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
