About this Report Chairman's Foreword Corporate Management Report Appendices Governance Consolidated Financial Company Financial Statements Statements performance. Corporate sustainability also means sustainable financing. Sustainability guidelines have been established for the credit process in addition to the use of standard credit risk management models to estimate PD, LGD and EAD parameters. To further strengthen our credit management framework, we have rationalized our credit model landscape in line with the Europe-wide TRIM exercise. Rabobank also uses a wide range of credit mitigation techniques in order to reduce specific counterparty credit risk or country risk. Different modelling methodologies apply to different portfolios; each model accounts for quantitative and qualitative risk drivers. The credit risk parameters are used to calculate the capital requirements. Rabobank applies concentration risk mitigation. It does this, for example, for certain asset classes and at the sector and country level. The risk appetite determined for Rabobank's asset classes is expressed in exposure, percentage of defaults and impairment charges. Furthermore, exposure limits apply at the sector and country level. Single-name concentrations are limited on exposure and on loss at default (LAD) and are monitored closely. Rabobank uses the Basel II default definitions to identify the necessity of an impairment allowance. As of January 1, 2018 the impairment allowances and charges are calculated according to IFRS 9. Operational Risk Exposure to operational risks is an inevitable part of executing business activities; Rabobank minimizes this risk within the boundaries set by the complexity and size of its organization. Operational risks are actively managed and control led by policies, procedures, limits and controls including areas such as Legal, Compliance, IT, Information Security, Business continuity management and Sustainability. Furthermore, we do not accept that the sum of operational risk losses exceeds approximately 1%-1.5% of the budgeted annual gross income. Rabobank has developed and implemented a Risk and Control Framework (RCF) which is mandatory for Rabobank Retail NL and WRR activities, CIOO and Support Function and also DLL and Obvion. The RCF ensures that risks resulting from 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 is offered by the first Line of Defense risk owner (client-facing departments), which is then supported by the second Line of Defense (Risk Management and Compliance). 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 that 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 Aligned Risk Control Activities result in effective and efficient management of various types of operational risks and creates a good balance between risks and controls throughout the organization. RCF improves the overall efficiency and effectiveness of daily business and helps Rabobankto become a better learning organization. The primary responsibilityforthe managementofoperational risk lies with each business area. It should be fundamentally woven into their strategic and day-to-day decision-making. Within the group entities, the 'In Control' meetings are important to identifying and monitoring the operational risks of the entity. Compliance All our activities must be carried out with honesty, sincerity, care and reliability. They must comply with relevant laws, regulations and Rabobank's Code of Conduct, the Rabobank Compass. It is essential that we conduct our business with integrity. All our stakeholders count on this. It is our ambition to provide customers with the best possible service, while always exercising due care. Acting with integrity and adhering to relevant laws and regulations is a responsibility of all Rabobank employees. Our global compliance are catalysts, that motivate all entities of the Rabobank Group to live and breathe the desired culture and to behave accordingly. Compliance Function Compliance, as part of the second Line of Defense, has an important role to play in achieving and maintaining integrity and trust. Compliance helps the organization to effectively manage the compliance risks by setting policies and standards, advising the business, creating awareness, monitoring adherence and behavior and by generally being the centre of expertise. The Rabobank Compliance function, has a focus on the following compliance themes: Conduct Treating customers fairly Annual Report 2018 - Management Report 63

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Annual Reports Rabobank | 2018 | | pagina 65