4.7 Liquidity Risk
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bond trading activity, the dominant event risk scenario
throughout the year was related to a rise in bond yields.
Liquidity risk is the risk that the bank will not be able to meet all
of its payment and repayment obligations on time, as well as the
risk that the bank will not be able to fund increases in assets at a
reasonable price, if at all. This could happen if, for instance,
customers or professional counterparties suddenly withdraw
more funds than expected which cannot be absorbed by the
bank's cash resources, by selling or pledging assets in the market
or by borrowing funds from third parties. Rabobank considers an
adequate liquidity position and retaining the confidence of both
professional market parties and retail customers to be crucial in
ensuring unimpeded access to the public money and capital
markets.
The liquidity risk policy focuses on financing assets using stable
funding, i.e., funds entrusted by customers and long-term
wholesale funding. Liquidity risk is managed based on three
pillars. The first of these sets strict limits for the maximum
outgoing cash flows within the wholesale banking business.
Among other things, Rabobank measures and reports on a daily
basis what incoming and outgoing cash flows can be expected
during the next twelve months. Limits have been set for these
outgoing cash flows, including for each currency and each
location. Detailed plans (the contingency funding plans) have
been drawn up for contingency funding to ensure the bank is
prepared for potential crisis situations. Periodic operational tests
are performed for these plans.
The second pillar is used to maintain a substantial high-quality
buffer of liquid assets. Besides credit balances held at central
banks, these assets can be pledged to central banks, in repo
transactions, or to be sold directly in the market to generate
liquidity immediately. The size ofthe liquidity buffer is attuned to
the risk Rabobank is exposed to in its balance sheet. In addition
Rabobank has securitized a portion ofthe mortgage portfolio
internally, which means it can be pledged to the central bank,
thereby serving as an additional liquidity buffer. Since this
concerns retained securitizations, it is not reflected in the
consolidated balance sheet.
The third pillar for managing liquidity risk consists of a good
credit rating, high capital levels and prudent funding policies.
Rabobank takes various measures to avoid becoming overly
dependent on a single source offunding.These include balanced
diversification of financing sources regarding maturity,
currencies, investors, geography and markets, a high degree of
unsecured funding and therefore limited asset encumbrance, and
an active and consistent investor-relations policy play a major
role.
Scenario analyses are performed each month to determine the
potential consequences of a wide range of stress scenarios. The
analyses cover market-specific scenarios, Rabobank-specific
scenarios and a combination of both. Monthly reports on the
Group's overall liquidity position are submitted to the Dutch
Central Bank. These reports are prepared in accordance with the
guidelines drawn up by this supervisory authority.
The table below shows the undiscounted liabilities grouped
according to the remaining liquidity period from the reporting
date to the expected contract repayment date. The total amou nts
do not correspond exactly with the amounts in the consolidated
statement of financial position because this table is based on
undiscounted contractual cash flows relating to both principal
and future interest payments. Derivatives are not included in this
table and have not been analyzed on the basis ofthe contractual
due date, because they are not essential for the management of
liquidity risk or for reporting to senior management. The maturity
profile of derivatives used for cash flow hedging is disclosed in
Section 11.3 "Derivatives Designated as Hedging Instrument."
Annual Report 2018 - Consolidated Financial Statements
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