Pillar 3 Report 2018 - RabobankPillar 3 Pillar 3 Report 2018 - Pillar 3 3 Contents Forward-looking Statements 4 1. Concise Risk Statement - Key ratios 6 2. Introduction 7 3. Rabobank

Pillar 3 Report2018

Growing abetter worldtogether

Pillar 3

Pillar 3

Pillar 3 Report 2018 - Pillar 3 3

Contents

Forward-looking Statements 4

1. Concise Risk Statement - Key ratios 6

2. Introduction 7

3. Rabobank at a Glance 8

3.1 Basis of consolidation 13

3.2 Accounting and risk principles 14

4. Risk Management 15

4.1 Risk Approach 15

4.2 Risk Management Organisation 16

4.3 Risk Management Framework 18

4.4 Risk Measurement 18

5. Capital Management 21

5.1 Capital Management 21

5.2 Regulatory Capital 22

5.3 Renewed Pillar 2 Capital Framework 23

5.4 Capital Ratios 24

6. Credit Risk 26

6.1 Credit Risk Management 26

6.2 Credit Risk Measurement 27

6.3 Specific Counterparty Credit Risk 43

6.3.1 Qualitative information Counterparty Credit Risk

and credit risk mitigation

43

6.3.2 Quantitative information Counterparty Credit Risk

and credit risk mitigation

45

6.4 Developments in Loan Portfolios 51

6.5 Country Risk 51

6.6 Equities in the Banking Book 52

7. Securitisation 53

7.1 Own Asset Securitisation (Originator Role) 53

7.2 Sponsor Transactions 54

7.3 Investor Transactions 54

7.4 Regulatory Capital Approaches 55


8. Operational Risk 57

8.1 Operational Risk Management Framework 57

8.2 Advanced Measurement Approach (AMA) 57

8.3 Developments in 2018 60

9. Market Risk 61

9.1 Trading Market Risk 61

9.2 Non-trading Interest Rate Risk 67

9.3 Non-trading Currency Risk 68

10. Liquidity Risk 69

10.1 Liquidity Risk Management Framework 69


11. Remuneration 76

11.1 General Principles for Remuneration 76

11.2 Group Remuneration Policy 76

11.3 Quantitative Information 78

12. Global Systemically Important Banks - 12 Indicators 82

13. Declaration Managing Board 83

14. Appendices 84

14.1 Transitional Own Funds Disclosure Template 85

14.2 Capital Instruments Main Features Template 89

14.3 CRR Leverage Ratio 90

14.4 Countercyclical Buffer by Country and Institution-

specific Countercyclical Buffer Rate

92

14.5 Reconciliation with EBA-Guidelines and CRR Articles 93

14.6 Template 21: EU CR6 - IRB approach - Credit risk

exposures by exposure class and PD range

95

14.7 Template 24: EU CR9 - IRB approach - Backtesting of

PD per exposure class

104

14.8 List of Abbreviations 107

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This document contains certain forward-looking statements with respect to the business, strategyand plans of Rabobank Group and its current goals and expectations relating to its future financialcondition and performance. Statements that are not historical facts, including statements aboutRabobank Group or its directors’ and/or management’s beliefs and expectations, are forward-lookingstatements. Words such as ‘believes’, ‘anticipates’, ‘estimates’, ‘expects’, ‘intends’, ‘aims’, ‘potential’, ’will’,‘would’, ‘could’, ‘considered’, ‘likely’, ‘estimate’ and variations of these words and similar future orconditional expressions are intended to identify forward-looking statements but are not the exclusivemeans of identifying such statements. By their nature, forward looking statements involve risk anduncertainty because they relate to events and depend upon circumstances that will or may occur inthe future.

Examples of such forward-looking statements include, but are not

limited to: projections or expectations of the Group’s future

financial position including profit attributable to provisions,

economic profit, dividends, capital structure, expenditures or any

other financial items or ratios; statements of plans, objectives or

goals of the Group or its management including certain synergy

targets; statements about the future business and economic

environments in the Netherlands and elsewhere including, but

not limited to, future trends in interest rates, foreign exchange

rates, credit and equity market levels and demographic

developments; statements about competition, regulation,

disposals and consolidation or technological developments in

the financial services industry; and statements of assumptions

underlying such statements.

Factors that could cause actual business, strategy, plans and/or

results to differ materially from the plans, objectives,

expectations, estimates and intentions expressed in such

forward-looking statements made by the Group or on its behalf

include, but are not limited to: general economic and business

conditions in the Netherlands and internationally; inflation,

deflation, interest rates and policies of the Dutch Central Bank, the

European Central Bank and other G8 central banks; fluctuations

in exchange rates, stock markets and currencies; the ability to

access sufficient funding to meet the Group’s liquidity needs;

changes to the Group’s credit ratings; the ability to derive cost

savings and other benefits; changes in customer preferences;

changes to borrower or counterparty credit quality; instability in

the global financial markets, including Eurozone instability and

the impact of any sovereign credit rating downgrade or other

sovereign financial issues; technological changes and risks to

cyber security; natural and other disasters, adverse weather and

similar contingencies outside the Group’s control; inadequate or

failed internal or external processes, people and systems; acts of

war, other acts of hostility, terrorist acts and responses to those

acts, geopolitical, pandemic or other such events; changes in

laws, regulations, taxation, accounting standards or practices;

regulatory capital or liquidity requirements and similar

contingencies outside the Group’s control; the policies and

actions of governmental or regulatory authorities in the

Netherlands, the European Union (EU), the US or elsewhere,

including the implementation of key legislation and regulation;

the implementation of the draft EU crisis management framework

directive and banking reform, following the recommendations

made by the Independent Commission on Banking; the ability to

attract and retain senior management and other employees;

actions or omissions by the Group’s directors, management or

employees including industrial action; the extent of any future

impairment charges or write-downs caused by, but not limited to,

depressed asset valuations, market disruptions and illiquid

markets; market-related trends and developments; exposure to

regulatory or competition scrutiny, legal proceedings, regulatory

or competition investigations or complaints; changes in

competition and pricing environments; the inability to hedge

certain risks economically; the adequacy of loss reserves; the

actions of competitors, including nonbank financial services and

lending companies; and the success of the Group in managing

the risks of the foregoing.

Forward-looking Statements

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Rabobank Group may also make or disclose written and/or oral

forward-looking statements in reports filed with or furnished to

the US Securities and Exchange Commission, Rabobank Group

annual reviews, half-year announcements, proxy statements,

offering circulars, prospectuses, press releases and other written

materials, and in oral statements made by the directors, officers

or employees of Rabobank Group to third parties, including

financial analysts. Except as required by any applicable law or

regulation, the forward-looking statements contained in this

document are made as of the date hereof, and Rabobank Group

expressly disclaims any obligation or undertaking to release

publicly any updates or revisions to any forward looking

statements contained in this document to reflect any change in

Rabobank Group’s expectations with regard thereto or any

change in events, conditions or circumstances on which any such

statement is based.

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Transitional Common Equity

Tier 1 Ratio (CET1)

(2017: 15.8%)

16.0%

Transitional Tier 1 Capital Ratio

(2017: 18.8%)

19.5%

Transitional Total Capital Ratio

(2017: 26.2%)

26.6%Transitional Leverage Ratio

(2017: 6.0%)

6.4%

Total Risk Weighted

Exposure Amounts

(2017: 198.3 bn)

200.5 bn

Impairment Charges

on Financial Assets

(2017: -5 bps)

5 bps

COMMON EQUITY TIER 1 RATIOOn 1 January 2018 the CET1-ratio decreased from 15.8% to 15.4%

due the phase-in of CRD IV and the full adoption of IFRS 9. During

2018 the CET1-ratio increased by 0.6%-points due to the inclusion

of net profit (after payments on capital instruments) ending up

at 16.0% as per 31 December 2018. The fully loaded CET1-ratio

was also 16.0% on 31 December 2018 as CRD IV is with the

exception of minor items fully phased in now.

TOTAL CAPITAL RATIOThe total capital-ratio increased by 0.4%-points in 2018 from

26.2% to 26.6%, mainly as a consequence of the higher CET1

capital, partly compensated by negative FX movements on FX

capital instruments.

LEVERAGE RATIOOur transitional leverage ratio amounted to 6.4% as per

December 2018 (6.0% as per December 2017). The change in

leverage ratio was mainly due to increased Tier 1 capital and a

reduction of the leverage exposure. We expect that the leverage

ratio will further increase in the coming years.

Reference is made to chapter Risk Management in Rabobank's

Annual Report 2018 for a description of Rabobank's overall risk

profile asscociated with its strategy.

1. Concise Risk Statement - Key ratios

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This document presents the consolidated Capital Adequacy and Risk Management report (hereafterreferred to as Pillar 3) of Rabobank Group (‘Rabobank’) as per 31 December 2018. This report shouldbe read in conjunction with the Annual Report 2018.

Rabobank operates under the CRD IV capital framework which

came into force at the start of 2014. CRD IV constitutes the Basel

framework which seeks to align regulatory requirements with the

economic principles of risk management. The CRD IV was

implemented into Dutch law as amendments to the ‘Wet op het

financieel toezicht’ and further accompanying regulations. Pillar

3 requirements under CRD IV are designed to promote market

discipline through the disclosure of key information about risk

exposures and risk management processes. Rabobank’s 2018

year-end disclosures are prepared in accordance with the CRD IV

requirements and associated guidelines of the European Banking

Authority (EBA) technical standards, in force as of December 31,

2017.

The information in Pillar 3 has not been audited by Rabobank’s

Group external auditors. However, the Pillar 3 disclosures are

subject to the Rabobank’s Group internal controls and validation

mechanisms, which aim to ensure the correctness of the

information disclosed in this report as well as with regard to

compliance with laws and regulations.

The implementation of CRD IV is subject to transitional

arrangements. By January 1, 2019 all CET1 capital deductions

must be phased in and the non-eligible Tier 1 capital instruments

will be phased out by January 1, 2022. Consequently, Rabobank’s

capital position is presented by applying the transitional

arrangements. Rabobank also discloses the end-point CRD IV

rules (i.e. fully loaded basis) for informational purposes.

In addition to the changes required under CRD IV, there remain

ongoing regulatory developments. Rabobank keeps monitoring

them closely and assessing their impact.

The remainder of this report contains:

• Chapter 3: Rabobank at a glance;

• Chapter 4: The approach of risk management, the organisation

and the risk management framework;

• Chapter 5: Capital management, regulatory and economic

capital and key capital ratios;

• Chapter 6: Credit Risk (including counterparty credit risk) and

equities in the banking book;

• Chapter 7: Securitization in the Rabobank portfolio;

• Chapter 8: Operational risk management;

• Chapter 9: Market risk and interest rate risk framework;

• Chapter 10: Liquidity risk management framework and

measurement;

• Chapter 11: Remuneration principles and policy of Rabobank.

Information regarding the following subjects is disclosed in

Rabobank’s Annual Report 2018:

• The number of directorships held by members of the

management body (Note 'Members of the Managing and

Supervisory Board')

• The recruitment policy for the selection of members of the

management body and their actual knowledge, skills and

expertise (Note 'Report of the Supervisory Board')

• The policy on diversity with regard to selection of members

of the management body, its objectives and any relevant

targets set out in that policy, and the extent to which these

objectives and targets have been achieved (Note 'Empowered

employees')

• Whether or not the institution has set up a separate risk

committee and the number of times the risk committee has

met (Note 'Report of the Supervisory Board')

• The description of the information flow on risk to the

management body (Note 'Report of the Supervisory Board').

2. Introduction

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Adding Value for our StakeholdersRabobank is committed to creating value for stakeholders and

society at large. Changing client behavior, technological

developments and a complex economic environment, mean that

value is created through enduring relationships with all

stakeholders, and by responding appropriately to client needs

against the backdrop of today's trends and developments.

External developments and risks

Dilemmas

• 100% digital convenience in everything

• Top customer advice nearby

• Growth with innovation

• Top performance

• Optimal balance sheet

• Exceptionally good execution• Inspired employees

• One Rabobank culture

• Concrete socially responsible contribution

• Involved members and communities

Banking for the Netherlands Banking for Food

Growing a better world together

Val

ue

for

mem

bers and customers

Value for society

Value fo

r em

ploye

esValue for investors

• Capital

• Employees

• Knowledge

• IT

• Partnerships

What do we need?

• Mortgages

• Loans

• Payment services

• Savings

• Assets under Management

• Insurance

• Leasing

• Area development

What do we o!er?

Our impact

What are we aiming for?

Excellent customer

focus

Empoweredemployees

Rock-solidbank

Meaningfulcooperative

Developments and UncertaintiesEvery year we analyze trends and developments that affect our

work. In 2018 we saw many trends in consumer behavior,

technology, innovation, market players, regulations, the economy

and society. All present several opportunities and challenges for

Rabobank and its customers.

The trends in a nutshell are:

• Client preferences are changing rapidly and significantly.

Digital interaction is increasingly replacing face-to-face

contact, so we are investing in the quality and further

innovation of our (digital) services. Client preferences are also

driving changes in the online distribution of goods, with a

large impact on food and other chains. In the Food & Agri

sector the consumer’s influence is growing and ‘from fork to

farm’ is replacing ‘from farm to fork’.

• We see technology impacting our business and those of our

customers, varying from on-farm drones to the use of personal

data. All this data needs to be kept secure and organized.

Digital change, cyber security and IT disruption present a

strategic risk.

• To meet customer needs, we proactively monitor innovations

in and adjacent to the financial (FinTech) and Food &

Agribusiness (FoodTech and AgTech) industries and we are

entering into strategic partnerships.

• Given the current economy, low interest rate environment and

other factors we must continue to operate on a cost-effective

3. Rabobank at a Glance

Pillar 3


basis and improve our cost/income ratio. The world of

financing and lending is always changing. Plenty of individuals

and organizations are prepared to lend risk/venture capital to

third parties. For that reason, we are developing crowdfunding

initiatives.

• Regulators and new regulations are having a growing impact

on the ways banks can provide their services. Regulatory

impact is a strategic risk.

• We have a diversified loan portfolio in different sectors and

countries. Our Risk Appetite Statement sets sector and country

limits that we use to closely monitor the sectors and countries

in which our clients operate.

• Global population growth, aging and the growing middle class

will change demand for food both in volume and quality. This

will be an important growth driver for our clients who provide

the world with food and we will continue to support them.

• Climate change is a bitter reality. Despite the intentions and

ambitions of the Paris climate agreement, the world is

warming up, posing risks for the environment and the food

security of communities. We use the UN Sustainable

Development Goals as guidelines in our efforts to reduce

hunger and poverty in the world. Banks have been asked to

take responsibility to mitigate these threats. Rabobank is

therefore participating in different initiatives such as the World

Economic Forum and the Dutch Climate Agreement talks.

Sustainability is a strategic risk.

• The global trend of urbanization continues unabated,

especially in the Netherlands. Some 55% of the world’s

population currently live in cities and this number is likely to

rise to 68% by 2050. This poses the risk of overheating the

housing market. As a large mortgage provider in the

Netherlands, Rabobank closely monitors this trend.

• Geopolitical unrest is undiminished and trade wars are

reshaping the global economy. The economy is a strategic risk.

• Vulnerability and uncertainty in society are rising. Society

needs the business community in general, and banks in

particular, to show social responsibility. To address these issues

we kick-started major programs inspired by our mission

'Growing a better world together.'

For more detailed information about Rabobank's Risk

Management, please refer to the Risk Management chapter in the

Annual Report 2018.

Value Creation InputsOur value creation model shows the key inputs we use: capital

(financial capital), employees (human capital), knowledge, IT

(intellectual capital) and partnerships (social capital). These are

pivotal inputs to our business model, along with our mission,

vision, strategy, and our products and services. Finally, the output

and impact section of the value creation model is structured

around our strategic cornerstones. For more detailed information,

see the downloads.

Human CapitalIn carrying out our strategy, Rabobank remains focused on human

capital and empowering employees by encouraging continuous

learning (training expenses EUR 1,906 per Fte), craftmanship and

entrepreneurship. Rabobank employs over 41,861 fulltime

employees and believes that diversity improves performance and

creativity within the bank. .

Social CapitalAs a customer-focused cooperative bank with 1.9 million

members, and 8.3 million customers, Rabobank takes its role as a

socially responsible bank seriously. We participate in many local,

sector and supply chain initiatives; we support both businesses

and private customers and we actively promote sustainability.

Rabobank allocated 48.8 million euro of our net profit to local

community initiatives on a not for-profit basis in the Netherlands.

On top of that Rabobank announced a partnership with UN

Environment (AGRI3Fund) for clients to stimulate forest

protection and sustainable agriculture. We are also a member and

co-chair of the Climate Smart Agriculture Working Group of the

WBCSD.

We engage with stakeholders who directly and indirectly affect

our organization. We are committed to a strategic, constructive

and proactive dialogue with all our stakeholders: clients,

members, employees, investors, non-government organizations,

government agencies, media, politicians, supervisory bodies,

other banks, fintechs and start-ups. These are the most influential

stakeholder groups connected with our organization. We engage

with them through member councils, client feedback platforms,

client and employee surveys, participation in sector initiatives,

and other means. Our Managing Board Members meet with

clients, employees, politicians and other stakeholders to discuss

our strategic progress, receive their feedback on our contribution

to society and debate developments in the financial sector, both

generally and in specific relation to Rabobank.

