Contents Foreword Management report Corporate governance
The risk appetite at group level is an integral part of the bank's
strategy. Entity-specific risk appetite statements further specify
the group risk appetite at entity level. The risk appetite is
embedded across Rabobank Group within principles, policies,
indicators, limits and controls. The Risk Appetite Statement is
endorsed annually by the Executive Board and approved by
the Supervisory Board. In 2016, sustainability was integrated for
the first time in the RAS and addresses non-compliance with
Rabobank's sustainability policies.
The RAS is monitored by benchmarking the actual risk profile
against the risk appetite and discussed on a quarterly basis by
the Executive Board and Supervisory Board Risk Committee.
This ensures day-to-day operations are executed within the
boundaries set by the business and risk strategy. Breaches of the
risk appetite will result in immediate action at the appropriate
management level.
Risk culture
At Rabobank risk is everybody's business. A sound risk culture
is the basis for good risk management. Rabobank expects all
employees to contribute to a sound risk culture, focusing on
long-term relationships with, and in the best interest of, our
customers. Employees are expected to deal with risks and
dilemmas, to carefully consider the interests of stakeholders, to
always be honest and reliable, and to take responsibility for their
actions. Each individual employee contributes to the risk profile
of Rabobank and the way in which risks are managed in line
with the 'Three Lines of Defense' model. Desirable behaviour is
encouraged and undesirable behaviour is corrected.
2016, sustainability was integrated for the first time in the
RAS regarding non-financial risks for our Wholesale clients.
It addresses non-compliance with Rabobank's sustainability
policies.
An important baseline is to create an environment in which
risks and dilemmas that arise in our work are openly dis
cussed. Tunnel vision and group bias need to be avoided in the
perception of risk. It is vital to learn from mistakes and avoid
repetition by removing the causes and by sharing experiences.
Risk management activities keep risks within the established
risk appetite and support careful consideration of risk return
trade-offs and appropriate measures based on up-to-date
risk analyses.
Rabobank's risk principles provide additional guidance in
preserving our core values: integrity, respect, professional-ism
and sustainability, and maintaining our aim to build long
term client relationships while always acting act in our client's
Consolidated Financial Statements Company Financial Statements Pillar 3
interest. These principles serve as a compass to guide our
actions and provide standards for the desired behaviour within
Rabobank. This is complemented with risk awareness and
compliance training programmes for all employees.
Rabobank keeps track of external developments and closely
monitors the risks that might affect the achievement of
organisational objectives. Regular and structural top-down
and bottom-up risk assessments are performed to identify
various types of risks, and specific stress tests are conducted
to calculate the impact of adverse scenarios. An integrated
overview of the main risks, the changes to them and the
measures taken to address them are regularly discussed in the
Executive Board and Supervisory Board. Banking is all about
taking and managing risks. When we do business, explore
options or take decisions, we continually assess risks.
Credit Risk Management
Rabobank's prudent credit acceptance policy is typified by
careful assessment of customers and their ability to repay the
loan that was issued (continuity perspective). As a result, the
loan portfolio has an acceptable risk profile even in less than
favourable economic circumstances. Rabobank aims to have
long-term relationships with customers that are beneficial
for both the client and the bank. An important starting point
in acceptance policy for business loans is the 'know your
customer' principle. This means that the bank only issues
loans to business customers whose management Rabobank
considers to be ethical and competent. In addition, Rabobank
closely monitors developments in the business sectors in which
its customers operate and can properly assess the financial
performance of its customers. Corporate sustainability also
means sustainable financing. Sustainability guidelines have
been established for use in the credit process. Internal credit
models are used to estimate PD, LGD and EAD parameters.
Rabobank uses a wide range of credit mitigation techniques
to reduce also specific counterparty credit risk or country
risk. Rabobank uses different modelling methodologies for
the different portfolios. Ranging from statistical models to
expert-based models, and taking into account quantitative and
qualitative risk drivers. The credit risk parameters are used in the
calculation of the capital requirements.
Within Rabobank, the Basel II default definitions are used for
identifying a loan impairment allowance. However, exit criteria
for forborne non-performing exposure are stricter than for
impaired exposure. Furthermore, recovered forborne non-
performing exposure is bound by more rigorous inflow criteria
and can be labelled as non-performing exposure once more,
even if the impaired criteria are not being met.
58 Rabobank Annual Report 2016
