3. Solvency and Capital
Management
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About this
Report
Chairman's
Foreword
Corporate
Management Report Appendices Governance
Consolidated Financial Company Financial
Statements Statements
Rabobank aims to maintain a proper level of solvency. For this
purpose a number of solvency ratios are utilized. 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 of the 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 of the Managing Board and the
Supervisory Board.
The 'Capital Requirements Regulation (CRR)'and 'Capital
Requirements Directive IV (CRD IV)' 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 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 buffers based on the planned final situation
under CRD IV/CRR.
Minimum Capital Buffer
CET1
Tier 7
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 bythe
supervisor. Almost all supervisors have set their countercyclical
buffer at 0% as perl January 2019.
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 below.
Rabobank Croup's Ratios
Amounts in millions of euros
2018
2017
Retained earnings
28,062
26,777
Expected dividends
(46)
(54)
Rabobank Certificates
7,445
7,440
Part of non-controlling interests treated as qualifying capital
26
Reserves
(798)
(1,401)
Deductions
(2,553)
(2,050)
Transition guidance
12
525
Common Equity Tier 1 capital
32,122
31,263
Capital Securities
3,721
2,728
Grandfathered instruments
3,325
3,590
Non-controlling interests
6
Deductions
(100)
(88)
Transition guidance
(295)
Tier 1 capital
39,068
37,204
Part of subordinated liabilities treated as qualifying capital
14,274
14,896
Non-controlling interests
7
Deductions
(83)
(89)
Transition guidance
(95)
Qualifying capital
53,259
51,923
Risk-weighted assets
200,531
198,269
Common Equity Tier 1 ratio
16.0%
15.8%
Tier 1 ratio
19.5%
18.8%
Total capital ratio
26.6%
26.2%
Equity capital ratio1
17.7%
17.3%
1 The equity/ capital ratio is calculated by comparing the items Retained
earnings and Rabobank Certificates to the risk-weighted assets.
Annual Report 2018 - Consolidated Financial Statements
149