Intellectual CapitalRabobank’s intellectual capital input encompasses more than 120

years of banking knowledge and expertise in Food & Agri and

other sectors. We use our knowledge base to offer clients

https://www.rabobank.com/en/about-rabobank/results-and-reports/archive/downloads-2018.html

Pillar 3


innovative products and services in line with ongoing economic

changes and social trends. Rabobank offers knowledge, financial

resources and its network to customers worldwide. To provide

customers digital convenience at a consistently high service

level, we simplified the bank's systems and can now offer a high

overall system availability (99,9% average of Internet and Mobile

banking and iDEAL). We will continue to enhance our value

creation model as we execute our strategy, allowing us to remain

a meaningful cooperative and a rock-solid bank with excellent

client focus and empowered employees.

Financial CapitalRabobank offers financial resources to customers worldwide. Our

products and services include banking, lending, capital

management, leasing, insurance and real estate services.

Rabobank is a rock-solid bank underpinned by high capital levels,

sizeable liquidity buffers, sound asset quality and healthy

earnings. These are the drivers of our high credit ratings, in

conjunction with our strong franchise in the domestic market and

in the global Food & Agri sector.

Rabobank's OrganizationRabobank emerged from small agricultural cooperative banks,

first founded by Dutch farmers and horticulturists in the late

nineteenth century. They had been eager to improve the future

of agriculture and horticulture and make farmers prosperous

through a credit cooperative. From 1895 on, several banks

modeled on this 'Raiffeisen system' were set up in different parts

of the Netherlands. The organizational model centered on self

help, taking individual and mutual responsibility, and

the involvement of all stakeholders. Today, our commitment to

these principles and to making a difference in society is as strong

as ever.

Rabobank's ActivitiesOur focus is on all-finance services in the Netherlands and on

serving our Food & Agri customers internationally. Rabobank

creates value with its strategy and the products and services it

Short, Medium and Long-term Value Creation We need to satisfy customers' day-to-day banking needs and

contribute to economic activity in the short term. Our

medium-term goal is to help clients achieve their ambitions

and promote sustainable entrepreneurship, especially in the

Food & Agri sector. We also contribute to prosperity. We aim

to facilitate long-term economic growth and contribute to a

sustainable society. We are also dedicated to easing the

transition to a sustainable, circular and humane economy.

offers customers in Retail Banking, Wholesale Banking, Rural

Banking, Private Banking, Leasing and Real Estate.

Rabobank FundamentalsRabobank's mission, vision, strategy and strategic priorities, values

and behaviors, KPI's and leadership model form our integral

strategic storyline.

MissionOur mission is: 'Growing a better world together'. This is what we

stand for and what we aim to achieve through boldness,

ingenuity and decisiveness.

VisionWe are committed to making the difference as a cooperative,

customer-driven bank, in the Netherlands and in Food & Agri

around the world. We aim to be a courageous, socially

responsible bank, championing customer issues that have a major

impact on society. To achieve this, we have two strategic focus

areas: Banking for the Netherlands and Banking for Food. We want

to make a substantial contribution to well-being and prosperity

in the Netherlands and to feeding the world sustainably. The

visions outlined in Banking for the Netherlands and Banking for

Food define our focus and explain what it means to be a client

focused cooperative. Sustainability forms an integral part of both

these visions.

Banking for the NetherlandsWe feel a strong connection with our customers and members.

We prosper when our customers prosper. As a cooperative bank,

we must help meet the challenges facing the Netherlands in the

years to come.

We take a four-pronged approach in Banking for the Netherlands:

food, self-reliance, entrepreneurship and local living

environment. Our presence at the heart of local society combined

with our financial capabilities, network and knowledge, enables

us to address relevant local and regional topics. This is how we

promote sustainable well-being and prosperity in the

Netherlands of the future.

Banking for FoodFood security concerns us all. In 2050, the world population will

have increased by 2 billion people to nearly 10 billion people.

Many of them will have twice as much income to spend and we

are going to need more food. To satisfy increased food demand,

global food production will have to increase by at least 60%. At

the same time available arable land and natural resources are

already nearing, or have exceeded their limits. The Food & Agri

value chain needs to produce more with less to ensure long-term

sustainability and economic viability.

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We want to make a contribution to a sustainable food system and

reduce food waste by helping increase the availability of and

access to food, promoting healthy nutrition, and enhancing

stability in the food industry. Our strategy emphasizes access to

finance, networks and knowledge, as well as the importance of

connecting and uniting producers, consumers, government

bodies and the public on food issues.

Growing a better world together

Banking for the Netherlands

Excellent customer focus

Priorities

Rabobank valuesand behaviours

Mission

Meaningful cooperative Rock-solid bank Empowered employees

Banking for Food

• 100% digital convenience in everything• Top customer advice nearby• Growth with innovation

• Concrete socially responsible contribution• Involved members and communities

• Top performance• Optimal balance sheet• Exceptionally good execution

• Inspired employees• One Rabobank culture

Strategy

Vision

We are client-drivenand action-oriented

We are purposefuland courageous

We are professionaland considerate

We bring out the best in eachother and keep learning

I go the extra milefor my clients

I dare to make a differencefor the world

I am doing the right thingexceptionally well

I make you better

Self-sufficiency Local living environment Entrepreneurship FoodPositioning

Collective and cascaded KPIsBold targetsand KPIs

Growing a better you

Leadership model Employee value proposition

Personal One Rabobank

Team Community

Strategic cornerstonesWith our knowledge, networks and finance, we strive to enable

customers to make idependent decisions while remaining

flexible. Our strategy is founded on four cornerstones: Excellent

Customer Focus, Meaningful Cooperative, Rock-Solid Bank, and

Empowered Employees. These are the four cornerstones of all our

actions, priorities, key performance indicators (KPI's), values and

behaviors. Before discussing our performance on these strategic

cornerstones in the following chapters, we will first outline the

four pillars below.

Excellent Customer FocusWe aim to be a leading bank where being client-driven is deeply

embedded in the culture. Current and future client requirements

can best be satisfied through good advice, transparent products

and convenient, innovative and digital services.

Meaningful CooperativeWe translate social developments into specific contributions for

the long-term. We feel a responsibility to make a meaningful

contribution to achieving the 17 UN Sustainable Development

Goals. Cooperative banking means acting as a forward-looking

social compass that actively involves members, employees and

customers and connects them in a network with each other and

with Rabobank. We take a stance on social issues that matter to

our clients and stakeholders.

Pillar 3


Empowered EmployeesOur employees are proud and driven; they domenstrate

craftmanship, vitality and adaptability. They feel empowered to

represent Rabobank and are inspired by our mission. Top talent

wants to work, develop and stay at Rabobank. All our employees

want to grow and make each other better, for witch learning

agility is crucial.

Rock-Solid BankRabobank remains a model of stability, reliability and solidity. We

work hard to deliver our services at competitive cost levels and

we are continuing to optimize our balance sheet. We are doing

the right things well, or even exceptionally well, with everyone

taking ownership, remaining conscious of risks and operating as

professionals.

Contributing to Sustainable Development GoalsRabobank feels it is our responsibility to make a meaningful

contribution to achieving the 17 UN Sustainable Development

Goals (SDG's). We do so trough our ‘Banking for Food’ and

‘Banking for the Netherlands’ visions and our 'Sustainably

Successful Together’ program help us achieve our contribution

to the SDGs. While all the SDGs are important, our capacity to

support their individual achievement varies. We focus most on

the eight SDGs that our organization can influence: SDGs 2, 7, 8,

11, 12,13, 15 and 17. These SDGs represented in the value creation

model and also shown in the figure below. Our primary

contribution, both domestically and globally, is to the goals that

appear enlarged in the infographic (and in the value creation

model). The SDGs most relevant to Rabobank are shown in color,

while those on which the bank's impact is limited are shown in

grey.

Banking for the Netherlands

Banking for Food

Rabobank’s contribution to the UN Sustainable Development Goals

https://www.rabobank.com/en/images/201412SustainablysuccessfultogetherEN.pdf

https://www.rabobank.com/en/images/201412SustainablysuccessfultogetherEN.pdf

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3.1 Basis of consolidation

The IFRS consolidation scope of Rabobank is determined in

accordance with IFRS 10 ‘Consolidated Financial Statements’, IAS

28 ‘Investments in Associates’ and IFRS 11 ‘Joint Arrangements’.

Rabobank controls an entity if Rabobank has power over the

investee, exposure or rights to variable returns from its

involvement with the investee and has the ability to use its power

to affect the amount of the investor’s returns. Subsidiaries are

consolidated from the date on which effective control is

transferred to Rabobank and are no longer consolidated from the

date that control ceases. In 2018, none of the subsidiaries

experienced any significant restrictions in the payment of

dividends and own funds or the repayment of loans. The option

of subsidiaries to pay dividend to Rabobank depends on various

factors, including local regulatory requirements, statutory

reserves and financial performance.

Investments in associates (investments in which Rabobank has a

significant influence, but which it does not control, generally

holding between 20% and 50% of the voting rights) and joint

ventures are accounted for using the equity method under IFRS.

Regulatory reporting scopeThe consolidation scope for the purpose of calculating Regulatory

Capital is kept equal to the consolidation scope under IFRS due

to immaterial differences. The aggregate amount by which the

actual own funds are less than the required minimum in

subsidiaries not included in the consolidation scope is nil.

Template 1: EU LI1 – Differences between accounting and regulatory scopes of consolidation and the mapping of financial statementcategories with regulatory risk categories

Amounts in millions of euros Carrying values asreported in

published financialstatements

Subject to the creditrisk framework

Subject to the CCRframework

Subject to thesecuritisation

framework

Subject to themarket riskframework

Not subject tocapital

requirements orsubject to deduction

from capital

Assets

Cash and cash equivalents 73,335 73,335 - - - -

Loans and advances to credit institutions 17,859 9,116 8,743 - - -

Financial assets held for trading 2,876 - - - 2,876 -

Financial assets designated at fair value 157 157 - - - -

Financial assets mandatorily at fair value 2,134 2,134 - - - -

Derivatives 22,660 - 22,660 - 22,660 -

Loans and advances to customers 436,591 423,663 12,928 7,451 - -

Financial assets at fair value through othercomprehensive income 18,730 18,730 - - - -

Investments in associates and joint ventures 2,374 2,374 - - - -

Goodwill and other intangible assets 966 - - - - 966

Property and equipments 4,455 4,455 - - - -

Investment properties 193 193 - - - -

Current tax assets 243 243 - - - -

Deferred tax assets 1,165 1,165 - - - -

Other assets 6,431 6,431 - - 497 -

Non-current assets held for sale 268 268 - - - -

Total Assets 590,437 542,264 44,331 7,451 26,034 966

Liabilities

Deposits from banks 19,397 - 91 - - 19,306

Deposits from customers 342,410 - 13 - - 342,397

Debt securities in issue 130,806 - - - - 130,806

Financial liabilities held for trading 400 - - - 400 -

Financial liabilities designated at fair value 6,614 - - - - 6,614

Derivatives 23,927 - 23,927 - 23,927 -

Other liabilities 6,342 - - - - 6,342

Provisions 1,126 - - - - 1,126

Current tax liabilities 229 - - - - 229

Deferred tax liabilities 452 - - - - 452

Subordinated liabilities 16,498 - - - - 16,498

Total Liabilities 548,201 - 24,032 - 24,327 523,769

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Template 2: EU LI2 - Main sources of differences between regulatory exposure amounts and carrying values in financial statements

Amounts in millions of euros Total Credit risk framework CCR framework Securitisationframework

Market riskframework

Assets carrying value amount under the scope ofregulatory consolidation (as per template EU LI1) 589,471 542,264 44,331 7,451 26,034

Liabilities carrying value amount under the scope ofregulatory consolidation (as per template EU LI1) 24,432 - 24,032 - 24,327

Total net amount under the regulatory scope ofconsolidation 565,039 542,264 20,299 7,451 1,706

Off-balance sheet amounts 91,379 84,178 - 7,201 -

Other assets - - - - -

Difference due to prudential filters - - - - -

Differences between Financial statement and exposurevalues due to valuation and netting -23,974 -20,246 -12,270 - 1,861

Exposure amounts considered for regulatory purposes 632,444 606,195 8,030 14,652 3,567

The main differences between the carrying value of assets under

the scope of regulatory consolidation and the exposure amounts

considered for regulatory purposes can be explained by the

inclusion of off-balance sheet liabilities in the exposure amounts

for regulatory purposes, valuation differences on loan loss

allowances, the exclusion of items that are capital deducted and

the different valuation of derivatives due to netting rules and

collateral.

Disclosure of Article 7 waivered subsidiariesFor Rabobank’s subsidiaries De Lage Landen International B.V. and

Rabo Groenbank B.V., each included in the supervision on a

consolidated basis of Rabobank, the exemptions pursuant to

Article 7 CRR are applicable, pursuant to which these subsidiaries

are exempted from the application of certain regulatory

requirements under the CRR on an individual basis. To be eligible

for exemption, these subsidiaries meet the relevant criteria

regarding the prompt transfer of own funds or repayment of

liabilities between Rabobank and these subsidiaries, the

guarantee of commitments entered into by these subsidiaries by

Rabobank and the prudent management, risk evaluation,

measurement and control procedures as covered by Rabobank.

Direct and indirect holdings of the capital of financial sector

entities that are deducted or risk-weighted

Rabobank risk weights the following entities for a total amount

of 2,163 (2017: 2,167). As per 31 December 2018, no financial

sector entities have been deducted from capital.

• Achmea B.V.

• Arise B.V.

• Banco Cooperativo Sicredi

• Banco Finterra

• Banco Regional S.A.E.C.A.

• Currence Holding BV

• Komatsu Financial France S.A.S.

• Komatsu Financial Germany GmbH

• Komatsu Financial Italy S.p.A.

• LSVP VI Cayman Trust

• National Microfinance Bank Tanzania

• Peaks B.V.

• SBC Fintech NYC

3.2 Accounting and risk principles

The accounting principles are in accordance with IFRS as adopted

by the EU and are described in the Consolidated Financial

Statements 2018 of Rabobank Group. The risk principles are set

out in the relevant risk chapters. Unless otherwise stated, all

amounts are in millions of euros.

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In line with the Rabobank strategy, we have a specific risk strategy to support our strategic goals.Banking for Food and Banking for the Netherlands implies specific risks and exposes the bank bothin the domestic and international markets to macro-economic, political, regulatory and socialdevelopments. Sound risk management enables us to serve our customers and deliver to ourstakeholders.

Without taking risks, profitable banking activities are impossible,

and therefore it is also necessary to accept a certain degree of

risk. Every day Rabobank takes informed risk decisions on

engaging with (new) customers, granting credit, entering into

interest rate contracts and providing other services to customers.

In the customers’ interest, risk and control processes are designed

to manage the material risks. We have a comprehensive approach

to risk management to mitigate the risks we face with a solid risk

management framework and a risk appetite aligned with our

Strategic Plan, which is evaluated annually and approved by the

Managing Board. Our risk management activities are designed to

contribute to realizing our own ambitions and those of our

customers and stakeholders.

4.1 Risk Approach

Risk StrategyRabobank’s mission ‘Growing a better world together’ underlines

our cooperative roots and dedication to enable our customers in

achieving their ambitions. In its strategy Rabobank defines

priorities, objectives and targets including a capital strategy.

Rabobank’s risk strategy supports management in the realization

of the strategic priorities by defining boundaries within which the

business must operate. An important starting point for the risk

strategy is that banking is about taking risks. Each time business

opportunities are discussed and decisions are taken, risks are

assessed against expected return.

The risk strategy is established at group level, is aligned with the

corporate strategy and describes the risk priorities that Rabobank

needs to manage to achieve its strategic plan. The risk strategy is

further detailed in a number of strategic risk statements:

• Protect profit and profit growth: Rabobank’s business

strategy strongly relates to its cooperative nature, achieving a

healthy profit generation and at the same time realising a high

standard in serving the members, clients and society.

Rabobank makes transparent choices related to where capital

and resources can be used most efficiently or appropriately

with respect to sectors or concentrations.

• Maintain a solid balance sheet: sound balance sheet ratios are

essential to ensure continuity in servicing our customers at

sustainable and favourable conditions. This implies a stable

funding capability, strong liquidity buffers and ample

solvency.

• Protect identity and reputation: Rabobank protects the

fundamental trust that its stakeholders have in the bank.

These statements provide a high-level appetite towards risks with

material impact to this strategy and serve as starting point for the

more specific risk appetite per risk type.

Risk AssessmentTo manage the material risks, risk and control processes are

designed to ensure that the risks incurred remain within the

bank’s risk appetite and that risk and return are appropriately

matched. These processes cover the regular banking risk types:

credit risk, market risk, interest rate risk, liquidity risk, operational

risks, including compliance risk and business risk.

