Balancing risks and returns
Our output and impact
When we do business with our customers, explore options or take decisions, we continually assess
risks. Banking is all about taking and managing risks. Each time business opportunities are discussed
and decisions are taken, risks are assessed against expected return. Without taking risks, no profitable
banking activities are possible and therefore it is not only necessary to accept, but also striving for
a certain degree of risk.
Contents Foreword Management report Corporate governance Consolidated Financial Statements Company Financial Statements Pillar 3
Every day Rabobank takes informed risk decisions on engaging
with (new) customers, granting credit, entering into interest
rate contracts and in providing other services to customers.
To manage the material risks, risk and control processes are
designed to ensure that the risks incurred remain within the
bank's risk appetite and that risk and return are appropriately
matched. To ensure effectiveness of the Risk Management
framework Rabobank works according to the concept of
the 'Three Lines of Defense' model. This model explains the
relationship between the first line functions in Rabobank
that own and manage risk (the business), the second line
functions (Risk Management) that oversee the risk and
an independent third line function (Audit) that provides
assurance on the effectiveness of the first and second lines of
defense. The Risk Management framework covers the regular
banking risk types: credit risk, market risk, interest rate risk,
liquidity risk and operational risks (including compliance
risk, tax risk and legal risk). The risk classification supports
effective risk management by providing a clear definition and
common understanding of risk management throughout
the organisation. In addition to the main risk types a more
granular classification is used which also includes risks such as
FX-translation risk and model risk. Per risk type a risk appetite
is determined to manage the risk profile within its desired
appetite and alignment with the Strategic Framework.
In addition, we acknowledge that we currently face uncertain,
volatile and partially adverse market circumstances that create,
among others, the following risks for the bank:
Business model: Rabobank's earnings model needs to adapt
to the changing economic and political environment, and
to the demands of society. Narrowing spreads between
funding and lending impact the profit mar-gins needed
for a sustainable future for the bank. This is amplified by
increased competition of non-banks and market innovators
using disruptive technologies. Regulatory requirements
put additional (capital) strain on banks. The cumulative
effects of these requirements influence the strategic choices
available to Rabobank, but we can manage this through
excellent customer focus in support of our vision Banking
for the Netherlands and Banking for Food, supplemented by
a strong focus on sustainability through our clients. Internally,
we are improving financial performance, strengthening
innovativeness, empowering employees and examining our
products and services portfolio.
Execution power: This includes challenges to improve
customer focus and performance and to meet regulatory
requirements. The change agenda is ambitious and contains
many interdependencies. While we need to preserve our
cooperative heart and the uniqueness of Rabobank, we
also need to be receptive to client behaviours, external
developments and unexpected risks with serious long
term effects. Our (new) governance leads to more effective
decision-making and timely responses. We manage this
through close monitoring of change initiatives and by
enabling the business in its first-line responsibilities.
Technology continuity: A complex IT landscape, growing
demands on continuity and increasing cyber threats
are continuing challenges. The ongoing digitalisation of
our services improves efficiency and adds value for our
customers. Services need to keep running smoothly while at
the same time systems need to be improved to keep up with
requirements, trends and innovations. We use an integrated
approach and manage dependencies for our core banking
transformation, front-to-back processes and systems.
We closely monitor cyber threats and data privacy.
56 Rabobank Annual Report 2016
