Contents Foreword Management report Corporate governance
Collective allowances for:
- Retail exposures if it is not economically justified to
recognise the loss on an individual basis;
- Incurred but not reported losses.
The detailed approach for each category is further explained
in section 2.15 'Loans and advances to customers and banks'.
Loan impairment allowances are recognised where there
is objective evidence that not all amounts due under the
original terms of the contract may be recoverable. Determining
an allowance requires a significant degree of judgement, based
on management's evaluation of the risks in the loan portfolio,
the current economic circumstances, credit losses in previous
years, and developments in financial credits, business sectors,
business concentrations and geopolitical factors. Changes in
management judgement formulation and further analyses
may lead to changes in the magnitude of loan impairment
allowances over time. Uncertainty is inherent in determining
objective evidence of reduced creditworthiness and in
determining the magnitude of the recoverable amounts and
these involve assessing a variety of assumptions and factors
regarding the creditworthiness of borrowers, the expected
future cash flows and the value of collateral.
See section 7 'Loans and advances to banks' and section 11
'Loans and advances to customers' for an analysis of the loan
impairment allowances on loans to customers and banks.
Fair value of financial assets and liabilities
Information regarding the determination of the fair value
of financial assets and liabilities is included in paragraph 4.9
'Fair value of financial assets and liabilities' and paragraph 10
'Derivatives'.
Impairment of goodwill, other intangible assets and
investments in associates and joint ventures
Goodwill and other intangible assets are assessed for impairment
- at least once a year - by comparing the recoverable value
to the carrying amount, while investments in associates
and joint ventures are tested for impairment when specific
triggers are identified. The determination of the recoverable
amount in an impairment assessment of these assets requires
estimates based on quoted market prices, prices of comparable
businesses, present value or other valuation techniques, or
a combination thereof, necessitating management to make
subjective judgments and assumptions. Because these estimates
and assumptions could result in significant differences to the
amounts reported if underlying circumstances were to change,
these estimates are considered to be critical. The important
assumptions for determining recoverable value of goodwill are
set out in Section 14 and for investments in associates and joint
ventures are set out in Section 13.
Consolidated Financial Statements Company Financial Statements Pillar 3
Taxation
Estimates are used when determining the income tax charge
and the related current and deferred tax assets and liabilities.
Tax treatment of transactions is not always clear or certain and,
in a number of countries, prior year tax returns often remain
open and subject to tax authority approval for lengthy periods.
The tax assets and liabilities reported are based on the best
available information, and where applicable, on external advice.
Differences between the final outcome and the estimates
originally made are accounted for in the current and deferred
tax assets and liabilities in the period in which reasonable
certainty is obtained.
Other provisions
In applying IAS 37 judgement is involved in determining
whether a present obligation exists and in estimating
the probability, timing and amount of any outflows.
More information on judgements regarding the provision for
SME derivatives and the restructuring provision is included in
section 25 Provisions.
The consolidation of structured entities is a critical estimate that
requires judgement and is described in section 50 Structured
entities.
2.2 Consolidated financial statements
2.2.1 Subsidiaries
The participating interests over which Rabobank has control
are its subsidiaries (including structured entities) and these
are consolidated. Control is exercised over a participating
interest if the investor is entitled to receive variable returns
from its involvement in the participating interest and has the
ability to influence these returns through its control over the
participating interest. The assets, liabilities and profit and loss of
these companies are fully consolidated.
Subsidiaries are consolidated as from the date on which
Rabobank acquires effective control and subsidiaries are
de-consolidated as of the date on which this control is ceded.
Transactions, balances and unrealised gains and losses on
transactions between and among Rabobank Group and its
subsidiaries are eliminated on consolidation.
Joint and several liability (cross-guarantee system)
Under the Dutch Financial Supervision Act (Wet op het
financieel toezicht), various legal entities owned by Rabobank
are jointly and severally liable under an Internal intra-group
mutual keep well arrangement that requires the participating
entities to provide the funds necessary should any participant
not have sufficient funds to settle its debts.
177 Notes to the consolidated financial statements