Contents Management report Corporate governance Consolidated financial statements Financial statements Pillar 3
Risk management framework
Translation and currency risks on the bank's books are
controlled and managed applying the policy as described in
the Rabobank Group Foreign Exchange Risk Policy. The main
purpose of the introduction of this policy was to protect the
Common Equity Tier 1 ratio against negative effects of currency
volatility.
Group entities must hedge their open positions in currencies
other than their functional currency. Among other things, this
is done by concluding FX forward contracts or concluding
spot transactions combined with cross-currency swaps with
the trading desks within the trading environment. Within the
trading environment, these currency risks are managed within
the market risk limits for the trading books.
Liquidity risk
EDTF18 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, customers 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.
A comfortable liquidity position and retaining the confidence of
both professional market parties and retail customers have
proved to be crucial over the past few years. It ensured
unimpeded access to the public money and capital markets
for Rabobank.
Risk management framework
Rabobank has long recognised liquidity risk as a major risk
type.The policy is focused on financing liquid assets using
stable funding, i.e., funds entrusted by customers 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 with theTreasury
department.
Liquidity risk is managed on the basis of three pillars.The first
of these sets strict limits for the maximum outgoing cash flows
within the wholesale banking business. Among otherthings,
Rabobank measures and reports on a daily basis what incoming
and outgoing cash flows can be expected during the next
twelve months. Limits have been set for these outgoing cash
flows, including for each currency and each 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.
The second pillar is used to maintain a substantial high-quality
buffer of liquid assets. In addition to credit balances held
at central banks, these assets can be used to be pledged to
central banks, in repo transactions or to be sold directly in the
market as to generate liquidity immediately. The size of the
liquidity buffer is attuned to the risk Rabobank is exposed to
in its balance sheet. Besides, Rabobank Group has securitised
a portion of the loan portfolio internally, which means it
can be pledged from the central bank and therefore serves
as an additional liquidity buffer. Since these are retained
securitisations, they are not reflected in the company balance
sheet.
The third pillar for setting limits to the liquidity risk is a good
credit rating, high capital levels and prudent funding policies.
A balanced diversification of financing sources with respect
to maturity, currencies, investors, geography and markets,
a high degree of unsecured funding and therefore limited asset
encumbrance, and an active and consistent investor-relations
policy play a major role. This prevents Rabobank from becoming
overly dependent on a single source of funding.
Risk measurement
Liquidity position
edtf 18 Rabobank's liquidity position remained robust in 2015.
On 31 December 2015, the total liquidity buffer
measured in High Quality Liquid Assets (HQLA) was EUR 98 (2014:
EUR 80) billion.This increase (in absolute terms) is a result of
an increase in funds deposited with the central bank. Rabobank's
liquidity buffer, measured in terms of the 'Liquidity Coverage
Ratio' (LCR) at 128% (144%) and 'Net Stable Funding Ratio' (NSFR)
at 116% (115%), remained well above current (and future) limits.
Moreover, the available liquidity exceeded the minimum DNB
requirement by an average of 23% (26%).
96 Rabobank Annual Report 2015
