4. Risk Exposure on Financial
Instruments
4.1 Risk Organization
4.2 Strategy for the Use of Financial
Instruments
4.3 Credit Risk
About this
Report
Chairman's
Foreword
Corporate
Management Report Appendices Governance
Consolidated Financial Company Financial
Statements Statements
Rabobank Group manages risks at various levels within the
organization. Atthe highest level,the Managing Board (underthe
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 organization 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.
Rabobank's activities are inherently related to the use of financial
instruments, including derivatives. As partofthe services it offers,
Rabobanktakes 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.
Credit risk is defined as the risk of the bank facing an economic
loss because the bank's counterparties cannot fulfil their
contractual obligations.
Credit risk management within the bank is governed by the bank-
wide central credit risk policy and further detailed in underlying
specific credit risk standards and procedures. The primary
responsibility for managing and monitoring credit risk lies with
the business as the first line of defense. The business is required
to identify, assess and manage, monitor and report potential
weaknesses in the credit risk portfolios. Monitoring takes place
on an ongoing basis to limit credit risk exposures to a level in line
with the business line's risk appetite.
In addition, risk in the credit portfolio is measured and monitored
at bank-wide level and on entity level on a monthly basis and by
quarterly and ad-hoc portfolio reporting and analysis, with
specific attention to risk developments and concentrations.
4.3.1 Credit Risk Management
Credit Acceptance
Rabobank's prudentcreditacceptance policy is typified by careful
assessment of customers and their ability to repay the loan that
was issued (continuity perspective). As a result, the loan portfolio
has an acceptable risk profile even in less than favorable
economic circumstances. Rabobank aims to have long-term
relationships with customers that are beneficial for both the client
and the bank. An important starting point in acceptance policy for
business loans is the 'know your customer' principle. This means
that the bank only issues loans to business customers whose
management Rabobank considers to be ethical and competent.
In addition, Rabobank closely monitors developments in the
business sectors in which its customers operate and can properly
assess the financial performance of its customers. Corporate
sustainability also means sustainable financing. Sustainability
guidelines have been established for use in the credit process.
Although credit is usually granted on the cash flow generating
potential of the client or project, collateral will improve the
position of the bank in case a client defaults. Collateral can be
independent of the client's business and/or obtained from the
client's business. Rabobank has outlined its policies for collateral
valuation and management in the Global Standard Credit Risk
Mitigation. Compliant to CRR 181 1 .(e) all (eligible) collateral is
valued at market value or less than market value and the
collateral value is monitored regularly. The collateral must be
sufficiently liquid and its value over time should be sufficiently
stable to provide appropriate credit protection. Within the
Annual Report 2018 - Consolidated Financial Statements
151
