Contents Foreword Management report Corporate governance
Consolidated Financial Statements
Company Financial Statements
Pillar 3
market as well as appropriate CDS spreads. All other market
risk parameters are valued consistently with derivatives used
to hedge the market risk in these liabilities. Changes in the
fair value that are attributable to changes in own credit risk
are reported in 'Other comprehensice income'. The change in
fair value that is attributable to changes in own credit risk is
calculated by deducting on a note by note basis the current
fair value of the structured notes portfolio at the reporting
date from the fair value recalculated based on the prevailing
credit curve at the time of origination, with all other pricing
components unchanged. This calculation reflects the amount
that can be attributed to the change in the own credit risk of
Rabobank since the origination of these structured notes.
Debt securities in issue.
The fair value of these instruments is calculated using quoted
prices on an active market. For debt securities for which no
quoted prices on an active market are available, a discounted
cash flow model is used on the basis of credit adjusted yield
curves appropriate for the term to maturity.
The above stated figures represent the best possible estimates
by management on the basis of a range of methods and
assumptions. If a quoted price on an active market is available,
this is the best estimate of fair value.
If no quoted prices on an active market are available for fixed-
term securities, equity instruments, derivatives and commodity
instruments, Rabobank bases the expected fair value on the
present value of the future cash flows, discounted at market
rates which correspond to the credit ratings and terms to
maturity of the investments. A model-based price can also be
used to determine fair value.
Rabobank follows a policy of having all models used for
valuing financial instruments validated by expert staff who are
independent of the staff who determine the fair values of the
financial instruments.
In determining market values or fair values, various factors
have to be considered. These factors include the time value
of money, volatility, underlying options, credit quality of the
counterparty and other factors. The valuation process has been
designed in such a way that market prices that are available
on a periodic basis are systematically used. This systematic
valuation process has proved its worth during the credit crisis.
Modifications to assumptions might affect the fair value of
financial assets and liabilities held for trading and non-trading
purposes.
The table on the next page illustrates the fair value hierarchy
used in determining the fair value of financial assets and
liabilities. The breakdown is as follows:
Level 1: Quoted prices on active markets for identical
assets or liabilities; an 'active market' is a market in which
transactions relating to the asset or liability occur with
sufficient frequency and at a sufficient volume in order to
provide price information on a permanent basis.
Level 2: Inputs other than quoted prices included in
level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices);
Level 3: Inputs for the asset or liability not based on
observable market data.
Rabobank determines for recurrent valuations of financial
instruments at fair value when transfers between the various
categories of the fair-value hierarchy occurred by reassessing
the level at the end of each reporting period.
2016
2015
in millions of euros
Carrying
amount
Fair
value
Carrying
amount
Fair
value
Assets
Cash and balances at central
banks
84,405
84,405
64,943
64,943
Loans and advances to banks
25,444
25,368
32,434
32,553
Loans and advances to
customers
452,807
465,278
465,993
473,612
Liabilities
Deposits from banks
22,006
22,042
19,038
19,077
Deposits from customers
347,712
353,227
345,884
350,519
Debt securities in issue
159,342
163,622
174,991
178,477
Subordinated liabilities
16,861
18,256
15,503
16,558
201 Notes to the consolidated financial statements