Rabobank keeps track of external developments and closely

monitors the risks that might affect the achievement of

organisational objectives. Regular and structural top-down and

bottom-up risk assessments are performed to identify various

types of risks, and specific stress tests are conducted to calculate

the impact of adverse scenarios. An integrated overview of the

main risks, the changes to them and the measures taken to

address them are regularly discussed in the Managing Board and

Supervisory Board.

4. Risk Management

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Risk AppetiteRabobank’s risk strategy is embedded in a number of strategic risk

statements directly linked to the Strategic Framework 2016-2020.

These statements define the boundaries of the risk appetite

within which we must operate. The Risk Appetite Statement (RAS)

further specifies the Strategic Risk Statements and defines the

levels and types of risk Rabobank is willing to accept in order to

achieve its business objectives. It articulates Rabobank’s desired

level of overall risk exposure both quantitatively and qualitatively

and is used in all business activities to assess the desired risk

profile against the risk-reward profile of a given activity. Risk

appetite is, among other things, defined in terms of:

• Common Equity Tier 1 capital and Return On Invested Capital

• Credit risk

• Single obligor and concentration limits for asset classes and

sectors

• Market risk

• Interest rate risk in the banking book

• Ooperational risk

• Liquidity risk

The risk appetite at Rabobank Group level is an integral part of the

bank’s strategy. Entity-specific risk appetite statements further

specify the Group risk appetite at entity level. The risk appetite is

embedded across Rabobank Group within principles, policies,

indicators, limits and controls. The RAS is reviewed and updated

annually or more frequently following internal or external events

with material impact. The RAS is monitored by benchmarking the

actual risk profile against the risk appetite and discussed on a

quarterly basis in the Managing Board and Supervisory Board Risk

Committee. This ensures that day-to-day operations are executed

within the boundaries set by the business and risk strategy.

Breaches of the risk appetite will result in immediate action at the

appropriate management level.

Risk ReportingEntity management teams and the Managing Board are enabled

to monitor and continuously manage their risks based on risk

reports. Risk reports primarily consist of key risk indicators as

described in the RAS. For every risk type, indicators and thresholds

are defined to effectively manage the risk profile within the risk

appetite. Risk measurement per risk type will be discussed in the

specific risk chapters.

4.2 Risk Management Organisation

The main role of the Risk Management function is to support the

organisation in the realisation of its business objectives by

defining boundaries for taking risks within which the business

lines operate and by delivering a risk management framework to

identify, assess and manage the risks the business lines incur in

their activities. In carrying out its duties, the Risk Management

function maintains a balance between independence from the

business lines whilst closely cooperating with them. Every

Rabobank employee is involved in addressing and managing risks

on a daily basis. Rabobank has adopted the ‘three lines of

defence’ concept to provide clarity on the responsibilities for risk

and control activities. This clarity of responsibilities results in

coordinated, efficient and effective risk and control activities

throughout the bank.

The Risk Management function at group level is organised inunits which can be divided in the following groups:

1. Business domains: implementation and enforcement of the risk

framework, provide boundaries, challenge and oversight within

entities/subsidiaries and CRO role for all risk types:• Risk Domestic Retail Banking;

• Risk Wholesale Rural & Retail (WRR) includes market risk policies

and methodologies and second line monitoring of WRR,

Treasury (only partly) and Portfolio Management;

• Risk IT & Operations (CIOO) includes Digital Transformation

Office, staff and support functions, model risk oversight and

model validation;

• Treasury.

2. Functional expertise: risk management framework, policies, delivery

of support to the business lines, monitoring of group risk exposures,

models and data:• Risk Analytics: CRO treasury role, interest rate risk, funding &

liquidity risk, maintenance and development of models for

credit, provisioning and ALM, project management and risk

management systems;

• Risk Strategy & Support: capital risk management and stress

testing, risk framework and governance including group risk

appetite and risk committees, strategic risks, group integrated

risk reporting, regulatory oversight, supervisory relations,

recovery & resolution planning and group insurances;

• Credit: development and implementation of credit and

provisioning policies, credit approval and credit risk

monitoring and reporting (e.g. portfolio, concentrations,

country limits), transactional risk committees, monitoring of

credit risk capital calculation;

• Financial Restructuring & Recovery (FR&R): recovery and

restructuring of credit for clients at risk of financial distress,

accountability for provisioning and sign-off on related policies;

• Operational Risk: group expertise centre on operational risk, risk

control framework (RCF), policies and procedures

management (PPM) including Policy House Portal, IT risk,

business continuity management (BCM), crisis management

and outsourcing including cloud solutions.

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3. Collaboration Risk Management function and other departments .In carrying out its duties, the Risk Management function works in

close cooperation with business management. Specific

interaction, alignment and shared responsibilities exist with:

• Compliance (part of the Compliance, Legal and Risk (CLR)

domain) has responsibilities with regard to compliance risk in

relation to the compliance themes as defined in the Rabobank

Compliance Charter.

• Legal (part of CLR domain) has the primary responsibility for

advising on legal matters and legal risk management,

including litigation management. The Risk Management and

Legal departments have a joint responsibility of monitoring

potential and materialised legal risks and assessing

applications of new regulatory regimes via the Regulatory

Oversight team and in the case of resolution planning.

The Managing Board is responsible for overseeing the

development and implementation of the bank’s Risk

Management function. This includes the ongoing strengthening

of staff skills and enhancements to risk management systems,

policies, processes, quantitative models and reports as necessary

to ensure the bank’s risk management capabilities are sufficiently

robust and effective to fully support its strategic objectives and

all of its risk-taking activities.

The Supervisory Board is responsible for the supervision of the

Managing Board with regard to their execution of risk profile, risk

policies and risk management activities. The Supervisory Board

Risk Committee consists of members of the Supervisory Board and

supports the Supervisory Board in preparing its decision making

in relation to its supervision.

Rabobank has established different risk committees to monitor

and enforce Rabobank’s risk management framework and risk

appetite. These risk committees are chaired by Chief Risk Officers

or other representatives of the Risk Management function. The

responsibilities of the risk committees are defined in their

respective Terms of Reference (ToR) which include members and

modalities such as frequency, quorum and decision making

process.

The Risk Management function is (voting) member in a number

of other committees such as the Asset & Liability Committee

(ALCO).

Risk Management Committee (RMC) GroupThe RMC Group is mandated by the Managing Board to oversee

the implementation of the risk management framework for

Rabobank Group, to be the ultimate arbiter on the assessment

of risks and to act as the guardian of the risks taken by the bank.

RMC Group is amongst others responsible for advising the

Managing Board on the RAS of Rabobank Group, enforcing

Rabobank’s risk appetite framework and monitoring risk

exposures against risk limits, and monitoring the aggregated risk

profile of Rabobank Group. The RMC Group ensures the global risk

framework is up to date, as required by law and external

regulations and internal regulations of Rabobank. The RMC Group

consists of members from the Managing Board, including the

CRO, and representatives of the Risk Management function,

Finance & Control and Compliance (Chief Compliance Officer).

The RMC Group reports to Rabobank’s Managing Board.

The RMC Group has delegated specific risk management tasks to

a number of sub-committees: risk position and content

committees. In addition committees can be installed on a

temporary basis, for example the Brexit Group Oversight

Committee (BGOC) and the Brexit Impact Committee (BIC).

Risk Domain Committees :• RMC Wholesale Rural & Retail (RMC WRR) - for risks taken by

WRR.

• RMC Domestic Retail Banking - for risks taken by Domestic

Retail Banking.

• RMC CIOO - for risks taken in the Chief Information Operations

Officer’s domain.

• RMC Treasury - for risks taken in financial markets and treasury

activities.

Risk Content Committees:• Regulatory Oversight Committee (ROC) – for regulatory

monitoring.

• Model Governance Committee (MGC) - for material model

risks, including capital models.

• Scenario and Stress Testing Committee (STCC) - for capital

stress testing.

• Country & Financial Institutions Committee (CFIC) - for ratings,

country limits and credit limits for financial institutions and

souvereigns.

• Complex Transactions Committee (CTC) - transactions or

products which may present a reputation risk because of its

complex nature.

• Brexit Group Oversight Committee (BGOC) – impact of Brexit

on Rabobank.

• Privacy Committee (this committee is currently set up).

Within Rabobank the ‘highest’ transactional committees are:• Central Credit Committee Rabobank Group (CCCRG) – The

CCCRG takes credit decisions on credit applications subject to

the ‘corporate credit approval route’ exceeding the authority

of local/regional credit committees.

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• Credit Approvals Local Banks (CA LB) – This department is

responsible for decisions on requests for non-classified (i.e.

with a loan quality classification of Good or OLEM) obligors

exceeding the authority of a local Rabobank.

• Credit Approvals Wholesale Rural & Retail (CA WRR) – This

department is responsible for decisions on requests for non-

classified (i.e. with a loan quality classification of Good or

OLEM) obligors exceeding the authority of DLL or a Wholesale

Rural & Retail (WRR) office/region.

• Credit Committee Financial Restructuring & Recovery (CC-

FR&R) – This credit committee takes credit decisions on

proposals for classified (i.e. with a loan quality classification of

Substandard, Doubtful or Loss) obligors exceeding the

authority of local credit committees and the FR&R department.

• Loan Loss Provision Committee (LLPC) – The LLPC monitors

the development of qualified credit and asset portfolios and

recommends on provisions for obligors exceeding the

authority of local credit committees, to the Managing Board.

4.3 Risk Management Framework

Rabobank Group maintains a risk management framework to

identify, assess, manage, monitor and report risks. Risk policies are

assessed annually to determine if risk mitigation and the

management of risks is sufficient. The risk management

framework supports decisions based on a conscious and careful

risk-return trade-off in line with the defined strategy and within

our risk appetite.

The mission of the Risk Management function is to enable the

bank to achieve its strategic goals within its risk appetite and to

make sure risk is everybody’s business. The Risk Management

function ensures the financial stability and continuity of

Rabobank by monitoring its risk profile and ensuring that risk

management activities are executed effectively and efficiently in

line with legislation, regulations and best practices in the market.

The vision of the Risk Management function is to advise the

business lines and support them in managing risk, act as the

guardian of the risk profile of Rabobank by identifying risks and

initiating mitigating actions with empowered employees,

satisfied clients and in partnership with internal and external

stakeholders.

4.4 Risk Measurement

4.4.1. Risk Models and Model ValidationRabobank develops and uses risk models for most risk types. The

models for credit, market and operational risk are the most widely

used. Models are developed by the modelling departments in

close cooperation with the relevant business lines and risk

experts. In principle, models are reviewed annually. The models

are the basis for internal measures of risk (Pillar 2 framework) and

are at the same time key inputs for calculation of the minimum

regulatory capital requirements according to the Basel III

framework. All internal models are validated by the independent

Model Validation department. Validation guidelines are specified

to ensure objectivity, consistency, transparency and continuity.

Models are validated according to these principles and reviewed

against internal requirements and regulatory requirements.

Model results are back-tested against historical loss data. Where

relevant, external benchmark studies are used to support the

calibration of parameters. Models require formal internal approval

before implementation and use is allowed. Final internal approval

for the (continued) use of a model is obtained from the Model

Governance Committee (MGC), a subcommittee of the Risk

Management Committee (RMC) Group. External approval, when

required, is obtained from the regulator.

Credit Risk ModelsThe bank uses internal models to estimate Probability of Default

(PD), Loss Given Default (LGD) and Exposure at Default (EAD)

parameters. These models are embedded in the credit approval

and internal reporting processes and are used to measure the

credit risk in exposures to individual clients and portfolios. The

same parameters are also used to calculate risk-adjusted return

on capital, Pillar 2 framework capital and the minimum regulatory

capital requirements under the Basel Advanced Internal Ratings

Based (AIRB) approach.

Operational Risk ModelsOperational risk loss events are systematically collected and

analysed on a bank-wide basis. Operational risk assessments are

key in systematically assessing operational risks in day-to-day

business and in proposed changes. Progress on outstanding

operational risk issues is monitored through issue management

and action tracking. Operational risk exposures are analysed and

reported to senior management to support decision-making.

Market Risk ModelsValue-at-Risk (VaR) models are used to measure market risk of

exposures in both the banking and the trading book. VAR is used

for the internal monitoring and reporting of positions relative to

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the limits determined in the risk appetite. In addition to VaR, other

instruments to measure market risk are used as well.

Interest Rate Risk ModelsThe bank uses interest rate risk models to represent behaviour in

the measurement of interest rate risk in the banking

environment. Behaviour is a key element in the measurement of

interest rate risk as this influences the (contractual) cash flows,

determining the sensitivity of earnings and economic value to

interest rate movements. Next to behavioural models, the bank

uses a model to calculate the adequate amount of capital for

interest rate risk in the banking environment in relation to

changes in economic value.

4.4.2. Capital Stress TestingCapital stress testing is an important risk management tool that

provides a forward looking assessment of risk and assists in the

optimization of risk capital. It enables the exploration of

vulnerabilities in business models whilst overcoming the

limitations of risk models and historical data. At Rabobank, stress

testing forms an essential part of the risk management

framework. Stress tests are used to measure the impact of

extreme, but plausible events. Where necessary, measures in line

with Rabobank’s risk appetite are taken on the basis of stress tests

results.

Stress Test GovernanceGiven the importance of stress testing in terms of sound risk

management and regulatory compliance, the stress testing

process and governance warrants the involvement of senior

management up to the Managing Board of Rabobank. The

Managing Board of Rabobank is ultimately responsible for the

Rabobank Stress Testing Framework and its execution, while the

Risk Management Committee Group (RMC) acts as the delegated

principal. Specific tasks of the RMC Group regarding capital stress

testing are delegated to the Stress Test Committee (STC). In

addition to that the Scenario & Stress Test Committee (SSTC),

which has the mandate to overlook all the group-wide scenario

related activities including IFRS 9, capital planning and stress

testing.

Stress Test ActivitiesStress tests occur in many forms and levels with different scopes.

The current types of stress tests that are executed within

Rabobank can be categorised by a variety of determinants:

• By scope (firm-wide, thematic/BU transcending, business unit,

local capital stress test, regulation);

• By initiator (external versus internal);

• By type (bottom-up, top-down, reverse stress test).

Within capital stress testing, the impact of severe but plausible

scenarios on the financial position of Rabobank is evaluated.

Stress Test ProcessThe scenarios used in stress-testing consist of, amongst others, a

set of regular macroeconomic scenarios, thematic, regulator-

provided scenarios, scenarios generated as a result of risk

identification, reverse scenarios, and ad hoc scenarios. Scenarios

are chosen by the SSTC based on the relevance and plausibility,

top risks are used as an input in these sessions. In the various

internal and external scenarios both macro economic and non-

macroeconomic factors are taken into account. The macro-

economic factors include economic growth, unemployment,

inflation, interest rates, share prices and real estate prices to

mention a few. The outlook of the macro economic variables over

the stress periods are provided by RaboResearch.

Once a scenario is generated, quantitative stress test models are

used to determine the impact of the scenario on the financials

of Rabobank. The balance sheet, risk exposure amounts and

profit & loss statement and their components are stressed in

order to assess the resilience to withstand the impact of a

scenario. In order to stress these different components, stress

testing focuses on different types of risk, each with their own

stress test model. The main stress test models focus on credit risk,

market risk, net interest income, operational risk and non-interest

income. The stress test models are subject to review by our

Model Validation department. The scenario variables and

methodology are applied to the portfolio based on the models.

The results are being reviewed and challenged by experts and

business lines. As part of the stress test process, various potential

management actions are identified, that could be taken to

mitigate the impact of stress. There is a robust governance

process in place via the STC and RMC Group with regards to the

review of our stress testing methodology, results and the

proposed actions.

Once the results are approved there is an evaluation of the

process of the stress test and learning points from the stress test

are shared within the organization. There is constant monitoring

of issues to improve the process. 2018 can be characterized by the

(almost) parallel execution of the ICAAP Stress test, the EBA Stress

Test and a mid-year stress test. Due to the extended timelines of

the EBA Stress Test focus was more focus on the sound execution

of the process.

Results are used for sound risk management within Rabobank,

this includes it links to the: budget, capital plan, RAS, integrated

risk report, as well as recovery and resolution plans. Clear

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governance, data and supporting infrastructure are essential in

the stress test process.

In 2018 Rabobank participated in the EU wide EBA/ECB stress test

in which IFRS 9 was introduced. Rabobank’s performance was

slightly above average both in terms of the CET1 Ratio at the end

of the adverse scenario period (Rabobank ranks in 20th place), and

in terms of the depletion (3.9%-points vs 4.2%-points).

In 2018 also an internal firm-wide stress test was performed as

part of the SREP process. In addition, an internal firm-wide stress

test with the re-use of the scenario of the ICAAP Stress Test was

performed on the interim figures, including a specific adverse

interest rate scenario with the use of further developed models

and a reverse stress test. Finally, several business unit and local

stress tests including regulatory stress tests were also performed.

Pillar 3


This chapter describes the capital management, the regulatory requirements of Rabobank, the Pillar2 capital framework and the development of the capital ratios. The Capital RequirementsRegulation (CRR) and the Capital Requirements Directive IV (CRD IV) defines capital requirements forbanks as the absolute minimum amount of capital required to cover the financial risks that a bankfaces. For Pillar 1 this is expressed in three major risk types: credit, operational and market risk.

