4.8 Operational Risk
4.9 Fair Value of Financial Assets and
Liabilities
About this
Report
Chairman's
Foreword
Corporate
Management Report Appendices Governance
Consolidated Financial Company Financial
Statements Statements
Customer savings are an example. Under contract, these are
payable on demand. Experience has shown this to be very stable
source of long-term financing for Rabobank to have at its
disposal. The regulations of the supervisory authority also factor
this in.
With a Liquidity Coverage Ratio (LCR) of 135% as per December
31, 2018 (2017:123%), Rabobank complies with the minimum
100% requirement as set by the Dutch Central Bank (DNB).
The liquidity requirements to meet payments under financial
guarantees are considerably lower than the amount of the
liabilities because Rabobankdoes not generally expect thatthird
parties to such arrangements will draw funds. The total
outstanding amount in contractual obligations to provide credit
does not necessarily represent the future cash resource needs of
Rabobank because many of these obligations will lapse or
terminate without financing being required.
Operational Risk (OpRisk) is an integral part of doing business.
Operational Risk Management (ORM) within Rabobank is aimed
at having a healthy balance between the exposure to these risks
and managing these risks. The objective of ORM is to identify,
measure, mitigate and monitor operational risk, and promote risk
awareness and a healthy risk culture within Rabobank. Risk
quantification and awareness helps management to set priorities
in their actions and allocate people and resources thus enabling
the bank to deliver full customer focus. Within Rabobank,
operational risk is defined as the risk of losses resulting from
inadequate or failed internal processes, people and systems or
from external events, including potential reputational
consequences.
Rabobank has developed a Risk and Control Framework (RCF)
which is mandatory for all business units (including subsidiaries)
and central support functions within the organization. The RCF
ensures that risks due to inadequate or failing processes, people,
systems and/or external events are managed within the accepted
risk levels. To manage operational risks effectively, an integrated,
forward-looking view by the first Line of Defense risk owner
(client-facing departments) and Support Functions is in place. In
addition, quarterly In Control meetings within the first line are in
place to manage operational risks.
Rabobank performs a structured and integrated risk analysis to
integrally manage its risk and control framework. Performing this
risk assessment across all entities helps to ensure Rabobank
Group's risk management system is sound and in compliance
with regulatory requirements. Risk Control Activities (RCAs) are
included in the following process steps:
Risk Identification
Risk Assessment
Risk Response
Risk Monitoring
Risk Reporting
Risk Finding and Action Management
Risk Incident Management
Uniform and consistent Risk Control Activities result in an effective
and efficient way of managing various types of operational risks
and a good balance between risks and controls within the
organization. Hence RCF improves the efficiency and
effectiveness of daily business and helps to become a better
learning organization.
For fair value measurement Rabobank assumes that the
transaction to sell the asset or transfer the liability is conducted
in the principal market for the asset or liability, or in the most
advantageous market if no principal market exists.
Market prices are not available for a large number of the financial
assets and liabilities that Rabobank holds or issues. For financial
instruments for which no market prices are available, the fair
values shown in the following table have been estimated using
the present value or the results of other estimation and valuation
methods, based on the market conditions on the reporting date.
The values produced using these methods are highly sensitive to
the underlying assumptions used for the amounts and for the
timing of future cash flows, discount rates and possible market
illiquidity. The following methods and assumptions have been
used.
Cash and Cash Equivalents.
The fair value of cash and cash equivalents is assumed to be
almost equal to their carrying amount. This assumption is used for
highly liquid investments and alsoforthe short-term component
of all other financial assets and liabilities.
Loans and Advances to Credit Institutions.
Loans and advances to credit institutions also includes interbank
placings and items to be collected. The fair values of floating rate
placings, that are repriced regularly and do not vary significantly
in terms of credit risk, and overnight deposits are their carrying
amounts. The estimated fair value of fixed-interest deposits is
based on the present value of the cash flows, calculated based
Annual Report 2018 - Consolidated Financial Statements
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