4 Risk exposure on financial instruments
Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements
Rabobank Group's ratios
in millions of euros
2017
2016
Retained earnings
26,777
25,709
Expected dividends
(54)
(60)
Rabobank Certificates
7,440
5,948
Part of non-controlling interests treated as
qualifying capital
26
25
Reserves
(1,401)
112
Deductions
(2,050)
(3,302)
Transition guidance
525
1,186
Common Equity Tier 1 capital
31,263
29,618
Capital Securities
2,728
2,728
Grandfathered instruments
3,590
5,462
Non-controlling interests
6
5
Deductions
(88)
(91)
Transition guidance
(295)
(643)
Tier 1 capital
37,204
37,079
Part of subordinated liabilities treated as
qualifying capital
14,896
16,094
Non-controlling interests
7
7
Deductions
(89)
(99)
Transition guidance
(95)
(208)
Qualifying capital
51,923
52,873
Risk-weighted assets
198,269
211,226
Common Equity Tier 1 ratio
15.8%
14.0%
Tier 1 ratio
18.8%
17.6%
Total capital ratio
26.2%
25.0%
Equity capital ratio1
17.3%
15.0%
The deductions consist mostly of goodwill, other intangible
fixed assets, deferred tax assets which depend on future profit,
the IRB shortfall for credit risk adjustments and adjustments
relating to cumulative results due to changes in the bank's
credit risk on instruments designated at fair value. In accordance
with CRR, a number of deductions are adjusted in the Transition
guidance', as these adjustments are being phased in over the
period 2014-2018. The'Transition guidance'consists mainly
of goodwill, other intangible non-current assets, deferred
tax assets depending on future profits (i.e. non-temporary
differences) and the IRB shortfall for credit-risk adjustments.
The additional tier 1 instruments issued by Rabobank prior to
2015 do not comply with the new CRR requirements.They are
being 'grandfathered'.This means that these instruments will
be phased out of solvency ratios, in line with the regulatory
requirements.
4.1 Risk organisation
Rabobank Group manages risks at various levels within the
organisation. At the highest level, the Managing Board (under
the supervision of the Supervisory Board) determines the risk
strategy it will pursue, the risk appetite, the policy framework as
well as the limits.The Supervisory Board regularly assesses the
risks attached to the activities and portfolio of Rabobank Group.
The Chief Risk Officer, as Member of the Managing Board, is
responsible for the risk management policy within Rabobank
Group.
Risk appetite
Identifying and managing risks for its organisation is an ongoing
process at Rabobank. For this purpose an integrated risk
management strategy is applied. The risk management cycle
includes determining risk appetite, preparing integrated risk
analyses, and measuring and monitoring risk.Throughout this
process Rabobank uses a risk strategy aimed at continuity and
designed to protect profitability, maintain solid balance-sheet
ratios and protect its identity and reputation.
4.2 Strategy for the use of financial instruments
Rabobank's activities are inherently related to the use of
financial instruments, including derivatives. As part of the
services it offers, Rabobank takes deposits from customers at
varying terms and at both fixed and variable interest rates.
Rabobank attempts to earn interest income by investing
these funds in high-value assets as well as by making loans
to commercial and retail borrowers. Rabobank also aims to
increase these margins through a portfolio approach of short-
term funds at lower interest rates and the allocation to loans for
longer periods at higher interest rates, maintaining sufficient
cash resources in hand to meet obligations as they fall due.
Rabobank improves its interest income by achieving interest
margins after deduction of loan impairment allowances and
by issuing loans with a variety of credit ratings and inherent
risk profiles. Not only is Rabobank exposed to credit risk on
the on-balance sheet loans, it is also exposed to credit risk on
the off-balance sheet guarantees it provides, such as letters of
credit, letters of performance and other guarantee documents.
1 The equity capital ratio is calculated by comparing the items
Retained earnings and Rabobank Certificates to the risk-weighted
assets.
Rabobank Annual Report 2017 - Consolidated financial statements
188