5.1 Capital Management

The capital management framework supports the overall strategy

of Rabobank to maximise long-term risk-adjusted returns on

invested capital, guided by the following objectives:

1. A viable capital strategy in line with the overall business

strategy, risk strategy, and supply side constraints

2. A feasible mid-term capital plan including an optimal capital

allocation in line with risk appetite

3. Compliance with regulatory capital requirements and

alignment of capital projections with regulatory guidance and

expectation

4. Enabling risk-adjusted capital-based performance

management to support the achievement of capital ratio

targets

5. Enabling achievement of capital target ratios (a minimum CET

ratio of 14%, and MREL requirements) in line with the capital

strategy plan

6. Accurate measurement and reporting of capital usage

according to regulatory requirements and internal standards

7. Ongoing monitoring of capital limits and enforcement of

compliance if breaches occur

8. Ensuring optimal mix of available capital across the group in

light of regulatory requirements, capital market expectations

and capital costs

Capital risk appetite is set by the Managing Board, reflecting the

group’s strategic plan, regulatory capital constraints and market

expectations. It is defined by a number of minimum capital ratios

in normal and stressed conditions. Capital is actively managed

and regulatory ratios are a key factor in Rabobank’s planning

process and stress analyses. The capital plan is tested for capital

adequacy using sensitivity analysis and a range of stress scenarios

covering adverse economic conditions as well as other adverse

factors that could impact Rabobank. Rabobank maintains a

Recovery Plan which sets out a range of potential mitigating

actions that could be taken in response to a stress event.

The Managing Board has ultimate responsibility for ensuring that

Rabobank maintains the targeted minimum capital levels above

the minimum prudential capital levels as set by the European

Central Bank (ECB).

In the yearly Internal Capital Adequacy Assessment Process

(ICAAP), Rabobank assesses the capital adequacy in the context

of the current and foreseeable business and environment where

it operates in and the associated risk exposures as part of the

Supervisory Review and Evaluation Process (SREP).

5. Capital Management

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Table 5.1.1 contains an overview of the qualifying capital and IFRS

capital as per 31 December 2018.

Table 5.1.1: Qualifiying capital at December 31, 2018 CRD IV

Amounts in million of euros Qualifyingcapital

IFRS capital

Retained earnings 28,062 28,062

Expected dividends -46

Rabobank Certificates 7,445 7,445

Non-controlling interests 481

Reserves -798 -798

Regulatory adjustments -2,553

Transitional adjustments 12

Common Equity Tier 1 capital 32,122

Trust Preferred Securities III-IV 389

Capital Securities 6,657

CRDIV compliant Capital Securities 3,721

Grandfathered instruments 3,325

Non-controlling interests

Regulatory adjustments -100

Transitional adjustments

Tier 1-capital 39,068

Subordinated debt 14,274

Non-controlling interests


Transitional adjustments

Tier 2-capital 14,191

Total Qualifying capital/IFRS capital 53,259 42,236

A detailed breakdown of CET1, AT1 and T2, and additional

information about the CET1, AT1 and T2 capital instruments can

be found in appendix 14.1. The main differences are the

regulatory and transitional adjustments in qualifying capital

following CRR, such as intangibles, deferred tax assets, the

Internal Ratings Based (IRB) shortfall and the phasing out of non-

eligible additional Tier 1 capital instruments. The Tier 2

subordinated debt is accounted for as a liability under IFRS.

In order to reduce the potential impact of IFRS 9 expected credit

losses on capital and leverage ratios during the transition period

(i.e. 1 January 2018 until 31 December 2022), the EU adopted on

12 December 2017, Article 473a CRR. Rabobank assessed the

advantage to apply this transition arrangement and concluded

that it has no significant benefits and that market participants

will look through these transition measures. Therefore Rabobank

has chosen not to apply for the transitional arrangement.

Table 5.1.2 provides an overview of the changes in the different

qualifying capital components.

Table 5.1.2: Overview of changes in qualifying capital

Amounts in million of euros

Qualifying capital at December 31, 2017 CRD IV 51,923

Closing CET1 capital at December 31, 2017 31,263

Retained earnings 1,285

Expected dividend 8

Rabobank Certificates 5

Non-controlling interests -26

Reserves 603


Transitional adjustments -513

Closing CET1 capital at December 31, 2018 32,122

Closing additional Tier 1 capital at December 31, 2017 5,941

Capital Securities and grandfathered instruments 728

Regulatory & transitional adjustments 277

Closing additional Tier 1 capital at December 31, 2018 6,946

Closing Tier 1 capital at December 31, 2018 39,068


Subordinated debt -622

Regulatory & transitional adjustments 94


Qualifying capital at December 31, 2018 53,259

A general overview of the main features of the CET1, AT1

instruments and T2 instruments is available in appendix 14.2.

5.2 Regulatory Capital

Rabobank is using the most advanced calculation methods for

calculating the Regulatory Capital (RC) requirements under Basel

III and CRR (CRD IV) for credit, market and operational risks. The

policy of Rabobank is aimed at applying the IRB approach for its

credit portfolio as much as possible.

Template 4 presents an overview of the Regulatory Capital

requirements and the Risk Weighted Exposure Amounts (RWEA)

as per 31 December 2018 for the different risk types. The largest

part of the capital requirement relates to credit risk incuding CCR,

Securitisations and amounts below the thresholds for deduction

(84%). Market risk accounts for 2% and operational risk comprises

14% of the Regulatory Capital requirements.

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Template 4: EU OV1 - Overview of RWAs

RWA's Minimum capitalrequirement

Amounts in millions of euros 31-12-2018 31-12-2017 31-12-2018

Credit risk (excluding CCR) 158,462 157,730 12,677

Of which the standardised approach 16,892 18,748 1,351

Of which the foundation IRB (FIRB) approach 6,243 4,554 499

Of which the advanced IRB (AIRB) approach 131,756 130,095 10,540

Of which equity IRB under the simple risk-weighted approach or the IMA 3,571 4,334 286

CCR 3,539 3,618 283

Of which mark to market 500 659 40

Of which original exposure - - -

Of which the standardised approach - - -

Of which internal model method (IMM) 2,083 2,001 167

Of which risk exposure amount for contributions to the default fund of a CCP 69 63 6

Of which CVA 887 896 71

Settlement risk - - -

Securitisation exposures in the banking book (after the cap) 2,005 1,862 160

Of which IRB approach 42 49 3

Of which IRB supervisory formula approach (SFA) 1,138 992 91

Of which internal assessment approach (IAA) 825 822 66

Of which standardised approach - - -

Market risk 3,877 3,750 310

Of which the standardised approach 310 433 25

Of which IMA 3,567 3,318 285

Large exposures - - -

Operational risk 27,242 25,890 2,179

Of which basic indicator approach - - -

Of which standardised approach - - -

Of which advanced measurement approach 27,242 25,890 2,179

Amounts below the thresholds for deduction (subject to 250% risk weight) 5,406 5,418 433

Floor adjustment - - -

Total 200,531 198,269 16,043

At year-end 2018, the Regulatory Capital requirement of

Rabobank Group was 16.0 (2017: 15.9) billion. The Regulatory

Capital requirement for credit risk, market risk and operational risk

is in line with the Regulatory Capital Requirement as per year-end

2017. A more granular overview of the capital requirements can

be found in appendix 14.2 (CRR 438c,d).

5.3 Renewed Pillar 2 CapitalFramework

The relevant rules and regulations related to the capital adequacy

process of EU banks are addressed in the CRR/CRD IV

comprehensive frameworks. These frameworks are the EU legal

translation of the banking guidelines suggested by the Basel

Committee - the so-called Basel III standards from December

2010. CRR/CRD IV lays out a three-pillar approach to risk and

capital management: the Pillar I on minimum capital

requirements of credit, market and operational risk; Pillar 2 about

supervisory review process (SREP); and Pillar 3 on market

discipline, where banks disclose to the public their overall risk

profiles.

Pillar 2, the focus of this section, describes the mandatory

processes for both banks and regulators to fulfill the capital

adequacy requirements. The main areas that fall under this Pillar

are: risks considered under Pillar I that are not fully or adequately

captured by the prescribed methodologies; risks that are not

considered in the Pillar I capital requirements (e.g. interest rate

risk); and external factors to the bank (e.g. market conditions).

In order to adequately assess the capital resources needed to

cover the risks inherent in its current activities, Rabobank renewed

its Pillar 2 modelling landscape. The renewed Pillar 2 capital

framework entered into effect as of 1 January 2017 and covers all

those areas where Rabobank is of the opinion that the regulatory

framework does not address the risk, or does not adequately

address the risk. Rabobank developed mostly statistical

approaches and methodologies that: (1) challenge regulatory

capital requirements; (2) cover risks not addressed in CRR/CRD IV;

Pillar 3


and (3) identify possible future events or changes in the market

conditions that could impact Rabobank’s strategic planning. The

renewed Pillar 2 modelling landscape was fully coordinated with

Rabobank’s supervisors and reflects the changing regulatory

environment and similar developments in the industry.

The outputs of the renewed Pillar 2 models are used for various

purposes within the bank, such as deal acceptance and pricing,

strategy and planning of the firm’s operations, and performance

evaluation. Moreover, the regulators and supervisors view the

level of capitalization as one of their key instruments to supervise

Rabobank. Therefore, the renewed Pillar 2 capital framework

promotes a sound and effective risk management culture within

Rabobank, ensuring adequate capital levels to support business

growth, maintain depositor and creditor confidence and comply

with regulatory requirements.

0 40 6020 80 100

Credit risk and transfer risk

Operational risk

Other risks

Interest rate and market risk

63%

10%

8%

18%

Figure 1: Pillar I + Pillar II capital by risk typeend-2018

At year-end 2018, the total Pillar 1 and Pillar 2 capital requirement

of Rabobank Group amounted to 21.3 (2017: 20.8) billion. The

available qualifying capital of 53.3 (2017: 51.9) billion, the bank

retains to compensate for potential losses, was above the level

of the total external and internal capital requirements. This buffer

underlines the financial solidity of Rabobank Group.

5.4 Capital Ratios

The CRR and CRD IV jointly constitute the European

implementation of the Basel capital and liquidity agreement of

2010. CRR provides CET1 deductible items such as intangible non-

current assets, deferred tax assets and the Internal Ratings Based

(IRB) shortfall. These adjustments have been phased in gradually

during the period 2014-2018, as reflected in the calculations on

a transitional basis.

The fully loaded CET1-ratio was 16.0% as per 31 December 2018.

The fully loaded figure reflects the end state figure, assuming that

the CRR/CRD IV regulations have been fully phased in. In line with

the regulatory requirements various adjustments in capital have

been phased in during the period 2014-2018 in the CET1 capital.

The current CET1-ratio now equals the fully loaded CET1-ratio.

The Tier 1 instruments that were issued by Rabobank before 2014

do not meet the new requirements of the CRR. For these

instruments, grandfathering is applicable. This means that these

instruments will, in line with the regulatory requirements,

gradually be phased out of equity. In 2018, the Tier 1 ratio

increased by 0.7 percentage points to 19.5% (18.8%), mainly due

to the higher CET1 capital and the issuance of a 1 billion Tier 1

instrument. The capital ratio rose by 0.4 percentage points to

26.6% (26.2%), mainly due to the higher Tier 1 capital.

Table 5.4.1: Capital ratios

Amounts in million of euros At December 31,2018

At December 31,2017

Risk Weighted Exposure Amount 200,531 198,269

Total Common Equity Tier 1 capital 32,122 31,263

Total Tier 1 capital 39,068 37,204

Total qualifying capital 53,259 51,923

Common Equity Tier 1 ratio 16.0% 15.8%

Tier 1 ratio 19.5% 18.8%

Total Capital ratio 26.6% 26.2%

Rabobank must comply with the minimum capital ratios as

stipulated under law. Effective 1 January 2014, the minimum

required percentages are determined on the basis of CRD IV/CRR.

The legal buffers as shown in table 5.4.2 are applicable as from

2016. These buffers will gradually increase until the year 2019.

Rabobank is already allowing for these changes in its capital

planning. The table below shows the minimum legal buffers

under CRD IV/CRR.

Table 5.4.2: Minimum CET1 buffer

2018 2019 2020

Pillar 1 requirement 4.5% 4.5% 4.5%

Pillar 2 requirement 1.75% 1.75% 1.75%

Capital conservation buffer 1.88% 2.5% 2.5%

Systemic risk buffer 2.25% 3.0% 3.0%

Total required CET1 ratio 10.38% 11.75% 11.75%

Actual 16.0%

The total required (end state) CET1-ratio therefore amounts to

11.75%, excluding the Pillar 2 guidance. The required (end state)

total capital ratio amounts to 15.25%. This is the required (end

state) CET1-ratio plus 3.5 percentage points Pillar 1 requirement

for additional Tier 1 and Tier 2. In addition to these ratios, there

will be a countercyclical buffer of up to 2.5 percentage points

which may be imposed by the supervisor. Almost all supervisors

have set their countercyclical buffer at 0% as per 1 January 2019.

The actual capital ratios of Rabobank amply exceeds these

minimum capital ratios. Our current (transitional based) capital

ratios and targets are higher than the minimum capital

Pillar 3


requirements. It is our ambition to maintain a strong capital

position. Rabobank has the following capital ambition as per the

end of 2020:

• Minimum CET1 ratio of 14%;

• Fulfilling the MREL requirements.

Leverage ratioThe leverage ratio is defined as Tier 1 capital divided by a non-

risk-based measure of the on- and off balance sheet items. The

information to be disclosed is calculated in accordance with the

amendments made in the CRR calculations as laid down in

Commission Delegated Regulation (EU) 2015/62 of 10 October

2014. The fully loaded leverage ratio on 31 December 2018 stood

at 5.9% (2017: 5.4%). The fully loaded figure reflects the end state

figure, assuming that the new regulations have been fully phased

in. The actual leverage ratio on 31 December 2018 stood at 6.4%

(2017: 6.0%). The regulatory minimum level for the leverage ratio

is 3%. The actual leverage ratio was at a higher level than the fully

loaded leverage ratio at year-end 2018 as various adjustments

will be gradually applied to the capital over the coming years in

accordance with the regulations. In line with the endorsed

implementing technical standards with regard to disclosure of

the leverage ratio for institutions, according to Regulation (EU)

No 575/2013 of the European Parliament and of the Council,

Rabobank uses the specific EBA-templates as basis for the

presentation of its leverage ratio as per 31 December 2018.

For the summary reconciliation of accounting assets and leverage

ratio exposures we refer to appendix 14.3.

The benefit of our MREL eligible capital bufferRabobank aims to protect senior creditors and depositors against

the unlikely event of a bail-in. Rabobank therefore holds a large

buffer of equity and subordinated debt that will first absorb 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

riskweighted assets (EUR 65 billion) and consists of a loss

absorption amount of 15.25%, a recapitalization amount of

11.65% and a market confidence amount of 4.06%. The

recapitalization amount and market confidence amount include

a correction for the expected depletion (loss absorbing amount)

of the balance sheet. The 30.96% requirement is based on BRRD

I. Future MREL requirements are subject to ongoing political

developments (e.g., European Trilogue) concerning the risk

reduction package proposed by the European Commission in

November 2016.

As under BRRD I preferred senior is MREL eligible, Rabobank

already meets its MREL requirement, so a transition period has not

been set. Over time, Rabobank intends to meet its MREL

requirement with a combination of own funds and non-preferred

senior only. In the second half of 2018 Rabobank issued 3

tranches of Non-Preferred Seniors: EUR 1 billion, USD 1 billion and

USD 0.25 billion. With MREL eligible capital of 28.2%, the

additional MREL needs are manageable.

We define our MREL eligible capital buffer as qualifying capital

plus the non-qualifying part of the grandfathered additional tier

1 instruments, the (amortized part of) tier 2 with a remaining

maturity of at least one year and non-preferred senior bonds with

a remaining maturity of at least one year plus the amount of

outstanding Non-Preferred Senior bonds with a remaining

maturity of at least one year. The buffer increased from

EUR 53.3 billion to EUR 56.6 billion due to profit retention and the

issuance of new instruments. This increase corresponds to 28.25%

(2017: 26.8%) of risk-weighted assets.

Table 5.4.3: MREL Eligible Capital buffer

Amounts in billions of euros 31-12-2018 31-12-2017

Qualifying Capital 53.3 51.9

Non qualifying grandfathered Additional Tier 1 0.0 0.0

Amortised Tier 2 > 1 year 1.3 1.3

Non-Preferred Senior bonds > 1 year 2.1 0.0

MREL Eligible Capital buffer and Non-Preferred Senior bonds 56.6 53.2

Risk-weighted assets 200.5 198.3

MREL Eligible Capital buffer / risk-weightedassets and Non-Preferred Senior bonds

28.2% 26.8%

Pillar 3


Credit risk is defined as the risk of the bank facing an economic loss because the bank’s counterpartiescannot fulfil their contractual obligations.

