3 Solvency and capital management
Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements
2.32 Cash flow statement
Cash and cash equivalents include cash resources, money
market deposits and deposits at central banks.The cash flow
statement is prepared using the indirect method and provides
details ofthe source of the cash and cash equivalents that
became available during the year as well as their application
during the year.The net pre-tax cash flow from operating
activities is adjusted for non-cash items in the statement of
income and for non-cash changes in items in the statement
of financial position.
The consolidated statement of cash flows presents separately
the cash flows from operating, investing and financing
activities. Cash flows from operating activities include net
changes in loans and receivables, interbank deposits, deposits
from customers and acquisitions, disposals and repayment of
financial investments. Investment activities include acquisitions
and disposals of subsidiaries, investments in associates and
property and equipment. Financing activities include issues and
repayments of Rabobank Certificates,Trust Preferred Securities,
Capital Securities, Senior Contingent Notes, subordinated
liabilities and debt securities in issue.
The difference between the net change presented in the
statement of cash flows and the change in cash and cash
equivalents included in the statement of financial position
is due to exchange differences.
Rabobank aims to maintain a proper level of solvency. For this
purpose a number of solvency ratios are utilised. The principal
ratios are the common equity tier 1 ratio (CET1), the tier 1 ratio,
the total capital ratio and the equity capital ratio. Rabobank
uses its own internal objectives that extend beyond the
minimum requirements ofthe supervisors. It takes market
expectations and developments in legislation and regulations
into account. Rabobank manages its solvency position based on
policy documents. The solvency position and the objectives are
periodically reviewed by the Risk Management Committee and
the Asset Liability Committee ofthe Managing Board and the
Supervisory Board.
The'Capital Requirements Regulation (CRR)'and'Capital
Requirements Directive IV (CRD IVj'together constitute the
European implementation ofthe Basel Capital and Liquidity
Accord of 2010.These rules, which became effective on
1 January 2014, are applied by Rabobank.
Rabobank must comply with a number of minimum solvency
positions as stipulated under law.The solvency position is
determined on the basis of ratios.These ratios compare the
qualifying capital (total capital ratio), the tier 1 capital (tier 1
ratio) and the core capital (common equity tier 1 ratio) with the
total ofthe risk-adjusted assets. Effective 1 January 2014, the
minimum required percentages are determined on the basis
of CRD IV/CRR.The legal buffers below are applicable as from
2016.These buffers will gradually increase until the year 2019.
Rabobank is already allowing for these changes in its capital
planning.The table below shows the minimum legal buffers
based on the planned final situation under CRD IV/CRR.
Minimum capital buffer
CET1
Tier 1
Total capital
Pillar 1 requirement
4.5%
6.0%
8.0%
Pillar 2 requirement
1.75%
1.75%
1.75%
Capital conservation
buffer
2016-2019
2.5%
2.5%
2.5%
Systemic risk buffer
2016-2019
3.0%
3.0%
3.0%
Total required
(end-state)
11.75%
13.25%
15.25%
The total required (end state) CET1 capital therefore amounts
to 11.75%, (i.e. a minimum Pillar 1 requirement of 4.5%, a
pillar 2 requirement of 1.75%), a capital conservation buffer
of 2.5% and a systemic risk buffer of 3%, excluding the pillar
2 guidance.The required (end state) total capital amounts to
15.25%, (i.e. a minimum Pillar 1 requirement of 8%, a pillar 2
requirement of 1.75%), a capital conservation buffer of 2.5% and
a systemic risk buffer of 3%. In addition to these ratios, there
would be a countercyclical buffer of up to 2.5% which may be
imposed by the supervisor. Almost all supervisors have set their
countercyclical buffer at 0% as per 1 January 2017.
Risk-weighted assets are determined based on separate and
distinct methods for each ofthe credit, operational and market
risks. For credit risk purposes, the risk-weighted assets are
determined in several ways dependent on the nature ofthe
asset. For the majority of assets the risk weighting is determined
by reference to internal ratings and a number of characteristics
specific to the asset concerned. For off-balance sheet items
the balance sheet equivalent is calculated firstly on the basis
of internal conversion factors and the resulting equivalent
amounts are then also assigned risk-weightings. For operational
risk purposes, an Advanced Measurement Approach model is
used to determine the amount of risk-weighted assets. In the
market risk approach, the general market risk is hedged, as are
the risks of open positions in foreign currencies, debt and equity
instruments and commodities. The transitional CRR provisions
have been reflected in the ratios set out on the next page.
Rabobank Annual Report 2017 - Consolidated financial statements
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