6.5 Country risk
Contents Foreword Management report Corporate governance
Consolidated Financial Statements
Company Financial Statements
Pillar 3
6.4.2 Commercial real estate
The commercial real estate market showed healthy signs
throughout 2016. Improving economic fundamentals like GDP-
growth and increasing employment led to more demand from
end-users, especially in logistic real estate and retail. The supply
of vacant buildings continues to decrease largely as a result of
transformation and conversions of vacant buildings. Also low
levels of new developments contribute to more balance in
the supply-demand ratios. In prime areas, a shortage of good
quality buildings rises and results in more demand for new
buildings. Rental prices remain under pressure in areas outside
the core locations of the large cities. The investment market
continues to show substantial activity, both from domestic and
international investors. Low interest rates and limited returns on
other investment segments are stimulating investments in real
estate. Most real estate segments are popular among investors.
Yields tighten at prime locations, but also non-core segments
can provide attractive returns.
Rabobank's commercial real estate portfolio in the Netherlands
was historically managed by FGH Bank and the local
Rabobanks. In 2015, it was announced that FGH Bank would
be integrated into Rabobank, consolidating all knowledge,
expertise and network in the field of commercial real estate
financing within both FGH Bank and Rabobank. In view of this,
In November 2016, Rabo Real Estate Finance was launched.
At EUR -28 million (EUR 164 million) in 2016, specific loan
impairment charges for the combined domestic Rabobank
commercial real estate portfolio were negative, confirming the
ongoing stabilization of the quality of the portfolio.
Nearly the entire commercial real estate portfolio outside
the Netherlands is provided by ACC Loan Management.
This portfolio is being gradually scaled down. In 2016 there was
a small release of the loan impairment allowance.
With respect to country risk, a distinction is made between
collective debtor risk and transfer risk. Collective debtor risk is
the risk that a large number of debtors in a particular country
will all be unable to fulfil their obligations owing to the same
cause, (e.g. war, political or social unrest, natural disasters, or
government policy that fails to create macro-economic and
financial stability). Transfer risk is the risk that payments in
non-local currency could in any way be hindered or prohibited
due to insufficient availability of non-local currency financial
resources (economic transfer risk), and/or to unwillingness of
the government (political transfer risk) to permit the non-local
currency outflow of financial resources.
Rabobank uses a country limit system to manage collective
debtor risk and transfer risk. After careful review, relevant
countries are given an internal country risk rating, after which,
general limits and transfer limits are set. Transfer limits are
introduced based on the net transfer risk, which is defined
as total loans granted less loans granted in local currency,
guarantees, other collateral obtained to cover transfer risk
and a deduction related to the reduced weighting of specific
products. The limits are allocated to the offices, which are
themselves responsible for the day-to-day monitoring of
loans that have been granted and for reporting on this to
Risk Management. At Rabobank Group level, the country
risk outstanding is reported every quarter to the Risk
Management Committee (RMC Group) and the Country Limit
Committee (CLC).
Special Basel II parameters, specifically EATE (Exposure at
Transfer Event), PTE (Probability of Transfer Event) and LGTE (Loss
Given Transfer Event), are used to calculate the additional
capital requirement for transfer risk. These calculations are made
in accordance with internal guidelines and cover all countries
where transfer risk is relevant.
Based on the concept of country of ultimate risk, the
collective debtor risk for non-industrial non-OECD countries
stood at 28.4 (2015:24.7) billion at year-end 2016. The net
ultimate transfer risk before allowances for these countries
amounted to 17.5 (2015:15.4) billion at year-end 2016, which
corresponds to 2.6% (2015: 2.3%) of total assets. Total assets
were 662.6 (2015: 678.8) billion. The total allowance for ultimate
country risk amounted to 471 (2015: 346), which corresponds to
6.2% (2015: 4.1%) of the total allowance of 7,542 (2015: 8,478).
337 6. Credit Risk