Credit risk management within the bank is governed by the bank-wide central credit risk policy andfurther detailed in underlying specific credit risk standards and procedures. The primary responsibilityfor managing and monitoring credit risk lies with the business lines as the first line of defence. Thebusiness lines are required to identify, assess and manage, monitor and report potential weaknessesin the credit risk portfolios. Monitoring takes place on an ongoing basis to limit credit risk exposuresto a level in line with the business line’s risk appetite.

In addition, risk in the credit portfolio is measured and monitored at bank-wide level and on entitylevel on a monthly basis and by quarterly and ad-hoc portfolio reporting and analysis, with specificattention to risk developments and concentrations.

6.1 Credit Risk Management

Credit AcceptanceRabobank’s prudent credit acceptance policy is typified by careful

assessment of customers and their ability to repay the loan that

was issued (continuity perspective). As a result, the loan portfolio

has an acceptable risk profile even in less than favourable

economic circumstances. Rabobank aims to have long-term

relationships with customers that are beneficial for both the client

and the bank. An important starting point in acceptance policy for

business loans is the ‘know your customer’ principle. This means

that the bank only issues loans to business customers whose

management Rabobank considers to be ethical and competent.

In addition, Rabobank closely monitors developments in the

business sectors in which its customers operate and properly

assesses the financial performance of its customers. Corporate

sustainability also means sustainable financing. Sustainability

guidelines have been established for use in the credit process.

Although credit is usually granted on the cash flow generating

potential of the client or project, collateral will improve the

position of the bank in case a client defaults. Collateral can be

independent of the client’s business and/or obtained from the

client’s business. Rabobank has outlined its policies for collateral

valuation and management in the Global Standard Credit Risk

Mitigation. Compliant to CRR 181 1.(e) all (eligible) collateral is

valued at market value or less than market value and the

collateral value is monitored regularly. The collateral should be

sufficiently liquid and its value over time should be sufficiently

stable to provide appropriate credit protection. Within the

Rabobank policy framework each type of collateral is addressed

separately. The main types of collateral that are recognised by

Rabobank are real estate, inventory (such as equipment,

machinery, stock etc.), commodities, receivables and guarantees.

With a substantial domestic mortgage portfolio, housing is

considered a concentration risk within the total collateral

Rabobank received. The quality of the collateral is assessed in the

initial credit request, and is evaluated within the credit review

process. The frequency of revaluation depends on the credit

quality of the client and on the type of collateral and is in line

with the requirements set in the CRR.

The main types of guarantors are governments, local authorities,

(central) banks and corporate entities. For institutions, insurance

undertakings and export credit agencies, a minimum rating is

required.

Credit Committees and Credit ApprovalWithin the boundaries set by the RMC Group the Managing Board

has mandated decision-making authority to transactional

committees and to credit decision approval officers that operate

on an entity level, regional level or central level at Rabobank.

Credit committees review all significant risks in credit proposals

to arrive at a systematic judgment and a balanced decision.

6. Credit Risk

Pillar 3


Rabobank has various levels of credit committees. Applications

exceeding authority level of a credit committee are

complemented with a recommendation and submitted to a

‘higher’ credit committee for decision-making.

Within Rabobank the ‘highest’ transactional committees are the

following:

Central Credit Committee Rabobank Group (CCCRG) - The

CCCRG takes credit decisions on credit applications subject to the

‘corporate credit approval route’ exceeding :

• the authority of Credit Approvals Local Banks (CA LB) - This

department is responsible for decisions on requests for non-

classified (LQC Good or OLEM) obligors exceeding the

authority of Local Banks in The Netherlands.

• the authority of Credit Approvals Wholesale Rural & Retail

(CA WRR) - This department is responsible for decisions on

requests for non-classified (LQC Good or OLEM) obligors

exceeding the authority of DLL or a Wholesale Rural & Retail

(WRR) office/region.

• the authority of the Credit Committee Financial

Restructuring & Recovery (CC-FR&R) - This credit committee

takes credit decisions on proposals for classified (LQC

Substandard, Doubtful or Loss) obligors exceeding the

authority of local credit committees and the FR&R department.

Country & Financial Institutions Committee (CFIC) - The CFIC

takes credit decisions on proposals exceeding the authority of

Credit Financial Institutions or Country Risk Research. These

departments are responsible for the risk management of

exposure on financial institutions and sovereigns/countries.

Loan Loss Provision Committee (LLPC) - The LLPC monitors the

development of qualified credit and asset portfolios and

recommends on impairment allowances for obligors exceeding

the authority of local credit committees or the CC-FR&R, to the

Managing Board.

The Terms of Reference (ToR) provide the mandate,

responsibilities & scope, hierarchical relationships, membership,

authority levels and modalities of these approval bodies. Credit

committees take decisions on the basis of consensus, unless local

regulation requires majority voting. Consensus is reached when

there is a general agreement and none of the members has

fundamental objections to the decision. When no consensus can

be reached, an application is considered declined. In case of

majority voting, the representative(s) from the Risk domain must

have a veto right.

For efficiency reasons credit committees can delegate part of

their authority. A single person may not take a credit decision

solely based on its own opinion; this means that a 4-eyes

principle applies or decisions are system supported, in which case

one person is allowed to decide as long as the credit is assessed

as acceptable by an expert system or meets predefined criteria

(the credit complies with decision tools). Fully IT supported

assessments and approvals are allowed under strict conditions.

The credit committees play a key role in ensuring consistency

among Rabobank standards of credit analysis, compliance with

the overall Rabobank credit policy and consistent use of the rating

models. The credit policy sets the parameters and remit of each

committee, including the maximum amount they are allowed to

approve for limits or transactions. Policies are also in place which

restrict or prohibit certain counterparty types or industries. As a

rule, all counterparty limits and internal ratings are reviewed once

a year (corporate clients) at a minimum. Where counterparties are

assigned a low loan quality classification, they are reviewed on a

more frequent basis. Credit committees may request for more

frequent reviews as well.

Lending to private individualsA substantial part of the Rabobank lending is supplied to private

individuals (EUR 195.5 billion). This category of loans consists

foremost of mortgage loans on residential owner occupied

properties.

In order to determine if the credit application is acceptable it will

run through a standardised process. Both from an external

legislation and from an internal policy point of view strict criteria

are applicable in terms of e.g. loan-to-income and loan-to-value.

Furthermore, the financial background of potential customers is

screened with BKR information (Bureau Kredietregistratie, an

organisation of credit registrations on private individuals). Also, a

Customer Due Diligence (CDD) check will be executed.

In order to have a maximum assurance that the loan will be fully

repaid, in general Rabobank demands a first mortgage on the

housing it finances. In specific circumstances, deviations on the

policy are allowed. Within the local banks domain credit

applications for these kind of mortgages can be approved on a

local management level. This approval always takes place within

a 4-eyes principle.

6.2 Credit Risk Measurement

Credit Risk Measurement FrameworkInternal credit models are used to estimate PD, LGD and EAD

parameters. Rabobank uses different modelling methodologies

for the different portfolios. Ranging from statistical models to

Pillar 3


expert-based models, and taking into account quantitative and

qualitative risk drivers. The credit risk parameters are used in the

calculation of the capital requirements.

Decisions that determine the level of credit risk accepted by

Rabobank are not only based on quantitative information or

model output. Practical and conceptual limitations of metrics and

models using a qualitative approach including expert judgment

and critical analysis are also taken into account.

After obtaining permission from the Dutch Central Bank,

Rabobank has been using the most advanced methods for capital

calculations since January 1, 2008. Rabobank applies the Internal

Ratings Based (IRB) approach for the vast majority of its credit

portfolio (including retail) to calculate its regulatory capital

requirements according to CRR (CRD IV). The IRB approach is the

most sophisticated and risk-sensitive of the CRR (CRD IV)

approaches for credit risk, allowing Rabobank to make use of its

internal rating methodologies and models. Rabobank combines

CRR (CRD IV) compliance activities with a Pillar 2 framework. The

approach represents key risk components for internal risk

measurement and risk management processes. Key benefits are

a more efficient credit approval process, improved internal

monitoring and reporting of credit risk. Another important metric

is the Risk Adjusted Return On Capital (RAROC) for a transaction

as part of the credit application. This enables credit risk officers

and committees to make better informed credit decisions.

The IRB approach uses the Probability of Default (PD), Loss Given

Default (LGD), Exposure at Default (EAD) and Maturity (M) as input

for the regulatory capital formula, where:

Risk metric Abbreviation Description

Probability ofDefault

PD (%) The likelihood that a counterparty will defaultwithin one year. This is a forward lookingmeasure.

Loss GivenDefault

LGD (%) The estimate of the economic loss in thesituation of a default, expressed as apercentage of the Exposure at Default (EAD).

Exposure atDefault

EAD (EUR) The expected exposure in case a counterpartydefaults.

Maturity M(t) The remaining expected maturity.

The Risk-Weighted Exposure Amount (RWA) and the Expected

Loss (EL) are calculated based on these parameters. The

Regulatory Capital requirements are calculated as 8% of RWA.

The differences between the actual IRB provision made for the

related exposure and the EL is adjusted for in the capital base. The

negative difference (when the EL amount is larger than the

provision amount) is defined as the Internal Ratings Based

Shortfall. According to CRR (CRD IV) rules, the shortfall amount is

deducted from the CET1 capital, AT1 capital and T2 capital. The

shortfall amount at the end of 2018 was EUR 1,003 million.

Concerning the application of ratings, on a process level,

Rabobank does not make a distinction between the different

exposure classes (except for Equity). For all exposure classes

(Central Governments and Central Banks, Corporates, Institutions

and Retail) Rabobank uses its own internal IRB PD, LGD and EAD

models. However, scorecards are different following the specific

characteristics and variables for each exposure class.

Off-balance sheet financial instrumentsGuarantees and standby letters of credit which Rabobank

provides to third parties in the event a client cannot fulfil its

obligations vis-à-vis these third parties, are exposed to credit risk.

Documentary and commercial letters of credit and written

undertakings by Rabobank on behalf of clients authorise third

parties to draw bills against Rabobank up to a present amount

subject to specific conditions. These transactions are secured by

the delivery of the underlying goods to which they relate.

Accordingly, the risk exposure of such an off-balance sheet

instrument is lower than that of an on-balance sheet exposure,

(e.g. a direct loan). Obligations to grant loans at specific rates of

interest during a fixed period of time are recognised under credit

granting liabilities and accounted for as such unless these

commitments do not extend beyond the period expected to be

needed to perform appropriate underwriting, in which case they

are considered to be transactions conforming to standard market

conventions.

Rabobank is exposed to credit risk when it promises to grant

lending facilities. The size of such exposure at risk is less than the

total of the unused commitments, as promises to grant credit

facilities are made subject to the clients meeting certain

conditions that apply to loans. Rabobank monitors the term to

expiry of credit promises, as long-term commitments are

generally associated with a higher risk than short-term

commitments.

One-obligor principleFor exposures that, under Basel regulations, qualify as corporate

exposures, exposure is measured at client group level, in line with

the one-obligor principle as defined by Rabobank. The one-

obligor principle implicates that the total of the approved

exposure limit(s) of a debtor is combined with the exposure limits

of the other debtors of the same client group within served by any

Rabobank entity. The client group of debtors includes debtors

belonging to an economic unity in which legal entities and

companies are organisationally connected, as well as majority

shareholders of that economic unity.

Pillar 3


Concentration riskRabobank applies concentration risk mitigation on, for example,

asset classes, sector and country level. For its asset classes

Rabobank has determined a risk appetite, expressed in exposure,

percentage of defaults and impairment charges on financial

assets. Furthermore, exposure limits are set on a sector and

country level as well. Single name concentrations are limited on

exposure and loss at default (LAD) and are monitored closely.

Risk classification and internal rating systemAn important element in the risk analysis for credit applications

is the classification of the credit risk by assigning an internal rating

to each credit counterparty. This is a borrower rating reflecting the

likelihood of a counterparty becoming unable to repay the loan

or to fulfil other debt obligations to Rabobank. Together with the

introduction of the Basel II framework, Rabobank developed the

Rabobank Risk Rating (RRR) master scale, comprising 21

performing ratings (R0-R20) and 4 default ratings (D1-D4). The

performing ratings correspond with the PD of the client. The D1-

D4 ratings represent default classifications. D1 represents a

minimum of 90 days of arrears, D2 a high probability that the

debtor is unlikely to pay, D3 that the debtor is unable to meet its

obligations and foreclosure/restructuring is required, and D4 is

the status of bankruptcy. In accordance with this approach, all D-

ratings constitute the total defaulted exposure. Each RRR is

associated with a range for the PD in basis points and an average

PD in basis points (see next table). The RRR for a specific

counterparty is determined based on internally developed credit

risk models. These models are developed by taking into account

various risk factors including the sector, country, size of the

counterparty and type of counterparty.

When using the credit risk model, specific customer information

is entered, such as general customer behaviour, customer

financial data and market data. The credit risk models are used as

a credit decision supporting tool. The outcome of the credit risk

model is used as a starting point for determining the RRR. Model

results are combined with professional judgment and risk

management (e.g. credit committee) to take into account

relevant and material information, including those aspects which

are not (sufficiently) taken into account by the credit risk model.

External agencies’ credit ratings do not imply a specific PD,

although one can observe a default frequency for each Standard

& Poor’s (S&P) grade. The observed default frequency is a

backward-looking measure of PD. By matching the observed

default frequencies of the S&P grades with the average default

probabilities of associated internal RRR, a mapping has been

obtained from the external ratings by S&P to our internal ratings

for reference purposes.

Rabobank mapping table internal and external ratings

Internal rating PD min % PD max %External Rating

Equivalent

R00 - 0.00 zero-risk

R01 - 0.02 AAA

R02 0.02 0.02 AA+

R03 0.02 0.03 AA

R04 0.03 0.05 AA-

R05 0.05 0.06 A+

R06 0.06 0.09 A

R07 0.09 0.12 A-

R08 0.12 0.17 BBB+

R09 0.17 0.27 BBB

R10 0.27 0.41 BBB-

R11 0.41 0.61 BB+

R12 0.61 0.92 BB+/BB

R13 0.92 1.37 BB

R14 1.37 2.06 BB-

R15 2.06 3.09 B+

R16 3.09 4.63 B+/B

R17 4.63 6.95 B

R18 6.95 10.42 B-

R19 10.42 15.63 B-/CCC+

R20 15.63 99.99 CCC+/worse

D1 100 100 Default

D2 100 100 Default

D3 100 100 Default

D4 100 100 Default

The IRB portfolio’s average RRR is around R12 (PD between 0.61%

and 0.92%). For 3% of the portfolio (based on gross carrying

values), the debt servicing commitments are not fully met. If such

a situation is expected an adequate allowance will be formed for

this part of the portfolio.

The IRB models calculate a client PD, which is subsequently

mapped to the RRR. For the IRB advanced portfolio, each entity/

type of credit facility has its own LGD models, which are based

upon the Rabobank LGD principles. Estimates for PD and LGD,

together with the exposure value (EAD), feed into the calculation

of EL and unexpected loss (UL). The latter is used to determine

regulatory and economic capital requirements.

Quality assurance credit risk models

Model governanceThe Model Governance Committee (MGC) has the responsibility

to sign-off on credit risk models before implementation (for DLL

a separate arrangement on model validations is in place). Before

MGC Group sign-off is requested, all models are validated by an

independent Model Validation team. Implemented models are

reviewed on at least an annual basis including back testing of

predictions against realizations. Credit Risk has a seat in the MGC.

Pillar 3


The Model Validation team assesses model performance

annually, based on statistical review complemented with an in-

depth analysis of model risks arising from internal and external

changes. For example, there can be relevant changes in internal

model usage, business model, changes in external regulations

and market conditions. This periodic validation aims to assess the

quality of the model in terms of prudence, methodology, validity

of key assumptions, fit-for-purpose and compliance. The overall

conclusions on performance of the models are reported to the

MGC Group with a recommendation to either extend the usage

of the model, or to redevelop the model if necessary. If models

are tested as non-prudent, the MGC Group is informed and

decides on an appropriate capital add-on until the model is

recalibrated to a prudent level. Besides these internally reviewed

risk models, there are some risk models that are periodically

reviewed by external parties under supervision of the Model

Validation team. Assumptions used in our models are not

disclosed as these are considered proprietary.

According to the ‘three lines of defence’ model Audit Rabobank

operates as the third line of defence within Rabobank Group. The

scope of work of Audit Rabobank is to:

• Provide independent assurance, advice and insights to the

Managing Board, the Supervisory Board and other senior

management of Rabobank Group on the quality and

effectiveness of the Group’s internal control, risk management

and governance systems and processes (including models),

thereby helping the boards and management protect the

organisation and its reputation.

• Provide, for internal purposes only and to be relied upon by the

external auditor, independent assurance on selected data

included in financial statements, the In Control Statement,

Integrated Report and KPI’s, regulatory reporting and the

credit provisions (financial audits).

Rabobank Model LandscapeRabobank made significant progress in the overhaul of its credit

risk model landscape (RML), making models more effective for

business purposes and integrating new regulatory requirements,

while reducing the total number of models to a third since 2016.

