-
-
-
-
-
-
About this
Report
Chairman's
Foreword
Corporate
Management Report Appendices Governance
Consolidated Financial Company Financial
Statements Statements
can either be redistributed to other clients or managed through
risk transformation (hedging). The trading desks are also acting
as a market-maker for secondary markets (by providing liquidity
and pricing) in interest rate derivatives and debt, including
Rabobank Bonds and Rabobank Certificates.
Market risk in the trading environment is monitored daily within
the market risk framework, which is put in place to measure,
monitor and manage market risk in the trading books. This
framework contains all derivatives in trading books, as well as the
loan syndication books, the short term funding books, securities
finance repo books and the bond trading books. An important
part of the framework is an appropriate system of limits and
trading controls. The relevant risk appetite limits are translated
into limits and trading controls at book level and are monitored
on a daily basis by the market risk departments.
Due to Rabobank's strategy of client risk redistribution, risk
transformation (hedging) and the low secondary market activity,
the real market risk exposure of the trading portfolio is well within
the risk appetite boundaries. If limits are breached, remedial
actions will be stipulated which decrease the chance of large
actual losses. The risk position is reported to senior management
and discussed in the various risk management committees each
month. Risk developments that require ad hoc attention are
communicated accordingly outside the regular reporting cycle.
On consolidated level, the risk appetite is defined for VaR, event
risk, event risk underwriting and interest rate delta.
The VaR indicates the maximum loss fora given confidence level
and horizon under'normal' market conditions, based on oneyear
of historical market movements. Daily risk management uses a
confidence level of 97.5% and a horizon of 1 day. Under this
method, VaR is calculated on the basis of historical market
movements and the positionstaken.Thetable below presents the
composition of the VaR. In 2018, the VaR fluctuated between
EUR 1.9 million and EUR 3.9 million, the average being
EUR 2.6 million. The VaR amounted to EUR 3.4 million on
December 31, 2018. VaR mostly changed due to client related
deals and increased risk levels due to volatility in the financial
markets.
VAR (I day, 97.5%) (amounts in millions of euros)
Interest
Credit
2018- December 31
2.3
2.9
2018 - average
2.2
1.5
2018 - Highest
3.4
3.0
2018 - Lowest
1.7
0.7
2017 - December 29
2.9
0.8
2017- average
3.4
0.8
2017 - highest
4.7
1.3
2017 - lowest
2.6
0.6
In addition to the VaR, there are several other important risk
indicators. The interest rate delta is a measure of the change in the
value of positions if there is a parallel increase in the yield curve
of1 basis point (i.e. 0.01 percentage point).The interest ratedelta
table below shows the sensitivity to changes in the yield curves
for the major currencies. On December 31,2018, the interest rate
delta for trading books was EUR 0.6 million positive. The interest
rate delta remained well within the set limit during the reporting
period.
Interest Rate Delta
31 December
31 December
Amounts in millions of euros
2018
2017
EUR
0.4
0.5
USD
0.1
0.0
CHF
0.1
0.1
Other
0.0
0.1
Total
0.6
0.7
Currencies
Shares
Commodities
Diversification
Total
0.1
0.0
0.2
(2.1)
3.4
0.1
0.0
0.1
2.6
0.6
0.1
0.7
3.9
0.0
0.0
0.1
1.9
0.2
0.0
0.1
(0.8)
3.1
0.2
0.0
0.2
3.8
1.2
0.1
2.4
4.9
0.0
0.0
0.1
3.0
Rabobank uses stress testing to complement the VaR. It is
instrumental in gauging the impact of extreme, yet plausible
predefined moves in market risk factors on the P&L of individual
trading and investment portfolios. These moves are reflected in
scenarios which capture risk drivers such as tenor basis swap
spreads, interest rates, foreign exchange, credit spreads, volatility
and interest rate curve rotation. Depending on the scenario,
individual risk factors or multiple risk factor categories will be
stressed at the same time.
The event risk, which is measured by performing sensitivity
analyses and stress tests was EUR 128 million on December 31,
2018, well within the set limit. It fluctuated between
EUR 103 million and EUR 157 million with an average of
EUR 129 million. Within the Trading Book, the tenor basis swap
position remains a large concentrated position with a substantial
impact on Rabobank's event risk. Due to Rabobank's increased
Annual Report 2018 - Consolidated Financial Statements
160