Contents Foreword Management report Corporate governance
Consolidated Financial Statements
Company Financial Statements
Pillar 3
The CRR has a number of CET1 deductible items, such as
deferred tax assets and the internal ratings-based (IRB)
shortfall (i.e. the difference between the IRB expected loss and
the actual level of credit provisions), which are gradually being
introduced over the 2014 to 2018 period.
The additional tier 1 instruments issued by Rabobank
prior to 2014 do not meet the CRR conditions. Therefore,
these instruments will gradually cease to qualify as capital
instruments. In 2016 a 40% haircut was applied to these
grandfathered instruments. In April 2016, Rabobank issued
EUR 1.25 billion of additional tier 1 instruments which are
CRR compliant. In July 2016 Rabobank issued a tier 2 capital
instrument of USD 1.5 billion. The total capital ratio rose by
1.8 percentage points to 25.0% (23.2%).
Bail-in and minimum requirement for own funds
and eligible liabilities (MREL)
Because Rabobank wishes to mitigate the bail-in risk for
creditors and depositors as much as possible, it holds a large
buffer of equity and subordinated loans that will be called upon
first in the event of a bail-in. Only after the buffer has been used
will non-subordinated creditors, whose claims are not covered
by collateral, have to contribute to losses if the bank gets into
difficulties. Rabobank defines the bail-in buffer as retained
earnings, other reserves, Rabobank Certificates, hybrid and
subordinated debt instruments and other debt instruments,
the so-called Senior Contingent Notes. Also positive FX effects
made a limited contribution to the increase of the bail-in
buffer. The bail-in buffer increased from EUR 57.5 billion to
EUR 58.0 billion, an increase that corresponds to approximately
28% (27%) of the risk-weighted assets.
Bail-in buffer
Amounts in billions of euros
31-12-2016
31-12-2015
Retained earnings and other reserves
25.8
25.7
Rabobank Certificates
5.9
5.9
Hybrid capital instruments
8.2
9.1
Subordinated liabilities
16.9
15.5
Senior Contingent Notes
1.2
1.3
Bail-in buffer
58.0
57.5
Risk-weighted assets
211.2
213.1
Bail-in buffer/risk-weighted assets
27.5%
27.0%
Regulatory capital
The regulatory capital is the external capital requirement
and represents the minimum amount of capital Rabobank is
required to hold by the CRR and CRD IV. Year-end 2016, the
regulatory capital (or external capital requirement) of Rabobank
Group amounted to EUR 16.9 (17.0) billion, of which 84% related
to credit and transfer risk, 13% to operational risk and 3% to
market risk. Regulatory capital decreased by EUR 0.1 billion,
mainly due to a reduction in the capital required for credit
risk. Credit risk mainly decreased thanks to the reduction
of exposures, the sale of Athlon and various other relatively
small movements.
Rabobank Group calculates its regulatory capital for credit risk
for virtually its entire loan portfolio based on the Advanced
IRB approach approved by the prudential supervisor.
In consultation with the supervisor, the Standardised Approach
is applied to portfolios with relatively limited exposure and
to a few smaller portfolios outside the Netherlands that are
unsuitable for the Advanced IRB approach. Operational risk is
measured using a supervisor-approved internal model that
is based on the Advanced Measurement Approach. For its
market risk exposure, Rabobank has obtained permission from
the supervisor to calculate the general and specific position
risk using its own internal Value at Risk (VaR) models, based on
the CRR.
Regulatory capital by business segments
Amounts in billions of euros
31-12-2016
31-12-2015
Domestic retail banking
6.4
6.7
Wholesale banking and international rural and
retail banking
6.5
6.4
Leasing
1.7
1.7
Real estate
1.2
1.1
Other
1.1
1.1
Rabobank Group
16.9
17.0
Economic capital
Economic capital (EC) refers to Rabobank's internal assessment
of the amount of capital it requires to cover the risks it is
exposed to. In addition to regulatory capital, Rabobank Group
uses an internal capital requirement based on an EC framework.
In contrast to regulatory capital, our calculation of EC takes
account of all tangible risks the bank is exposed to. By assuming
a higher confidence level (99.99%) than is used for regulatory
capital (99.90%), EC 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.
52 Rabobank Annual Report 2016