Apart from extending the use test (acceptance, delegation of

authority levels, early warning, IFRS 9), the Internal Rating Based

(IRB) models for Residential Mortgages and SME retail were

assessed in TRIMIXs and will be deployed in 2019 after final ECB

approval. The deployment of the corporate models and

international agricultural models will be done after their

completion and regulatory approval process. Combined, these

four models represent two thirds of Rabobank’s balance sheet

exposures. After completion, model redevelopments for the

remaining portfolios are envisaged. In the meantime, IFRS 9

models have been successfully used throughout 2018 for

advanced calculations of provisioning.

The table below gives an overview of the most important models

by exposure class, including a model description and

methodology.

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Asset Class Model

Number ofimportant

Models Calibration data Model description and methodology

Sovereigns (CGCB) PD 1 > 7 years An expert-based developed model, supported by benchmarks andinternal data using economic structure, economic policy, liquidityposition and foreign debt as key risk drivers.

LGD 1 > 7 years An expert-based developed model, supported by benchmarks andinternal data using ability to pay, debtors view on foreign privatecreditors, negotiating power as key risk drivers.

EAD 1 > 7 years An expert-based developed model, supported by benchmarks andinternal data using product type as key risk driver.

Public Sector Entitities PD 1 > 7 years An expert-based developed model. A notching methodology isused with the Sovereign rating as a starting point. It includes basedon PSE type, support government, economic fundamentals, politicsand governance, debt structure and burden, ability to raise taxesas key risk drivers.

LGD 1 > 7 years An expert-based developed model, using collateral type, producttype as key risk drivers.

EAD 1 > 7 years An expert-based developed model differentiated by facility type.

Financial Institutions PD 1 > 7 years An expert-based developed model, supported by benchmarks,own default estimates on external rating data and internal data. Themodel is using country risk, financial and business risk drivers andwarning signals as key risk drivers.

LGD 1 > 7 years An expert-based developed model, supported by benchmarks andinternal data using Seniority, secured/unsecured, legal position indebtors country, strength, industry performance/type, macro-economic performance as key risk drivers.

EAD 1 > 7 years An expert-based developed model, supported by benchmarks andinternal data using product type as key risk driver.

Corporate - SME PD 7 > 7 years Statistical developed models, scorecard methodology, usingfinancial risk ratios and business risk drivers, warning signals as keyrisk drivers.

LGD 4 > 7 years Expert-based developed models, supported by internal data usingCollateral type, (local) legal framework, UCP and unpledged assetsas key risk drivers.

EAD 4 > 7 years Statistical and expert-based developed models using facility types,business type and region as key risk drivers for the CCFs.

Corporate - Other PD 1 > 7 years An expert-based developed model, supported by benchmarks andinternal data using financial risk and business risk drivers, warningsignals as key risk drivers.

LGD 1 > 7 years An expert-based developed model, supported by benchmarks andinternal data using collateral type, (local) legal framework, UCP andunpledged assets as key risk drivers.

EAD 1 > 7 years Statistical and expert based developed models using facility types,business type and region as key risk drivers for the CCFs.

Corporate - SL PD 3 > 7 years An expert-based developed model, supported by internal datausing Risk drivers specific for project finance, IPRE and TradeFinance as key risk drivers.

LGD 2 > 7 years An expert-based developed model, supported by internal datausing an extension with specific risk factors for specialized lending.

EAD 2 > 7 years An expert-based developed model, supported by benchmarks andinternal data using specific conversion factors per type ofspecialized lending.

Residential Real Estate PD 1 > 7 years A statistical developed model, supported by benchmarks andinternal data using business entity, loan-to-income, Loan-to-value,seasoning, credit records, product types as key risk drivers.

LGD 1 > 7 years A statistical developed model, supported by benchmarks andinternal data using business entity, loan-to-value, product types askey risk drivers.

EAD 1 > 7 years A statistical developed model, supported by benchmarks andinternal data using business entity and product type as key riskdrivers.

Retail - Other (SME and non-SME) PD 2 > 7 years Statistical developed models, using financial risk and business riskdrivers, warning signals, and transaction characteristics as key riskdrivers.

LGD 2 > 7 years Statistical developed models, using loan-to-value, business line,facility type, seasoning as key risk drivers.

EAD 2 > 7 years Statistical developed models, using business line, facility type askey risk drivers.

Other Models for leasing, purchased receivables, structured finance andtransfer event risk.

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Credit risk reportingCredit risk reporting is based on the product administration

systems and the rating systems, which hold PD, LGD and EAD

information. Risk reporting is reconciled with financial reporting

data both at entity and Group level. Risk Management compiles

a Credit Quarterly Rabobank (CQR) report on the developments

in the credit portfolio, which is distributed among senior

management. Key risk indicators in this quarterly credit risk report

such as PD, EAD, LGD, EC and EL, are used to monitor

developments within the portfolio. Furthermore, trends in

impairment charges, impairment allowances, non-performing

loans, and number and amount of exposures are analysed by our

Financial Restructuring & Recovery (FR&R) department. Another

important periodic report is the quarterly loan impairment report.

Our Risk Management Credit (RM Credit) department provides

insight into the risk in order to make it possible for Rabobank to

optimise the balance between credit risk, capital usage and

returns. RM Credit is a centre of competence for all credit activities

in which risk-return considerations play a role. FR&R has a specific

focus on the substandard and non-performing part of the

portfolio.

IRB and Standardised Approach exposuresThe policy of Rabobank is aimed at applying the IRB approach for

its credit portfolio as much as possible. A few exceptions can be

made to this policy. The criteria used to assess when the IRB

approach does not need to be applied for a credit portfolio are

included in the ‘Global standard on partial use of the Standardised

Approach’. In this policy document a distinction is made between

portfolios on which the Standardised Approach (SA) is

permanently applied - as they are immaterial in size and risk - and

portfolios for which SA is temporarily applied. Within the

portfolios for which SA is permanently applied, a distinction is

made between portfolios for which the credit risk is nil or very

limited (e.g. some central governments) and portfolios falling

under discretionary approval of DNB for using the SA, for which

specific limits are prescribed.

6.2.1. Credit portfolioWeighted on gross carrying values Rabobank is IRB compliant for

96% of its credit portfolio exposures (this includes a limited

exposure on IRB foundation). A full 100% IRB coverage will never

be reached, since the SA has been chosen for some portfolios as

described in the previous paragraph. In general the IRB coverage

is particularly high for the portfolios in the Netherlands and in the

wholesale portfolios outside the Netherlands. Some parts of the

international retail portfolios abroad are under SA. As per

31 December 2018, in terms of EAD Rabobank has the following

exposures per approach: AIRB 547.3 billion, FIRB 7.9 billion and

SA 21.5 billion.

The following templates provide an overview of Rabobank’s IRB

exposures in terms of carrying amounts and EAD. Furthermore,

in some templates the risk-weighted exposure amount, the PD,

the LGD and the exposure-weighted average risk weight are

shown.

Template 7: EU CRB-B – Total and average net amount ofexposures

Amounts in millions of euros Net value ofexposures at the

end of the period

Average netexposures over

the period

Central governments or central banks 89,931 94,684

Institutions 18,701 20,031

Corporates 213,991 210,689

Of which: Specialised lending 22,562 22,911

Of which: SMEs 71,540 71,296

Retail 247,148 248,040

Secured by real estate property 215,094 216,498

SMEs 20,536 20,619

Non-SMEs 194,558 195,878

Qualifying revolving - -

Other retail 32,054 31,542

SMEs 27,004 26,430

Non-SMEs 5,050 5,112

Equity 3,525 3,540

Total IRB approach 573,295 576,983

Central governments or central banks 2,080 1,813

Regional governments or local authorities - -

Public sector entities - -

Multilateral development banks - -

International organisations - -

Institutions 883 819

Corporates 11,420 9,885

Of which: SMEs 2,682 2,643

Retail 5,082 5,569


Secured by mortgages on immovable property 5,504 5,591


Exposures in default 1,278 1,343

Items associated with particularly high risk 5 9

Covered bonds - -

Claims on institutions and corporates with ashort-term credit assessment

- -

Collective investments undertakings - -

Equity exposures - -

Other exposures - -

Total standardised approach 26,253 25,029

Total 599,549 602,012

Narrative template 7: As a result of new exposures (mainly in

wholesale lending and trade & commodity finance) and positive

FX results, exposure on Corporates rose by 6 billion in comparison

to 2017. Exposure on Central Governments & Central Banks

decreased by 3 billion due to an overall net decrease of cash

balances and government paper. The decrease in exposure

'Secured by real estate property' of 4 billion was mainly caused

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by additional repayments from Dutch mortgage customers and

the securitisation of a small part of the mortgage portfolio. The

average total net exposure over the period is higher than at the

end of 2018, due to a higher exposure at the end of 2018 Q1.

Template 21 is available in appendix 14.6.

Template 5: EU CR10 – IRB (specialised lending and equities)

Amounts in millions of euros

Specialised lending

Regulatory categories Remaining maturity On-balancesheet amount

Off-balancesheet amount Risk weight Exposure

amount RWAs Expected losses

Category 1Less than 2.5 years 50%

Equal to or more than2.5 years 70%







Category 5Less than 2.5 years -

Equal to or more than2.5 years -

Total Less than 2.5 years

Total Equal to or more than2.5 years

Equities under the simple risk-weighted approach

Categories - Amounts in millions of euros On- balance-sheet amount

Off-balance-sheet amount Risk weight Exposure

amount RWAs Capitalrequirements

Private equity exposures 780 - 190% 780 1,481 119

Exchange-traded equity exposures 80 - 290% 80 234 19

Other equity exposures 502 - 370% 502 1,856 148

Total 1,362 - - 1,362 3,571 286

Narrative template 5: The first part of the template is reported

empty as Rabobank is not calculating its own funds requirements

for specialized lending according to the slotting approach, but

applies the LGD/PD approach in accordance with Art 153 (5) CRR.

2018 amounts are in line with reported 2017 values. Due to the

370% risk weight, the relatively small rise of 202 million in Other

equity exposures led to a 763 million increase in RWA.

Template 23: EU CR8 – RWA flow statements of credit riskexposures under the IRB approach

Amounts in millions of euros RWA amounts Capitalrequirements

RWAs as per 31 December 2017 122,809 9,825

Asset size -954 -76

Asset quality 3,478 278

Model updates - -

Methodology and policy - -

Acquisitions and disposals - -

Foreign exchange movements 982 79

Other - -

RWAs as per 31 December 2018 126,315 10,105

Narrative template 23: The portfolio was impacted by foreign

exchange movements, with a rise of the USD, and decrease of the

AUD and BRL as the main contributors. Regarding asset quality,

higher risk weights in both the domestic and the international

portfolio increased the RWA by 2.8%. In 2018 there were no

Model updates and Acquisitions & disposals that impacted the

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RWA. Concerning changes due to Methodology & policy, the only

effect (implementation of IFRS 9) was not material. As a result, for

all these effects nil is reported.

Table 6.2.1: Weighted average PD and LGD IRB Advanced and IRB Foundation

Country Weighted average PD Weighted average LGD

IRB Advanced The Netherlands 3.9% 22.1%

Other European countries 1.9% 27.0%

North America 3.3% 25.2%

Latin America 10.7% 29.1%

Asia 3.7% 28.0%

Australia 2.7% 15.0%

Other 4.9% 27.2%

Total 3.7% 22.7%

IRB Foundation The Netherlands 7.0% 43.0%

Other European countries 0.7% 45.0%

North America 0.1% 45.0%

Latin America 2.6% 44.6%

Asia 1.4% 45.3%

Australia 0.2% 45.0%

Other 4.1% 45.0%

Total 2.0% 44.9%

Grand Total 3.7% 23.0%

Template 24 is available in appendix 14.7. The following templates provide an overview of Rabobank’s

Standardised Approach exposures.

Template 19: EU CR4 - Standardised approach - Credit risk exposure and CRM effects

Amounts in millions of euros Exposures before CCF and CRM Exposures post CCF and CRM RWAs and RWA density

Exposure classes On-balance sheetamount

Off-balance sheetamount

On-balance sheetamount

Off-balance sheetamount

RWAs RWA density

Central governments or central banks 2,080 - 2,407 - 2,679 1.11

Institutions 883 - 883 - 248 0.28

Corporates 6,779 4,642 6,779 508 7,220 0.99

Retail 4,440 642 4,440 248 3,327 0.71

Secured by mortgages on immovableproperty

4,983 522 4,656 261 1,887 0.38

Exposures in default 1,276 2 1,276 1 1,523 1.19

Exposures associated with particularly highrisk

5 - 5 - 8 1.50

Total 20,446 5,807 20,446 1,018 16,892 0.79

Narrative template 19: 2018 exposure amounts and RWA density

are in line with reported 2017 values.

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Template 20: EU CR5 – Standardised approach

Amounts in millions ofeurosExposure Classes

0% 2% 4% 10% 20% 35% 50% 70% 75% 100% 150% 250% 370% 1250% OthersDeductedTotal Ofwhichunrated

Central governmentsor central banks

1,153 - - - 67 - 124 - - 36 - 1,027 - - - - 2,407 1,027

Regional governmentor local authorities

- - - - - - - - - - - - - - - - -

Public sector entities - - - - - - - - - - - - - - - - -

Multilateraldevelopment banks

- - - - - - - - - - - - - - - - -

Internationalorganisations

- - - - - - - - - - - - - - - - -

Institutions - - - - 741 - 84 - - 58 - - - - - - 883 58

Corporates - - - - - - - - - 7,287 - - - - - - 7,287 7,287

Retail - - - - - - - - 4,688 - - - - - - - 4,688 4,688

Secured bymortgages onimmovable property

- - - - - 3,912 783 - - 222 - - - - - - 4,917 4,917

Exposures in default - - - - - - - - - 786 492 - - - - - 1,277 1,277

Higher-riskcategories

- - - - - - - - - - 5 - - - - - 5 5

Covered bonds - - - - - - - - - - - - - - - - -

Institutions andcorporates with ashort-term creditassessment

- - - - - - - - - - - - - - - - -

Collective investmentundertakings

- - - - - - - - - - - - - - - - -

Equity - - - - - - - - - - - - - - - - -

Other items - - - - - - - - - - - - - - - - -

Total 1,153 - - - 808 3,912 992 - 4,688 8,388 497 1,027 - - - - 21,464 19,259

Narrative template 20: Figures are in line with 2017 values. Within

the exposure class Central Governments or Central Banks an

amount of 1,027 million has a risk weight of 250%. This exposure

is related to Deferred Tax Assets (DTA). As from the 2018 reporting

all exposures to Institutions with a risk weight below 100% are

reported as rated, including Institutions for which the rating is

derived from a rated country. This leads to a lower unrated

Institutions portfolio, and a lower total unrated portfolio

compared to 2017.

NB: Rabobank uses the public information, as published by the

External Credit Assessment Institution (ECAI), or as published by

the company itself to apply a rating issued by an ECAI. Rabobank

complies with the standard association published by the EBA.

For rated exposures under the Standardised Approach Rabobank

uses the following External Credit Assessment Institutions:

Standard & Poor’s and Moody’s. Both External Credit Assessment

Institutions are used for the exposure classes Central

Governments or Central Banks, and Institutions. Furthermore, for

securitizations the External Credit Assessment Institution Fitch is

used (securitizations are not in scope for template 20).

The following templates provide an overview of Rabobank’s IRB

and Standardised Approach exposures showing more detail on

the geographical, maturity and counterparty type breakdown.

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Template 8: CRB-C – Geographical breakdown of exposures

Amounts in millions of euros The Netherlands Other EU North America Latin America Asia Australia Other Countries Total

Central governments or centralbanks

69,576 10,751 6,617 528 1,010 1,264 186 89,931

Institutions 10,314 2,419 1,454 201 3,804 230 278 18,701

Corporates 92,806 25,623 48,708 8,986 11,773 25,375 720 213,991

Retail 227,717 8,209 9,416 977 - 828 - 247,148

Equity 2,692 264 203 202 19 14 132 3,525

Total IRB approach 403,105 47,266 66,399 10,894 16,606 27,711 1,315 573,295

Central governments or centralbanks

1,147 172 450 22 119 170 - 2,080

Regional governments or localauthorities

- - - - - - - -

Public sector entities - - - - - - - -

Multilateral development banks - - - - - - - -

International organisations - - - - - - - -

Institutions 7 96 199 65 56 460 - 883

Corporates 794 3,071 2,762 3,961 563 269 - 11,420

Retail 1,713 1,716 423 231 525 475 - 5,082

Secured by mortgages onimmovable property

3,597 150 1,616 - - 142 - 5,504

Exposures in default 143 569 51 429 84 2 - 1,278

Items associated withparticularly high risk

- 5 - - - - - 5

Covered bonds - - - - - - - -

Claims on institutions andcorporates with a short-termcredit assessment

- - - - - - - -

Collective investmentsundertakings

- - - - - - - -

Equity exposures - - - - - - - -

Other exposures - - - - - - - -

Total standardised approach 7,401 5,780 5,501 4,709 1,346 1,517 - 26,253

Total 410,506 53,045 71,899 15,603 17,952 29,228 1,316 599,549

Narrative template 8: The main increases in the international

banking domain were the result of new business in a.o. Latin

America and Australia, foremost in wholesale, but to a lesser

extent also with rural customers. Within the Netherlands, the

decrease of exposure in 'Secured by real estate property', as

elaborated on in template 7, was the result of additional

repayments from Dutch mortgage customers and the

securitisation of a small part of the mortgage portfolio. Within the

leasing portfolio growth was observed in a wide variety of

countries where DLL operates in.

