About this Report Chairman's Foreword Corporate Management Report Appendices Governance Consolidated Financial Company Financial Statements Statements CDS spreads. All other market risk parameters are valued consistently with derivatives used to hedge the market risk in these liabilities. Changes in the fair value that are attributable to changes in own credit risk are reported in "Other comprehensive income". The change in fair value that is attributable to changes in own credit risk is calculated by deducting on a note by note basis the current fair value of the structured notes portfolio at the reporting date from the fair value recalculated based on the prevailing credit curve at the time of origination, with all other pricing components unchanged. This calculation reflects the amount that can be attributed to the change in the own credit risk of Rabobank since the origination of these structured notes. Debt Securities in Issue. The fair value of these instruments is calculated using quoted prices on an active market. For debt securities for which no quoted prices on an active market are available, a discounted cash flow model is used based on credit adjusted yield curves appropriate for the term to maturity. The following table shows the fair value of financial instruments, recognized at amortized cost based on the valuation methods and assumptions detailed below. This table is included because not all financial instruments are recognized at fair value in the balance sheet. Fair value represents the price that would have been either received for the sale of an asset or paid in order to transfer a liability in a standard transaction conducted between market participants on the valuation date. 2018 2017 Amounts in millions of euros Carrying amount Fair value Carrying amount Fair value Assets Cash and cash equivalents 73,335 73,335 66,861 66,861 Loans and advances to credit institutions 17,859 17,878 27,254 27,190 Loans and advances to customers 436,591 443,867 432,564 443,249 Liabilities Deposits from credit institutions 19,397 19,333 18,922 18,929 Deposits from customers 342,410 345,719 340,682 344,783 Debt securities in issue 130,806 132,397 134,423 137,392 Subordinated liabilities 16,498 17,220 16,170 18,042 The above stated figures represent the best possible estimates by management based on a range of methods and assumptions. If a quoted price on an active market is available, this is the best estimate of fair value. If noquoted prices on an active marketareavailableforfixed-term securities, equity instruments, derivatives and commodity instruments, Rabobank bases the expected fair value on the present value ofthe future cash flows, discounted at market rates which correspond to the credit ratings and terms to maturity of the investments. A model-based price can also be used to determine fair value. Rabobank follows a policy of having all models used for valuing financial instruments in the statement of financial position validated by expert staff who are independent ofthe staff who determine the fair values ofthe financial instruments. In determining market values or fair values, various factors have to be considered. These factors include the time value of money, volatility, underlying options, credit quality ofthe counterparty and other factors. The valuation process has been designed in such a way that market prices that are available on a periodic basis are systematically used. Modifications to assumptions might affect the fair value of financial assets and liabilities held for trading and non-trading purposes. The table on the next page illustrates the fair value hierarchy used in determining the fair value of financial assets and liabilities. The breakdown is: Level 1Quoted prices on active markets for identical assets or liabilities; an "active market" is a market in which transactions relating to the asset or liability occur in sufficient frequency and at a sufficient volume in order to provide price information on a permanent basis Level 2: Inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) Level 3: Inputs for the asset or liability not based on observable market data. Rabobank determines for recurrent valuations of financial instruments at fair value when transfers between the various categories ofthe fair-value hierarchy occurred by reassessing the level at the end of each reporting period. Annual Report 2018 - Consolidated Financial Statements 166

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Annual Reports Rabobank | 2018 | | pagina 168