluctuations can potentially affect the value of
consolidated entities of which the functional currencies are
not euros.
Exchange rate fluctuations may affect the solvency ratios
of Rabobank as a result of differences in the exchange rate
composition of the capital and the risk-weighted assets.
95 Risk management