The column ‘Other Countries’ mainly consists of countries in the

African region, on which exposure is very limited.

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Template 10: EU CRB-E – Maturity of exposures

Net exposure value

Amounts in millions of euros On demand <= 1 year > 1year <= 5 years > 5 years No statedmaturity

Total

Central governments or central banks 64,883 11,123 9,827 2,840 954 89,626

Institutions 325 12,961 1,239 351 86 14,961

Corporates 5,625 48,304 42,751 50,432 6,001 153,113

Retail 5,585 3,709 50,989 173,415 - 233,699

Equity - - - - 3,525 3,525

Total IRB approach 76,419 76,096 104,806 227,038 10,565 494,924

Central governments or central banks 514 5 2 - 1,559 2,080

Institutions 501 1 2 8 372 883

Corporates 6 4,027 1,310 681 754 6,779

Retail 1 1,096 2,055 1,150 138 4,440

Secured by mortgages on immovable property - 256 240 4,420 66 4,983

Exposures in default - 435 192 384 264 1,276

Items associated with particularly high risk - - 1 4 - 5

Total standardised approach 1,021 5,821 3,803 6,648 3,153 20,446

Total 77,440 81,917 108,609 233,686 13,719 515,371

Narrative template 10: A sharp decrease in the total exposure

value under 'no stated maturity' is reported. This is foremost

related to an improved data quality and reporting process.

Template 9: EU CRB-D – Concentration of exposures by industry or counterparty types

Amounts in millions of euros Food(animal)

Food(vegetable)

Industry Other F&A Services CentralGovernment

or CentralBanks

BanksHouseholds Trade Total

Central governments or central banks - - - - 352 87,100 2,479 - - 89,931

Institutions - 21 290 272 10,667 - 7,396 - 55 18,701

Corporates 35,859 30,547 20,251 31,528 60,478 419 101 - 34,809 213,991

Retail 1,752 4,732 2,711 1,962 34,826 187 24 199,225 1,730 247,148

Equity 16 2 239 3 2,546 75 591 - 52 3,525

Total IRB approach 37,627 35,302 23,491 33,765 108,868 87,782 10,590 199,225 36,645 573,295

Central governments or central banks - - - - 1,027 757 296 - - 2,080

Regional governments or local authorities - - - - - - - - - -

Public sector entities - - - - - - - - - -

Multilateral development banks - - - - - - - - - -

International organisations - - - - - - - - - -

Institutions - - - - 96 67 720 - - 883

Corporates 418 7,646 412 686 1,200 - - - 1,058 11,420

Retail 698 409 289 506 1,839 6 2 918 416 5,082

Secured by mortgages on immovable property 88 30 30 42 2,285 1 - 2,873 157 5,504

Exposures in default 153 355 73 117 355 - - 35 190 1,278

Items associated with particularly high risk - - - - - - - - 5 5

Covered bonds - - - - - - - - - -

Claims on institutions and corporates with a short-term credit assessment

- - - - - - - - - -

Collective investments undertakings - - - - - - - - - -

Equity exposures - - - - - - - - - -

Other exposures - - - - - - - - - -

Total standardised approach 1,357 8,440 804 1,351 6,801 832 1,018 3,825 1,826 26,253

Total 38,984 43,742 24,295 35,116 115,670 88,613 11,608 203,050 38,472 599,549

Narrative template 9: Within the international banking domain

the rise in exposure was diversified over a large number of

sectors, but foremost in F&A related segments. In the domestic

retail banking segment more redemptions than new inflow led

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to a slight decrease of the total loan portfolio. This effect was

visible in various sectors.

Template 18: EU CR3 – CRM techniques – Overview

Amounts in millions of euros Exposures unsecured -carrying amount

Exposures secured -carrying amount

Exposures secured bycollateral

Exposures secured byfinancial guarantees

Exposures secured bycredit derivatives

Total loans 168,880 324,230 310,426 13,804 -

Total debt securities 18,659 77 0 77 -

Total exposures 187,539 324,307 310,426 13,881 -

Of which: Defaulted 4,400 8,155 7,809 346 -

Narrative template 18: End of 2018 figures are within the same

range as in 2017. This is the result of a consistent and long-term

collateral policy.

6.2.2. Past due, non-performing loans, defaults and loanimpairment allowancesFor the purpose of reporting, Rabobank distinguishes several

types of loans, for which servicing commitments are not being

met, like for example:

• Past due loans: Interest, repayments or overdrafts on a loan

have been due for payment for more than one day.

• Non-performing/defaulted/impaired loans : Loans that at least

satisfy one of the following criteria. Material exposures which

are more than 90 days past due or the debtor is assessed as

unlikely to pay its credit obligations in full without realisation

of collateral, regardless of the existence of any past due

amount or the number of days past due.

• All Obligors and Facilities that are in Default are always Non-

Performing.

• Additional Non-Performing criteria (not applicable for

Default): A forborne and Non-Defaulted Obligor that has been

reclassified from the Defaulted /Non-Performing category

becomes Non-Performing (again) when:

• additional Forbearance measures are granted to a forborne

contract or

• a forborne contract becomes more than 30 days past-due.

Within the Rabobank portfolio past-due exposures of more than

90 days that are not considered defaulted can occur when these

exposures are not material.

NB: The new Definition of Default (DoD) according to EBA

guidelines, published in 2016, is being implemented as of

1 January 2018. This definition also includes the strict exit criteria

for forborne defaulted exposure.

Cured (returned to performing): A facility is returned to

performing (cured) when all exit criteria for non-performing are

met.

Restructured exposure: A distressed sale or a distressed

restructuring has occurred that likely results into a credit-related

economic loss, for example involving remission, subordination

or postponement of principal, interest or fee (re-)payments.

Impairment allowancesIFRS 9 became effective on 1 January 2018 and Rabobank applies

the classification, measurement and impairment requirements

retrospectively by adjusting the opening balance sheet and

opening retained earnings as per 1 January 2018, with no

restatement of comparative periods. The adoption of IFRS 9

Financial Instruments resulted in changes in accounting policies

and adjustments to the amounts recognised in the financial

statements.

ClassificationFrom 1 January 2018, Rabobank classifies its financial assets in the

following measurement categories:

• those to be measured subsequently at fair value (either

through OCI, or through profit or loss), and

• those to be measured at amortized cost.

The classification depends on:

1. Business model assessment; Assessment how the business is

managed and how the business is seen from a strategic point

of view:

• Hold to collect: where the financial asset is held within a

business model whose objective is to hold financial assets

in order to collect contractual cash flows; or

• Hold to collect and sell: where the financial asset is held

within a business model whose objective is achieved by

both collecting contractual cash flows and selling financial

assets; or

• Other business model.2. Contractual cash flow assessment; Assessment whether the

cash flows of the financial assets are solely payment of

principal and interest (SPPI test).

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The business model assessment can be made on a portfolio

basis, whereas the contractual cash flow assessment is made for

each individual financial asset. Rabobank only reclassifies debt

instruments when the business model for managing those assets

changes.

A debt instrument that is held within a business model "hold to

collect" and meets the SPPI test is measured at amortized cost

unless the asset is designated at fair value through profit or loss.

A debt instrument that is held within a business model "hold to

collect and sell" and meets the SPPI test is measured at fair value

with fair value adjustments recognized in other comprehensive

income unless the asset is designated at fair value through profit

or loss. All other debt instruments are mandatorily measured at

fair value through profit or loss.

All equity instruments in scope of IFRS 9 are measured at fair value

with fair value adjustments recognized in profit or loss or in other

comprehensive income. The option to designate an equity

instrument at fair value through other comprehensive income is

available at initial recognition and is irrevocable.

IFRS 9 gives new guidance around modification accounting. This

altered the way Rabobank accounts for prepayment penalties and

interest rate averaging with regard to outstanding loans in the

consolidated statement of income.

MeasurementAt initial recognition, Rabobank measures a financial asset at its

fair value plus, in the case of a financial asset not at fair value

through profit or loss, transaction costs that are directly

attributable to the acquisition of the financial asset. Transaction

costs of financial assets measured at fair value through profit or

loss are expensed to profit or loss. Financial assets with embedded

derivatives are considered in their entirety when determining

whether their cash flows are solely payment of principal and

interest. Derivative financial instruments are initially recognized

and subsequently measured at fair value through profit or loss.

Impairment allowances on financial assetsThe rules governing impairments apply to financial assets at

amortized cost and financial assets at fair value through OCI, as

well as to lease receivables, contract assets, trade receivables,

certain loan commitments and financial guarantees. At initial

recognition, an allowance is formed for the amount of the

expected credit losses from possible defaults in the coming 12

months (‘12-months expected credit loss’ (ECL)). If credit risk has

increased significantly since origination (but remains non-credit-

impaired), an allowance is required for the amount that equals the

expected credit losses stemming from possible defaults during

the expected lifetime of the financial asset (‘Lifetime ECL’). If the

financial instrument becomes credit-impaired the allowance will

remain at the Lifetime ECL. However, for these instruments the

interest income will be recognized by applying the effective

interest rate on the net carrying amount (including the

allowance). Financial instruments become credit-impaired when

one or more events have occurred that had a detrimental impact

on estimated future cash flows.

Two fundamental drivers of the IFRS 9 impairments requirements

are a) the methodology for the measurement of 12-month and

Lifetime ECL and b) the criteria used to determine whether a 12-

month ECL, Lifetime ECL non-credit impaired, or Lifetime ECL

credit-impaired should be applied (also referred to as stage

determination criteria).

a) Methodology to determine expected credit lossesIn order to determine ECLs Rabobank utilises point in time

Probability of Default (PD) x Loss Given Default (LGD) x Exposure

at Default (EAD) models for the majority of the portfolio in scope.

Three global macroeconomic scenarios are incorporated into

these models and probability weighted in order to determine the

expected credit losses. When unexpected external developments

or data quality issues are not sufficiently covered by the outcome

of the ECL models, an adjustment will be made.

b) Stage determination criteriaIn order to allocate financial instruments in scope between the

categories 12-month ECL (stage 1), lifetime ECL non-credit-

Impaired (stage 2) and lifetime ECL Credit-Impaired (stage 3) a

framework of qualitative and quantitative factors has been

developed. The criteria for allocating a financial instrument to

stage 3 are fully aligned with the criteria for assigning a defaulted

status, for example 90 days past due status, or if a debtor is likely

to become unable to pay its credit obligations without liquidation

of collateral by the bank. In order to allocate financial instruments

between stages 1 and 2, Rabobank uses criteria, such as days past

due status, special asset management status and deterioration

of the PD since origination. For portfolios without individual PD’s

or with PD’s that are not updated on a frequent basis such that

an assessment of the change in PD is not possible, a collective

assessment on groups of financial instruments with shared credit

risk characteristics is made.

After a loan has been granted, continuous credit management

takes place. New financial and non-financial information is

assessed. The bank ascertains whether the client complies with

the agreement made and whether it can be expected that this

will be the case in the future. If this is expected not to be the

case, credit management is stepped up, monitoring becomes

more frequent, and a closer eye is kept on credit terms. Guidance

is provided by a special department for larger and more complex

Pillar 3


loans: Financial Restructuring & Recovery (FR&R). If it is likely that

a debtor will be unable to pay the amounts owed to Rabobank

in accordance with the contractual obligations, this will give rise

to an impairment (impaired loan). If necessary, an allowance is

formed that is charged to income.

Credit quality of exposures

* The specific and general credit risk adjustment is slightly

different from the loan impairment allowances as published in the

Financial Statement 2018 because of scope differences. All

Rabobank loan impairment allowances are labelled specific.

**These 'accumulated write-offs' include both by reductions of

the carrying amount of financial assets recognised directly in

profit or loss, as well as reductions in the amounts of the

allowance accounts for credit losses taken against the carrying

amount of financial assets. In the Financial Statements 2018 only

the latter is reported in chapter 4.3 credit risk.

Template 11: EU R1-A – Credit quality of exposures by exposure class and instrument

Gross Carrying values of

Amounts in millions of euros Defaultedexposures (a)

Non-defaultedexposures (b)

Specific creditrisk adjustment*

(c)

General creditrisk adjustment

(d)

Accumulatedwrite-offs**

Credit riskadjustment

charges of theperiod

Net values (a+b+c+d)

Central governments or central banks - 89,937 -6 - - - 89,931

Institutions 467 18,299 -64 - - - 18,701

Corporates 11,197 205,269 -2,474 - -763 - 213,991

Of which: Specialised lending 1,235 21,513 -186 - -263 - 22,562

Of which: SMEs 6,248 66,415 -1,123 - -163 - 71,540

Retail 3,275 245,006 -1,133 - -245 - 247,148

Secured by real estate property 2,232 213,433 -572 - -33 - 215,094

SMEs 1,625 19,271 -360 - -12 - 20,536

Non-SMEs 607 194,162 -211 - -21 - 194,558

Qualifying revolving - - - - - - -

Other retail 1,042 31,573 -561 - -212 - 32,054

SMEs 947 26,556 -498 - -211 - 27,004

Non-SMEs 95 5,017 -63 - - - 5,050

Equity - 3,525 - - - - 3,525

Total IRB approach 14,938 562,035 -3,678 - -1,008 - 573,295

Central governments or central banks - 2,080 - - - - 2,080

Regional governments or local authorities - - - - - - -

Public sector entities - - - - - - -

Multilateral development banks - - - - - - -

International organisations - - - - - - -

Institutions - 883 - - - - 883

Corporates 836 11,439 -150 - -36 - 12,125

Of which: SMEs 7 2,689 -6 - - - 2,690

Retail 596 5,096 -36 - - - 5,656

Of which: SMEs 161 3,609 -36 - - - 3,734

Secured by mortgages on immovable property - 5,505 -1 - - - 5,504

Of which: SMEs - 1,436 - - - - 1,436

Exposures in default 1,432 - -154 - -36 - 1,278

Items associated with particularly high risk - 5 - - - - 5

Covered bonds - - - - - - -

Claims on institutions and corporates with a short-term credit assessment - - - - - - -

Collective investments undertakings - - - - - - -

Equity exposures - - - - - - -

Other exposures - - - - - - -

Total Standardised Approach 1,432 25,008 -187 - -36 - 26,253

Total 16,370 587,043 -3,865 - -1,044 190 599,549

Of which: Loans 15,750 481,029 -3,670 - -1,032 - 493,110

Of which: Debt securities - 18,736 - - - - 18,736

Of which: Off-balance sheet exposures 620 83,748 -189 - -12 - 84,178

Pillar 3


Narrative template 11: The total defaulted portfolio decreased by

1.6bn, mainly in the international Standardized Approach

portfolio. This was due to the fact that ACCLM was reported on

FV as of 1 January 2018.

Template 12: EU CR1-B – Credit quality of exposures by industry or counterparty types

Gross carrying values of




(c)


(d)





Food (animal) 3,182 35,988 -186 - -24 - 38,984

Food (vegetable) 2,213 42,044 -515 - -10 - 43,742

Industry 741 23,911 -358 - -46 - 24,295

Other F&A 732 34,596 -213 - -84 - 35,116

Services 6,724 110,841 -1,896 - -812 - 115,670

Central Government/Central Banks 1 88,622 -10 - - - 88,613

Banks 324 11,311 -27 - - - 11,608

Households 737 202,587 -274 - -14 - 203,050

Trade 1,714 37,144 -386 - -53 - 38,472

Total 16,370 587,043 -3,865 - -1,044 190 599,549

Narrative template 12: Impairment charges (credit risk adjustment

charges for the period) were low in 2018, and were spread over a

large variety of sectors. No specific concentration was observed.

Template 13: EU CR1-C – Credit quality of exposures by geography

Gross carrying values of




(c)


(d)





The Netherlands 11,930 401,194 -2,619 - -609 - 410,506

Other EU 965 52,283 -203 - -49 - 53,045

North America 1,144 70,955 -200 - -160 - 71,899

Latin America 1,412 14,622 -432 - -45 - 15,603

Asia 457 17,825 -331 - -156 - 17,952

Australia 439 28,867 -78 - -26 - 29,228

Other countries 23 1,296 -3 - - - 1,316

Total 16,370 587,043 -3,865 - -1,044 190 599,549

Narrative template 13: Impairment charges on financial assets

(credit risk adjustment charges for the period) were low for the

third year in a row. However, after three 6-months periods with

negative impairment charges (i.e. net releases), the second half

of 2018 showed net additions again. Main cause of this

movement was a number of defaults, a.o. in Asia and Latin

America, leading to substantial additions in specific allowances

(stage 3). Within Leasing an increase of net additions abroad was

observed in the second half of the year. At the same time, mainly

thanks to the well-performing economy, local Rabobanks in the

Netherlands showed net releases for the second year in a row.

