Contents Introduction Management report Appendices Corporate governance Consolidated Financial Statements Company Financial Statements
Rabobank redeemed USD 2 billion and in August another
NZD 0.9 billion of such additional tier 1 capital securities
resulting in a remaining outstanding grandfathered position
as per 31 December 2017 of EUR 3.6 billion. As the latter
is lower than the cap, the full amount is included in the
transitional tier 1 capital.
In April 2017 we issued a tier 2 capital instrument of USD 0.5
billion. All in all, our total capital ratio rose by 1.2 percentage
points to 26.2% (2016: 25.0%) as a result. Our current capital
ratios already exceed our capital targets set for 2020.
IFRS 9 impact on capital
The total negative impact of the introduction of IFRS 9 on the
fully loaded CET1 ratio will be approximately 15 basis points.
IFRS 9 impairment calculations will lead to higher loan loss
allowances as from January 1, 2018. Instead of incurred
loss, expected loss wil be recognised. IBNR (incurred but
not reported) losses will be replaced by expected one year
loss for Stage 1 assets and expected lifetime loss for Stage 2
assets. The impact on loan loss allowances is estimated to
be EUR 0.2 billion (net of tax). Within the regulatory capital
ratio calculations the higher loan loss allowance will be
compensated by the shortfall.
The benefit of our MREL eligible capital buffer
Rabobank wants to mitigate the MREL eligible capital risk for our
creditors and depositors as much as possible. We therefore hold
a large buffer of equity and subordinated debt that will absorb
losses first in the event of a bail-in. Only after this buffer has been
used senior creditors, whose claims are not covered by collateral,
will need to contribute in the unlikely event of a bail-in.
We define our MREL eligible capital buffer as qualifying capital
plus the non-qualifying part of the grandfathered additional
tier 1 instruments and the amortised part of tier 2 with a
remaining maturity of at least one year. In 2017, FX effects had
a limited negative impact on our MREL eligible capital buffer.
The buffer decreased from EUR 53.7 billion to EUR 53.2 billion.
This decrease corresponds to 26.8% (2016: 25.4%) of risk-
weighted assets.
MREL eligible capital buffer
Amounts in billions of euros
Qualifying capital
Amortised tier 2 1 year remaining maturity
MREL eligible capital buffer
Risk-weighted assets
MREL eligible capital buffer risk-weighted assets
31-12-2017 31-12-2016
51.9 52.9
1.3 0.8
53.2 53.7
198.3 211.2
26.8% 25.4%
Under classification and measurement IFRS 9 prescribes a
strict application of modification accounting.This will alter
the way Rabobank has accounted for prepayment penalties
and interest rate averaging in profit and loss. Another change
in classification and measurement relates to some legacy,
non-core credit portfolios that will probably be sold and
therefore will receive the classification'Other'and will be
measured at fair value through profit or loss. On the liability side
Rabobank has elected to reclassify the callable notes included
in the structured funding portfolio to amortised cost. This
reclassification will result in the bifurcation of the embedded
derivatives whilst at the same time the funding host contract
will be measured at amortised cost.
Regulatory capital
Regulatory capital is our external capital requirement.
It represents the minimum amount of capital which the CRR
and CRD IV require Rabobankto hold.The regulatory capital of
Rabobank amounted to EUR 15.9 billion (2016: EUR 16.9 billion)
at end-2017, of which 85% related to credit and transfer risk,
13% to operational risk and 2% to market risk.
The decrease in regulatory capital was mainly due to a
reduction in the capital required for credit risk.The reduction
in Rabobank's credit risk was mainly due to reduced exposures
and increased asset quality. The appreciation of the euro also
contributed to a lower regulatory capital.
CET1 ratio boosted by issue of new Rabobank Certificates
Rabobank Certificates are deeply subordinated instruments
which qualify as common equity tier 1 capital. In January 2017,
Rabobank announced an offering of 60 million new Rabobank
Certificates, each priced at 108% of the nominal value of EUR 25,
making a total nominal issued amount of EUR 1.5 billion.
This issue meant we met our target CET1 ratio of at least 14%
ahead of schedule, in anticipation of an expected increase in
capital requirements. After the issue, a total nominal amount
of approximately EUR 7.4 billion in Rabobank Certificates was
outstanding.
Rabobank calculates its regulatory capital for credit risk for almost
the entire loan portfolio using the advanced IRB approach
approved by our supervisory authority. In consultation with
DNB, Rabobank applies the standardised approach to portfolios
with relatively limited exposure and to some smaller portfolios
outside the Netherlands that are unsuitable for the advanced
IRB approach.
We measure operational risk using an internal model, approved
by DNB, that is based on the advanced measurement approach.
For market risk exposure, DNB has given Rabobank permission
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