Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements
In addition to the VaR, there are several other key risk indicators.
The interest rate delta is a measure of the change in the value
of positions if there is a parallel increase in the yield curve
of1 basis point (i.e. 0.01 percentage point).The interest rate
delta table below shows the sensitivity to changes in the yield
curves for the major currencies. On 29 December 2017, the
interest rate delta for trading books was EUR 0.7 million positive.
The interest rate delta remained well within the set limit during
the reporting period.
Interest Rate Delta
in millions of euros
EUR
0.5
USD
0.0
CHF
0.1
Other
0.1
Total
0.7
Rabobank uses stress testing to complement the VaR. It is
instrumental in gauging the impact of extreme, yet plausible
predefined moves in market risk factors on the P&L of individual
trading and investment portfolios.These moves are reflected
in scenarios which capture risk drivers such as tenor basis
swap spreads, interest rates, foreign exchange, credit spreads,
volatility and interest rate curve rotation. Depending on the
scenario, individual risk factors or multiple risk factor categories
will be stressed at the same time.
The event risk, which is measured by performing sensitivity
analyses and stress tests was EUR 111 million on 29 December
2017, well within the set limit. It fluctuated between EUR 86
million and EUR 116 million with an average of EUR 101 million.
Rabobank's event risk is largely determined by the tenor basis
swap position, which comes from non-client facing positions
of a more strategic nature which are classified as permitted
proprietary trading activities outside the USA under the
Volcker Rule.
4.7 Liquidity risk
Liquidity risk is the risk that the bank will not be able to meet
all of its payment and repayment obligations on time, as well
as the risk that the bank will not be able to fund increases in
assets ata reasonable price, if at all. This could happen if, for
instance, customers or professional counterparties suddenly
withdraw more funds than expected which cannot be absorbed
by the bank's cash resources, by selling or pledging assets in
the market or by borrowing funds from third parties. Rabobank
considers an adequate liquidity position and retaining the
confidence of both professional market parties and retail
customers to be crucial in ensuring unimpeded access to the
public money and capital markets.
The liquidity risk policy focuses on financing assets using stable
funding, i.e., funds entrusted by customers and long-term
wholesale funding. Liquidity risk is managed on the basis of
three pillars. The first of these sets strict limits for the maximum
outgoing cash flows within the wholesale banking business.
Among other things, Rabobank measures and reports on a daily
basis what incoming and outgoing cash flows can be expected
during the next twelve months. Limits have been set for these
outgoing cash flows, including for each currency and each
location. Detailed plans (the contingency funding plans) have
been drawn up for contingency funding to ensure the bank is
prepared for potential crisis situations. Periodic operational tests
are performed for these plans.
The second pillar is used to maintain a substantial high-quality
buffer of liquid assets. In addition to credit balances held at
central banks, these assets can be used to be pledged to central
banks, in repo transactions, or to be sold directly in the market
to generate liquidity immediately.The size ofthe liquidity buffer
is attuned to the risk Rabobank is exposed to in its balance
sheet. In addition Rabobank has securitised a portion ofthe
mortgage portfolio internally, which means it can be pledged
to the central bank, thereby serving as an additional liquidity
buffer. Since this concerns retained securitisations, it is not
reflected in the consolidated balance sheet.
The third pillar for managing liquidity risk consists of a good
credit rating, high capital levels and prudent funding policies.
Rabobank takes various measures to avoid becoming overly
dependent on a single source of funding. These include
balanced diversification of financing sources with respect to
maturity, currencies, investors, geography and markets, a high
degree of unsecured funding and therefore limited asset
encumbrance, and an active and consistent investor-relations
policy play a major role.
Furthermore, scenario analyses are performed each month
to determine the potential consequences of a wide range of
stress scenarios.The analyses cover market-specific scenarios,
Rabobank-specific scenarios and a combination of both.
Monthly reports on the Group's overall liquidity position
are submitted to the Dutch Central Bank.These reports are
prepared in accordance with the guidelines drawn up by this
supervisory authority.
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