3 Solvency and capital management
Contents Foreword Management report Corporate governance
of Rabobank Certificates, Trust Preferred Securities, Capital
Securities, Senior Contingent Notes and subordinated liabilities.
The difference between the net change presented in the
statement of cash flows and the change in cash and balances at
central banks included in the statement of financial position is
due to exchange differences.
Rabobank aims to maintain a proper level of solvency. For this
purpose a number of solvency ratios are utilised. The principal
ratios are the common equity tier 1 ratio (CET1), the tier 1 ratio,
the total capital ratio and the equity capital ratio. Rabobank
uses its own internal objectives that extend beyond the
minimum requirements of the supervisors. It takes market
expectations and developments in legislation and regulations
into account. Rabobank manages its solvency position based on
policy documents. The solvency position and the objectives are
periodically reviewed by the Risk Management Committee and
the Asset Liability Committee of the Executive Board and the
Supervisory Board.
The 'Capital Requirements Regulation (CRR)' and 'Capital
Requirements Directive IV (CRD IV)' together constitute the
European implementation of the Basel Capital and Liquidity
Accord of 2010. These rules, which became effective on
1 January 2014, are applied by Rabobank.
Rabobank must comply with a number of minimum solvency
positions as stipulated under law. The solvency position is
determined on the basis of ratios. These ratios compare the
qualifying capital (total capital ratio), the tier 1 capital (tier 1
ratio) and the core capital (common equity tier 1 ratio) with the
total of the risk-adjusted assets. Effective 1 January 2014, the
minimum required percentages are determined on the basis
of CRD IV/CRR. The legal buffers below are applicable as from
2016. These buffers will gradually increase until the year 2019.
Rabobank is already allowing for these changes in its capital
planning. The table below shows the minimum legal buffers
based on the planned final situation under CRD IV/CRR.
Minimum capital buffer
CET1
Tier 1
Total
capital
Pillar 1
4.5%
6.0%
8.0%
Pillar 2
1.75%
1.75%
1.75%
Capital conservation
buffer1 2016-2019
2.5%
2.5%
2.5%
Systemic risk buffer1 2016-2019
3.0%
3.0%
3.0%
Countercyclical buffer1 2016-2019
0% - 2.5%
Consolidated Financial Statements Company Financial Statements Pillar 3
Risk-weighted assets are determined based on separate and
distinct methods for each of the credit, operational and market
risks. For credit risk purposes, the risk-weighted assets are
determined in several ways dependent on the nature of the
asset. For the majority of assets the risk weighting is determined
by reference to internal ratings and a number of characteristics
specific to the asset concerned. For off-balance sheet items
the balance sheet equivalent is calculated firstly on the basis
of internal conversion factors and the resulting equivalent
amounts are then also assigned risk-weightings. For operational
risk purposes, an Advanced Measurement Approach model is
used to determine the amount of risk-weighted assets. In the
market risk approach, the general market risk is hedged, as are
the risks of open positions in foreign currencies, debt and equity
instruments and commodities. The transitional CRR provisions
have been reflected in the ratios set out below.
Rabobank Group's ratios
in millions of euros
2016
2015
Retained earnings
25,709
25,4822
Expected dividends
(60)
(126)
Rabobank Certificates
5,948
5,949
Part of non-controlling interests treated as
qualifying capital
25
23
Reserves
112
224
Deductions
(3,302)
(5,539)
Transition guidance
1,186
2,741
Common Equity Tier 1 capital
29,618
28,754
Capital Securities
2,728
1,488
Grandfathered instruments
5,462
6,373
Non-controlling interests
5
5
Deductions
(91)
(76)
Transition guidance
(643)
(1,492)
Tier 1 capital
37,079
35,052
Part of subordinated liabilities treated as
qualifying capital
16,094
15,078
Non-controlling interests
7
6
Deductions
(99)
(85)
Transition guidance
(208)
(596)
Qualifying capital
52,873
49,455
Risk-weighted assets
211,226
213,092
Common Equity Tier 1 ratio
14.0%
13.5%
Tier 1 ratio
17.6%
16.4%
Total capital ratio
25.0%
23.2%
Equity capital ratio3
15.0%
14.7%
1 These buffers will phase in during the years 2016-2019.
The countercyclical buffer is capped at a maximum of 2.5%. In most
countries, including the Netherlands, the countercyclical buffer for
2016 has been set at 0%.
2 Differs from the amount of retained earnings as reported in note
30 due to the prior year adjustment of 83 in the 2015 IFRS equity
opening balance (see note 2.1)
3 The equity/capital ratio is calculated by comparing the items retained
earnings and Rabobank Certificates to the risk-weighted assets.
188 Rabobank Annual Report 2016