4.4 Non-trading Foreign Exchange Rate risk (FX risk) 4.5 Interest Rate Risk in the Banking Environment About this Report Chairman's Foreword Corporate Management Report Appendices Governance Consolidated Financial Company Financial Statements Statements Maximum Exposure to Credit Risk of Financial Assets Not Subject to Impairment Financial Assets Modified While Loss Allowance Measured at Lifetime ECL Amounts in millions of euros On December 312018 Financial assets held for trading Financial assets designated at fair value Financial assets mandatorily at fair value Derivatives Total Maximum exposure to credit risk Collateral held as security and other credit enhancements 2,806 157 1,680 744 22,660 6,851 27,303 7,595 Write-off Policy Rabobank writes off loans when it has exhausted all practical recovery efforts and has concluded there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include (i) ceasing enforcement activity and (ii) where the recovery method is foreclosing on collateral and the value of the collateral is such that there is no reasonable expectation of recovering in full. Rabobank may write-off loans that are still subject to enforcement activity. The outstanding contractual amounts of partly or wholly written off assets during 2018 was EUR 398 million. Rabobank acquired financial and non-financial assets during the year by taking possession ofcoiiaterai with an estimated vaiueof EUR 15 million as per 31 December 2018 (2017: EUR 89 million). It is policy of Rabobank to sell these assets in the reasonably foreseeable future. Yields are allocated to repay the outstanding amount. 4.3.6 Modified Assets The risk of default of modified assets is assessed at the reporting date and compared with the risk under the original terms at initial recognition. Rabobank monitors the subsequent performance of these forborne modified assets and may determine that the credit risk has significantly improved, so that the assets are moved from stage 3 or stage 2 (Lifetime ECL) to stage 1 (12-month ECL). The gross carrying amount of such assets held as at 31 December 2018 was EUR 32 million. The following table includes summary information for financial assets with lifetime ECL whose cash flows were modified during the period and their respective effect on financial performance: Amounts in millions of euros Amortized cost before modification Net modification gain/ loss Financial assets modified since initial recognition 2018 217 2 219 FX risk is the risk that exchange rate movements could lead to volatility in the bank's cash flows, assets and liabilities, net profit and/or equity. The bank distinguishes two types of non-trading FX risks: (i) FX risk in the banking books and (ii) FX translation risk. FX Risk in the Banking Books FX risk in the banking books, is the risk where known and/or ascertainable currency cash flow commitments and receivables in the banking books are unhedged. As a result, it could have an adverse impact on the financial results and/or financial position of the Group, due to movements in exchange rates. Foreign Exchange Translation Risk FX translation risk is the risk that FX fluctuations will adversely affect the translation of assets and liabilities of operations - denominated in foreign currency - into the functional currency of the parent company. Translation risk reveals in Rabobank's equity position, risk weighted assets and capital ratios. Rabobank manages its FX translation risk with regard to the Rabobank Group CET1 ratio by deliberately taking FX positions, including deliberately maintaining FX positions and not or only partly closing FX positions. As a result of these structural FX positions, the impact of exchange rate fluctuations on the Rabobank Group CET1 ratio is mitigated. FX translation risk at Rabobank Group level is covered by the Global Standard on FX Translation Risk ("Standard"). The purpose of the Standard is to outline the Rabobank Group policy towards FX Translation risk to achieve and ensure a prudent and sound monitoring controlling system, in order to manage these risks Group wide. Rabobank uses a pillar 2 framework for those areas where Rabobank is of the opinion that the regulatory framework (i.e. pillar 1) does not address the risk, or does not adequately address the risk. FX translation risk is one of these risks. "Interest rate risk in the banking environment" refers to the risk that the financial results and/or the economic value of the Annual Report 2018 - Consolidated Financial Statements 158

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Annual Reports Rabobank | 2018 | | pagina 160