About this
Report
Chairman's
Foreword
Corporate
Management Report Appendices Governance
Consolidated Financial Company Financial
Statements Statements
interest income and to protect the bank in times of stress.
Following the transformation role as a retail bankwe accept an
appropriate level of interest rate riskasan importantdriverforthe
bank's profit. However, losses due to changes in interest rates may
never threaten the financial stability of the bank.
Rabobank is mainly exposed to interest rate risk in the banking
environment as a result of (1) mismatches between the repricing
period of assets and liabilities and (2) embedded optionality in
client products. In the banking environment Rabobank is also
subject to currency risk, which is mainly translation riskon capital
invested in foreign activities.
Developments related to benchmarks regulation and reforms
Benchmark rates like the London Interbank Offered Rate (LIBOR),
the Euro-zone inter-bank offered rate (EURIBOR) are the subject
of ongoing regulatory reform (as a result of the Benchmarks
Regulation, among other reasons, which entered into force on
January 1, 2018). Following the implementation of any such
potential reforms, the manner of administration of benchmarks
may change. Asa result, benchmarks may perform differently than
they have in the past, or they could be eliminated entirely, or
there could be other consequences, some of which cannot be
predicted. For example, the UK Financial Conduct Authority
announced in July 2017 that it will not endeavorto sustain LIBOR
beyond 2021 and urged users to plan the transition to alternative
reference rates.
Rabobank has significant contractual rights and obligations
referenced to benchmark rates. Discontinuance of, or changes to,
benchmark rates as a result of these developments or other
initiatives or investigations, as well as uncertainty about the
timing and manner of implementation of such changes or
discontinuance, may require adjustments to agreements that are
referenced to current benchmarked rates by us, our clients and
other market participants as well as to our systems and
processes. This all increases the conduct/litigation risk,
reputational and financial risks for Rabobank.
Liquidity Risk
In orderto optimize funding availability and funding costs for our
customer requirements, Rabobank has high quality and robust
liquidity buffers. It also has a diversified global funding base in
terms of retail versus wholesale funds and in terms of investors,
instruments, maturities, countries and currencies.
Liquidity risk is defined as a major risk type at Rabobank.
Rabobank's policy is to finance client assets using stable funding,
by which we mean funds that have been entrusted by clients as
well as long-term wholesalefunding.TheTreasury departmentis
responsible for managing the day-to-day liquidity position, the
generation of professional funding on the money and capital
markets, and the structural position. Liquidity risk management
rests on three pillars.
The first pillar sets strict limits on the maximum outgoing cash
flows for different maturities within the wholesale banking
business. Rabobank measures and reports the incoming and
outgoing cash flows expected during the next 12 months on
a daily basis. Limits and controls govern these outgoing cash
flows, including per currency-specific ones. Detailed
contingency funding plans are in place to ensure the bank is
prepared for potential crisis situations. These plans are subject
to periodic operational tests.
The second pillar of liquidity risk management is our
substantial high-quality buffer of liquid assets. Besides cash
balances held at central banks, liquid securities can also be
pledged to central banks, used in repo transactions or be sold
directly in the market to generate immediate cash. The size and
quality of the liquidity buffer is aligned with the risk to which
Rabobank is exposed as a result of its balance sheet. In
addition, a portion of the mortgage loan portfolio has been
securitized internally. By pledging the notes to the central
bank, this retained securitization serves as an additional
liquidity buffer, but it is not reflected on the consolidated
balance sheet.
The third pillar is our maintenance of a solid credit rating, of
adequate capital levels and of a prudent funding policy.
Rabobanktakes various measures to create a balanced source
of funding. These measures include the balanced
diversification of funding sources with respect to maturity,
currencies, investors, geographies and markets, as well as a
high degree of unsecured funding (and therefore of limited
asset encumbrance), and an active and consistent investor
relations policy.
Annual Report 2018 - Management Report
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