Capital Developments About this Report Chairman's Foreword Corporate Management Report Appendices Governance Consolidated Financial Company Financial Statements Statements Positive Development of Capital Ratios On December 31, 2018, our fully loaded CET1 ratio amounted to 16.0% (2017:15.5%). This is well above the 14% target. The increase of this ratio was mainly due to adding net profit for the financial year (after several distributions) to retained earnings. Our total capital ratio has been replaced by a MREL requirement to be met with a combination of own funds and Non-Preferred Seniors. Rabobank will maintain its best in class total capital ratio to protect NPS holders. The total capital ratio is 26.6% and will trend downward to around 24% in the coming years (subject to RWA development). Our leverage ratiothat is, our tier 1 capital divided by balance sheet positions and off-balance-sheet liabilitiesis calculated based on the definitions provided in the CRR/CRD IV. On December 31, 2018, our leverage ratio was 6.4% (2017: 6.0%), which is well above the minimum leverage ratio of 3% required by Basel III guidelines. IFRS 9 Impact on CET 1 Capital on January 1, 2018 The total negative impact of the adoption of IFRS 9 on the fully loaded CET1 ratio was 14 basis points. IFRS 9 impairment calculations have led to higher loan loss allowances as of January 1,2018. Instead of incurred losses, expected losses are being recognized. Incurred but not reported (IBNR) losses have been replaced by expected one-year losses for Stage 1 assets and expected lifeti me losses for Stage 2 assets. The day-one effect was an increase of our loan loss allowances by EUR 227 million. For CET 1 capital calculations the impact of higher loan loss allowances was fully compensated by a decrease in the IRB shortfall. IFRS 9gives newguidancearound modification accounting under its classification and measurement rules. This has altered the way Rabobank accounts for prepayment penalties and interest rate averaging in the consolidated statement of income. Another change in classification and measurement relates to some legacy, non-core credit portfolios that are sold before their legal maturity and therefore receive the classification "Other." They are measured at fair value through profit or loss. On the liability side Rabobank has elected to reclassify the callable notes included in the structured funding portfolio to amortized cost. This reclassification resulted in the bifurcation of the embedded derivatives while the funding host contract is measured at amortized cost. The total effect of IFRS 9 classification and measurement amounts to positive EUR 201 million. Capital ratios in millions of euros 12-31-2018 1-1-2018 12-31-2017 Retained earnings 28,062 26,302 26,777 Expected distributions (46) (54) (54) Rabobank Certificates 7,445 7,440 7,440 Part of non-controlling interest treated as qualifying capital 0 26 26 Reserves (798) (911) (1,401) Regulatory adjustments (2,553) (2,317) (2,050) Transition guidance 12 24 525 Common equity tier 1 capital 32,122 30,510 31,263 Capital securities 3,721 2,728 2,728 Grandfathered instruments 3,325 3,590 3,590 Non-controlling interests 0 6 6 Regulatory adjustments (100) (88) (88) Transition guidance 0 0 (295) Additional tier 7 capital 6,946 6,236 5,941 Tier 1 capital 39,068 36,746 37,204 Part of subordinated debt treated as qualifying capital 14,274 14,896 14,896 Non-controlling interests 0 7 7 Regulatory adjustments (83) (89) (89) Transition guidance 0 0 (95) Tier 2 capital 14,191 14,814 14,719 Qualifying capital 53,259 51,560 51,923 Risk-weighted assets 200,531 198,207 198,269 Common equity tier 1 ratio (transitional) 16.0% 15.4% 15.8% Common equity tier 1 ratio (fully loaded) 16.0% 15.4% 15.5% Tier 1 ratio 19.5% 18.5% 18.8% MREL buffer 28.25% 26.64% 26.82% Total capital ratio 26.6% 26.0% 26.2% Equity capital ratio 17.7% 17.0% 17.3% Common equity tier 1 ratio of Coöperatieve Rabobank U.A. solo (issuer level) 16.0% 15.4% 15.5% The Benefit of Our MREL-Eligible Capital Buffer Rabobank aims to protect senior creditors and depositors against the unlikely event of a bail-in. Rabobank therefore holds a large bufferof equity and subordinated debtthat will firstabsorb losses in the event of a bail-in. Rabobank has received formal notification from De Nederlandsche Bank (DNB) of its binding minimum requirement for own funds and eligible liabilities (MREL). The MREL requirement has been established to ensure that banks in the European Union have sufficient own funds and eligible liabilities to absorb losses in the case of a potential bank failure. The MREL requirement is set for Rabobank Group at a consolidated level, as determined by the Single Resolution Board (SRB). This MREL requirement is based on Rabobank's year-end 2016 figures. The requirement was set at 30.96% of Rabobank's risk- weighted assets (EUR 65 billion) and consists of a loss absorption Annual Report 2018 - Management Report 56

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Annual Reports Rabobank | 2018 | | pagina 58