4.7 Liquidity risk
Contents Foreword Management report Corporate governance Consolidated Financial Statements Company Financial Statements Pillar 3
VaR (1 day, 97.5%)
in millions of euros
Interest
Credit
Currencies
Shares
Commodities
Diversification
Total
2016 - 31 December
4.5
0.6
0.4
0.0
0.2
(1.5)
4.2
2016 - average
4.1
1.1
0.2
0.2
0.2
n/a
4.4
2016 - highest
6.3
1.7
0.7
0.7
0.8
n/a
6.9
2016 - lowest
3.3
0.6
0.1
0.0
0.1
n/a
3.5
2015 - 31 December
4.3
1.2
0.4
0.4
0.1
(1.3)
5.1
2015 - average
4.2
1.3
0.2
0.7
0.3
n/a
4.8
2015 - highest
8.0
2.0
0.6
1.0
0.7
n/a
8.7
2015 - lowest
2.5
0.7
0.1
0.2
0.2
n/a
2.5
In addition to the VaR, there are several other key risk indicators.
The interest rate delta is a measure of the change in the value
of positions if there is a parallel increase in the yield curve
of 1 basis point (i.e. 0.01 percentage point). The interest rate
delta table below shows the sensitivity to changes in the yield
curves for the major currencies. At 31 December 2016, the
interest rate delta for trading books was EUR 0.3 million positive.
The interest rate delta remained well within the set limit during
the reporting period.
Rabobank uses stress testing to complement the VaR. It is
instrumental in gauging the impact of extreme, yet plausible
predefined moves in market risk factors on the P&L of individual
trading and investment portfolios. These moves are reflected
in scenarios which capture risk drivers such as tenor basis
swap spreads, interest rates, foreign exchange, credit spreads,
volatility and interest rate curve rotation. Depending on the
scenario, individual risk factors or multiple risk factor categories
will be stressed at the same time.
The event risk, which is measured by performing
sensitivity analyses and stress tests was EUR 105 million on
31 December 2016, well within the set limit. It fluctuated
between EUR 103 million and EUR 159 million with an average
of EUR 125 million. Rabobank's event risk is largely determined
by the tenor basis swap position, which comes from non-client
facing positions of a more strategic nature which are classified
as permitted proprietary trading activities outside the US under
the Volcker Rule.
Liquidity risk is the risk that the bank will not be able to meet
all of its payment and repayment obligations on time, as well
as the risk that the bank will not be able to fund increases in
assets at a reasonable price, if at all. This could happen if, for
instance, customers or professional counterparties suddenly
withdraw more funds than expected which cannot be absorbed
by the bank's cash resources, by selling or pledging assets in
the market or by borrowing funds from third parties. Rabobank
considers an adequate liquidity position and retaining the
confidence of both professional market parties and retail
customers to be crucial in ensuring unimpeded access to the
public money and capital markets.
The liquidity risk policy focuses on financing assets using stable
funding, i.e., funds entrusted by customers and long-term
wholesale funding. Liquidity risk is managed on the basis of
three pillars. The first of these sets strict limits for the maximum
outgoing cash flows within the wholesale banking business.
Among other things, Rabobank measures and reports on a daily
basis what incoming and outgoing cash flows can be expected
during the next twelve months. Limits have been set for these
outgoing cash flows, including for each currency and each
location. Detailed plans (the contingency funding plans) have
been drawn up for contingency funding to ensure the bank is
prepared for potential crisis situations. Periodic operational tests
are performed for these plans.
The second pillar is used to maintain a substantial high-quality
buffer of liquid assets. In addition to credit balances held at
central banks, these assets can be used to be pledged to central
banks, in repo transactions, or to be sold directly in the market
to generate liquidity immediately. The size of the liquidity buffer
is attuned to the risk Rabobank is exposed to in its balance
sheet. In addition Rabobank has securitised a portion of the
mortgage portfolio internally, which means it can be pledged
to the central bank, thereby serving as an additional liquidity
buffer. Since this concerns retained securitisations, it is not
reflected in the consolidated balance sheet.
Interest rate delta
in millions of euros
2016
2015
Euro
0.1
(1.2)
US dollar
0.1
(0.4)
British pound
0.1
0.1
Other
0.0
0.1
Total
0.3
(1.4)
196 Rabobank Annual Report 2016