5. Capital management
This chapter describes the capital management and Regulatory and Economic Capital requirements
of Rabobank. The CRR (CRD IV) framework defines capital requirements for banks as the absolute
minimum amount of capital required to cover the financial risks that a bank faces. For Pillar 1 this is
expressed in three major risk types: credit, operational and market risk.
5.1 Capital Management
Contents Foreword Management report Corporate governance Consolidated Financial Statements Company Financial Statements Pillar 3
The capital management framework supports the overall
strategy of Rabobank to maximise long-term risk-adjusted
returns on invested capital, guided by the following objectives:
1. A viable capital strategy in line with the overall business
strategy, risk strategy, and supply side constraints
2. A feasible mid-term capital plan including an optimal capital
allocation in line with risk appetite
3. Compliance with regulatory capital requirements and
alignment of capital projections with regulatory guidance
and expectation
4. Enabling risk-adjusted capital-based performance
management to support the achievement of capital
ratio targets
5. Enabling achievement of capital target ratios (a minimum
CET ratio of 14%, and a minimum Total Capital ratio of 25%) in
line with the capital strategy plan
6. Accurate measurement and reporting of capital usage
according to regulatory requirements and internal standards
7. Ongoing monitoring of capital limits and enforcement of
compliance if breaches occur
8. Ensuring optimal mix of available capital across the group in
light of regulatory requirements, capital market expectations
and capital costs
edtf 11 Capital risk appetite is set by the Board, reflecting the
Group's strategic plan, regulatory capital constraints
and market expectations. It is defined by a number of minimum
capital ratios in normal and stressed conditions.. Capital is
actively managed and regulatory ratios are a key factor in
Rabobank's planning process and stress analyses. The capital
plan is tested for capital adequacy using sensitivity analysis and
a range of stress scenarios covering adverse economic
conditions as well as other adverse factors that could impact
Rabobank. Rabobank maintains a Recovery Plan which sets out
a range of potential mitigating actions that could be taken in
response to a stress event.
The Executive Board has ultimate responsibility for ensuring that
Rabobank maintains the targeted minimum capital levels above
the minimum prudential capital levels as set by the European
Central Bank (ECB).
In the yearly Internal Capital Adequacy Assessment
Process (ICAAP), Rabobank assesses the capital adequacy
in the context of the current and foreseeable business and
environment where it operates in and the associated risk
exposures as part of the Supervisory Review and Evaluation
process.
edtf 10 The main differences are the regulatory and transitional
adjustments in qualifying capital following CRR, such as
intangibles, deferred tax assets, the Internal Ratings Based (IRB)
shortfall and the phasing out of non-eligible additional Tier 1
capital instruments. The Tier 2 subordinated debt is accounted
for as a liability under IFRS. Table 1 provides an overview of the
changes in the different qualifying capital components.
316 Rabobank Annual Report 2016