5.4 Capital ratios
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risks the bank is exposed to. By assuming a higher confidence
level (99.99%) than is used for regulatory capital (99.90%),
economic capital is generally more prudent than regulatory
capital.
A broad spectrum of risks is measured consistently to gain
an understanding of these risks and to enable a rational
assessment of risk against return. We use a series of models to
assess the risks incurred by Rabobank Group. These include
credit, transfer, operational, business, interest rate and market
risks. Market risk breaks down into trading book, private equity,
currency, real estate and residual value risks.
From 1 January 2017 the EC framework will be replaced with
a so-called Regulatory Capital Plus (RC+) framework. Reflecting
changing regulatory requirements and similar developments
in the industry, the new framework will be based on regulatory
capital, but it will reserve additional capital for those risks
where Rabobank takes a more conservative approach.
The Economic Capital decreased to 26.0 (2015: 26.7) billion.
The decrease was mainly due to the impairment of Achmea.
Figure 2: Economic Capital by risk category.
Economic capital by risk type
at year-end 2016
v
Credit and transfer risk 54%
H Operational and business risk 20%
H Interest rate and market risk 18%
Other risks 8%
Qualifying capital
The available qualifying capital of 52.9 (2015: 49.5) billion, the
bank retains to compensate for potential losses, was above the
level of the total external and internal capital requirements.
This buffer underlines the financial solidity of Rabobank Group.
Consolidated Financial Statements Company Financial Statements Pillar 3
The CRR and CRD IV jointly constitute the European
implementation of the Basel capital and liquidity agreement of
2010. CRR provides CET1 deductible items such as intangible
non-current assets, deferred tax assets and the Internal Ratings
Based (IRB) shortfall. These adjustments will be phased in
gradually during the period 2014-2018.
The fully loaded Common Equity Tier 1 ratio was 13.5% on
31 December 2016. Fully loaded is the CET1 ratio where based
on all CRR (CRD IV) regulation being fully applied. In line with
the regulatory requirements various adjustments in capital
will be phased in during the coming years in the CET1 capital.
Therefore, the current CET1-ratio is higher than the fully loaded
CET1-ratio.
The Tier 1 instruments that were issued by Rabobank before
2014 do not meet the new requirements of the CRR. For these
instruments, grandfathering is applicable. This means that
these instruments will, in line with the regulatory requirements,
gradually be phased out of equity. In 2016, the Tier 1 ratio
increased by 1.2 percentage points to 17.6% (16.4%), mainly
due to the issuance of the 1.25 billion CRR compliant
capital securities in April 2016 and the higher CET1 capital.
As a result of the issue of Tier 2 capital, the capital ratio rose by
0.9 percentage points to 25.0% (23.2%).
Table 7: Capital ratios.
Capital ratios
At
31 December
2016
At
1 January
2016
At
31 December
2015
Risk Weighted Exposure Amount
211,226
212,768
213,092
Total Common Equity Tier 1 capital
29,618
27,767
28,754
Total Tier 1 capital
37,079
33,629
35,052
Total qualifying capital
52,873
48,208
49,455
Common Equity Tier 1 ratio
14.0%
13.1%
13.5%
Tier 1 ratio
17.6%
15.8%
16.4%
Capital ratio
25.0%
22.7%
23.2%
edtf9 Rabobank's capital objectives are based on the CRR
(CRD IV) and bail-in legislation, peer group analyses and
market expectations. In setting these objectives, we have taken
into account the maximum Systemic Risk Buffer of 3% and
bail-in legislation from Europe. Rabobank has been designated as
a Dutch SIFI and not a global SIFI. DNB has imposed Rabobank
(and the other major Dutch banks) the maximum buffer of 3%.
This buffer will be phased in between 2016 and 2019.
319 5. Capital management