Template 14: EU CR1-D – Ageing of past-due exposures

Amounts in millions of euros ≤ 30 days > 30 days ≤ 90 days > 90 days ≤ 180 days > 180 days ≤ 1 year > 1 year ≤ 5 years > 5 years

Loans 5,350 1,976 609 576 2,322 1,584

Debt securities - - - - -

Total exposures 5,350 1,976 609 576 2,322 1,584

Narrative template 14: A rise in past-due exposure was observed.

This was due to an improved reporting process, and the use of

newly introduced FINREP forms. These FINREP forms were the

basis for merging the columns 'between 30 and 60 days' and

'between 60 and 90 days', an also for an additional '>5 years'

category.

Pillar 3


Template 16: EU CR2-A – Changes in the stock of general and specific credit risk adjustments

Amounts in millions of euros Accumulated specific creditrisk adjustment

Accumulated general credit riskadjustment

Opening balance IAS 39 as at December 31 2017 5,490 -

Opening balance adjustment IFRS 9 implementation -973 -

Total impairment allowance IFRS as at January 1 2018 4,517 -

Increases due to origination and acquisition 373 -

Decreases due to derecognition -766 -

Changes due to change in credit risk (net) 720 -

Changes due to modifications without derecognition (net) - -

Changes due to update in the institutions methodology for estimation (net) - -

Decrease in allowance account due to write-offs -1,013 -

Other adjustments 34 -

Closing Balance 3,865 -

Recoveries of previously written-off amounts recorded directly to the statement of profit or loss -60 -

Amounts written-off directly to the statement of profit or loss 31 -

Narrative template 16: The table above deviates from the EBA

guidelines because of newly introduced FINREP forms and the

adoption of IFRS 9. In 2018 impairment charges on financial

assets were low for the third year in a row. For the Dutch portfolio

the impairment charges were negative for the second

consecutive year. The favourable economic development was the

key factor in this outcome, resulting in relatively few new

defaults, recovery of existing defaults or realisation of collateral

at better than expected collateral values, and release of a part of

the allowances for existing impaired clients due to increased

collateral values.

Template 17: EU CR2-B Changes in the stock of defaulted and impaired loans and debt securities

Amounts in millions of euros Gross carrying valuedefaulted exposures

Opening Balance as per 31 December 2017 17,961

Loans and debt securities that have defaulted or impaired since the last reporting period 4,024

Returned to non-defaulted status -1,173

Amounts written off -1,044

Other changes -3,398

Closing Balance as per 31 December 2018 16,370

Narrative template 17: A large part of the increase can be

explained by the implementation of the 'new Definition of

Default' for residential mortgages and retail SME. The substantial

amount in 'Other changes' is a.o. the result of the sale of a part

of the FGH Bank portfolio and the fact that the portfolio of ACCLM

has been reclassified and is now being accounted under fair value.

6.2.3. ForbearanceThe forbearance portfolio consists of Rabobank customers for

whom forbearance measures have been put in place, which

comprises of concessions to debtors facing or about to face

difficulties in meeting their financial commitments. A concession

refers to either of the following measures:

• Modification of the previous terms and conditions of a

contract for which the debtor is considered unable to comply

with due to its financial difficulties (i.e. troubled debt) to allow

for sufficient debt service ability that would not have been

granted had the debtor not been in financial difficulties.

• Total or partial refinancing of a troubled loan contract that

would not have been granted if the debtor had not been in

financial difficulties.

Examples include postponements of repayments and extensions

of the term of a facility. The rationale for the focus on this

portfolio derives from the concerns of the European supervisory

authorities about the deterioration of the quality of the portfolio

during the crisis; it was feared that forbearance measures might

camouflage this deterioration of the portfolio as debtors are able

to meet their financial obligations for longer periods as a result

of the concessions.

The identification of forbearance measures for the corporate

portfolio is based on the current Loan Quality Classification (LQC)

framework. This Rabobank framework divides the loan portfolio

into the categories: Good, OLEM, Substandard, Doubtful and

Loss. The three categories Substandard, Doubtful and Loss form

the classified portfolio. Forbearance measures only apply to this

Pillar 3


classified portfolio. If forbearance measures are applied to a

debtor, the debtor is by definition dealt with by the FR&R

department. Items in the forbearance category must be reported

and monitored for up to two years after recovery. This period of

two years is referred to as ‘Forborne under probation’.

Template 15: EU CR1-E - Non performing and forborne exposures

Gross carrying amount of performing and non-performing exposures Accumulated impairment andprovisions and negative fair value

adjustments due to credit risk

Collaterals andfinancial

guaranteesreceived


Grosscarrying

amount ofperforming

and non-performing

exposures

Of whichperforming

but pastdue > 30

days and ≤90 days

Of whichperforming

forborne

Of whichnon-

performingOf which

defaultedOf whichimpaired

Of whichforborne

Onperforming

exposures

Ofwhich

forborne

Onnon-

performingexposures

Ofwhich

forborne

Onnon-

performingexposures

Ofwhich

forborneexposures

Debt securities 18,736 104 - - - - - 3 - - - - -

Loans and advances 496,780 1,522 3,029 18,436 15,750 15,750 8,458 588 38 4,0961 1,847 11,317 6,991

Off-balance sheet exposures 84,367 - 199 872 620 - 205 41 1 68 7 63 -

1 Of which: 392 million due to accumulated negative changes in fair value due to credit risk

Narrative template 15: A 1.9 billion one-off increase in NPL stock

was reported at January 1, 2018 as a result of the prudent and

early application of the EBA ‘Definition of Default' guidelines. The

NPL stock was further affected by:

• A prudent write-off policy;

• Helping clients with ample prospects getting through tough

times;

• Relatively sizeable well collateralized portfolios with high

probability of recovery and improving prospects;

• A further decrease of NPL stock as a result of the favorable

economic environment and the sale of non-core CRE loan

exposure

The forborne portfolio is managed by FR&R as the clients

concerned have an LQC of Substandard, Doubtful or Loss.

Forborne loans decreased in 2018 to 11.5 billion (excluding

0.4 billion in forborne off-balance sheet expoures) due to better

market circumstances.

6.3 Specific Counterparty Credit Risk

Counterparty Credit Risk (CCR) arises from the credit risk in

transactions such as repo and securities financing, and

derivatives. It is the risk that a counterparty will default on a

transaction prior to the expiration of the contract and will be

unable to make all contractual payments. In this section we

present disclosure requirements as set out in Article 439 of CRR

575/2013 and EBA Pillar 3 disclosure requirements, both from a

qualitative and quantitative point of view.

During the first half of 2017 the European Central Bank Joint

Supervisory Team (JST) conducted an assessment on the

Counterparty Credit Risk internal model used for EAD calculation

in the context of the Targeted Review of Internal models (TRIM)

project. The purpose of the TRIM is to harmonise the use of

internal models across all banks and to check whether or not the

banks comply with relevant regulation. Out of the review a few

findings were brought to the attention of the bank. Actions

involving changes to models, systems and/or policies are taken

to close the findings within the timelines agreed with the

supervisor and expanding into 2019. Due to the findings,

Rabobank was required to apply a multiplier of 1.1 to the CCR and

CVA capital requirements.

6.3.1 Qualitative information CounterpartyCredit Risk and credit risk mitigation

This section captures requirements as set out in EBA guidelines

related to Table 3: EU CCRA – Qualitative disclosure requirements

related to CCR and Table 7: EU CRC – Qualitative disclosure

requirements related to CRM techniques in the context of

Counterparty Credit Risk exposures.

Risk Management objectives and policies CRR Art 435 (1) (a)Rabobank focusses its credit risk strategy on the following goals:

develop and implement a robust credit risk governance

framework; maintain a credit portfolio with a manageable risk

profile, defining and keeping exposures within acceptable risk/

reward ratios, making use of an efficient credit approval process.

The bank uses a comprehensive framework of basic principles for

credit risk management: policies, standards, guidelines, rules and

regulations and common practice. Risk Appetite Statements,

internal organization and credit approval, booking and reporting

processes are also an integral part of this framework.

Counterparty Credit Risk is managed based on this strategy and

Pillar 3


framework. Specific credit procedures related to Counterparty

Credit Risk exposures are in place for risk management purposes

i.e. related to central counterparties (CCPs) and clearing brokers,

agency business, requirements based on counterparty sector or

tenors.

Credit limits on Counterparty Credit Risk exposures CRR Art439 (a)Exposures arising from Counterparty Credit Risk are subject to on-

going monitoring against specific limits set up at counterparty

level for derivatives and repo and securities financing products.

Checking against limits is also required prior to execution of any

new transaction. These limits are part of the overall credit limit of

a counterparty. The limits are determined by considering

parameters such as counterparty rating, close out netting

documentation, collateral documentation, product restrictions

and regulatory requirements. The amount of the limit is also

dependent on Rabobank’s overall risk appetite.

Internally Rabobank measures exposure as the replacement cost

at given time points over the life of the transaction under the

assumption that market rates move adversely. Rabobank uses a

Monte Carlo simulation at 97.5% confidence level for calculating

Potential Future Exposure (PFE) for the majority of the portfolio.

The exposure will take into account netting and collateral when

agreements are enforceable in the relevant jurisdictions.

Regulatory treatment of counterparty credit exposuresSince 2011 Rabobank uses the Internal Model Method (IMM) to

calculate Exposure-At-Default (EAD) for regulatory purposes for

the majority of the portfolio. Portfolios currently not under IMM

follow the Mark-to-Market method.

The same Monte Carlo simulation used to calculate PFE, is the

basis for EAD calculations under IMM. The IMM model has been

extended with a separate Credit Value Adjustment (CVA) capital

model. This model is based on the advanced CVA Risk

methodology. The CVA addresses potential deterioration in the

creditworthiness of a counterparty. Mitigation effects from

collateral and netting on Counterparty Credit Risk exposures are

incorporated when agreements are enforceable in the relevant

jurisdictions. Effect of collateral is recognised in derivatives as

well as repo and securities financing transactions within the

stochastic process for IMM calculations. Internal stochastic

models are validated and annually back tested by comparing the

simulated results with the realised results. Any observed

inefficiencies will be taken into account in the model

recalibration.

Wrong-way risk CRR Art 439 (c)Specific wrong-way risk arises when the exposure on derivatives

and repo and securities financing transactions is correlated with

the creditworthiness of the counterparty. General wrong-way risk

refers to the correlation of likelihood of default by counterparties

and is positively correlated with general market risk factors.

Internal policies dictate for certain products that correlations

between the counterparty and the underlying asset should be

avoided. Correlations between the counterparty exposure and

collateral posted should be avoided as well. As part of

Rabobank’s stress testing framework, wrong-way risk is addressed

for all counterparties by calibrating the parameters on a stressed

period with respect to our counterparties and assessing the

impact on their EAD. Next to this, qualitative (e.g. based on the

risk factor stress scenarios) and counterparty’s exposure profile

analyses are performed to gain additional insight into the general

wrong-way risk towards counterparties.

Impact of Rabobank rating downgrade on collateral CRR Art439 (d)The impact of a Rabobank rating downgrade for the Over-The-

Counter (OTC) derivatives is reported on a monthly basis from a

liquidity perspective. A rating downgrade could trigger additional

margin calls under existing netting agreements. The overall

impact is considered to be limited under current conditions. As

per December 2018 an one notch downgrade of Rabobank's

credit rating, as referenced in OTC derivative contracts, would

require the bank to post 28.1 million of additional collateral.

Counterparty Credit Risk Mitigation CRR Art 439 (b) / CRR Art453 (a) (b) (c) (d) (e)Rabobank uses a wide range of credit mitigation techniques to

reduce Counterparty Credit Risk. Management of collateral is

detailed in specific procedures and controls for our Markets and

Treasury (Trading) units covering eligibility, calls, bookings,

monitoring or dispute resolution. Rabobank also monitors re-use

of collateral following requirements in CRR 575/2013.

In the case of derivatives, the principal form of credit mitigation

used is close out netting and collateral agreements. Rabobank has

a strong preference for the International Swaps and Derivatives

Association (ISDA) and Credit Support Annex (CSA) for derivative

portfolios. Where the counterparties are subject to bilateral

margining requirements by European Market Infrastructure

Regulation (EMIR) or Dodd-Frank Act (DFA), ISDA and CSA

agreements must be in place. For the purposes of exposure

calculation, only transactions governed by a clean netting/

collateral agreement, with a positive legal opinion from our legal

department, will be netted and subject to further reduction by

any collateral held under CSA clauses. Rabobank also uses a

Pillar 3


number of other derivative risk mitigation techniques to limit

exposure or the tenor of specific trades, e.g. break clauses or MTM

resets. The setting of the main parameters of a collateral

agreement are geared to a low or zero threshold, daily margining,

and acceptable collateral being cash or highly rated government/

supra national debt paper (cash and AA- or better rated

government bonds). Collateral is valued in terms of market value

and haircuts are applied based on collateral type, residual

maturity and currency. At the end of the reporting year 96% of

bilateral derivative trades werecovered by means of documented

netting agreements, and 28% were also subject to CSA clauses.

Cash represented approximately 95% the total CSA collateral

received. Starting in 2017, Rabobank has moved to apply margin

rules on non-centrally cleared derivatives following EMIR

requirements and expects to introduce initial margin calls on

these deals by 2019.

Security finance transactions are entered into on a collateralized

basis with financial institutions (including pension funds) under

industry standard agreements (e.g. GMRA, GMSLA). Collateral

arrangements for repo and securities financing transactions are

evidenced under the terms of the legal master agreement and

embedded in the terms of each individual transaction. The type

of collateral to be held and the criteria to be adhered to are set

out in the credit procedure and monitored via the control

framework with a focus on: correlation between the counterparty

and the collateral (wrong-way risk); the liquidity of the collateral;

cash out limits on a counterparty basis; and collateral

concentration limitations. Collateral is posted either directly by/to

Rabobank or via an agent and is valued in terms of market value

where haircuts are used to absorb any market movements. Equity

collateral represents more than 60% of collateral received in this

type of deals, issued mainly by corporates in OECD countries.

Central counterparties (CCP)Rabobank is clearing an increasing number of trades via central

counterparties (CCP), either directly or via clearing brokers (37%

of derivatives with external parties are either cleared directly via

CCPs or via brokers). Where Rabobank trades Over-The-Counter

(OTC) products it is usually a direct member of the CCP. This

implies that besides the initial and variation margin Rabobank also

is required to contribute to the default fund. For most exchange-

traded products (ETP), Rabobank has a ‘non-clearing member’

(NCM) CCP status. This means that Rabobank is required to use

clearing brokers in order to clear the trades via a CCP and is

required to post initial and variation margin to the clearing broker.

6.3.2 Quantitative informationCounterparty Credit Risk and credit riskmitigation

Template 25: EU CCR1 - Analysis of CCR exposure by approachCRR Art 439 (f)Template 25 provides an overview of EAD and RWA related to

exposures subject to the Counterparty Credit Risk framework

(excluding CVA and exposures cleared through CCP). As

mentioned, Rabobank uses the IMM approach for the majority of

the portfolio, with some exposures under the Mark-to-Market

method. Collateral in case of repo and securities financing

transaction exposures is modelled within the IMM process,

therefore, no amounts are reported under the Simple,

Comprehensive or VaR method in the template below. Rabobank

makes use of the multiplier prescribed in CRR (α = 1.4).

Template 25: EU CCR1 - Analysis of CCR exposure by approach

Amounts in million of euros NotionalReplacementcost/ currentmarket value

Potential futurecredit exposure EEPE Multiplier EAD / Post CRM RWAs

Mark to market 1,285 110 1,395 481

Original exposure

Standardised approach

IMM (for derivatives and SFTs) 4,627 1.4 6,478 1,963

Of which securities financing transactions 615 1.4 860 85

Of which derivatives and long settlementtransactions 4,013 1.4 5,618 1,878

Of which from contractual cross-product netting

Financial collateral simple method (for SFTs)

Financial collateral comprehensive method (forSFTs)

VaR for SFTs

Total 1,285 110 4,627 7,873 2,444

Pillar 3


In the course of the year RWA dropped by 26%, driven by our

Domestic Retail Banking business due to the maturity of existing

contracts. No other changes in the year have a material impact

in terms of total EAD under the Internal Model Method as

exposures are in most of the cases subject to netting and

collateralisation. The IMM line item is inclusive of the 1.1

multiplier, which has to be applied to our capital requirements

following the TRIM on-site.

Template 26: EU CCR2 – CVA capital chargeFor OTC derivatives credit valuation adjustments (CVA) are made

to reflect expected credit losses related to the non-performance

risk of a given counterparty. A CVA is determined per

counterparty and is dependent on expected future exposure

taking into account collateral, netting agreements and other

relevant contractual factors, default probability and recovery

rates. The CVA calculation is based on available market data

including credit default swap (CDS) spreads. Where CDS spreads

are not available relevant proxies are used. Rabobank uses the

CVA advanced approach, as required to institutions using IMM

model for CCR and Market Risk VaR. CVA is calculated for required

counterparties using the most conservative stress period and

based on 10-day credit spread shocks, applying a 99% confidence

interval and a 10-day equivalent holding period.

Template 26: EU CCR2 - CVA capital charge

Amounts in million of euros Exposurevalue RWAs

Total portfolios subject to the advanced method 2,078 887

(i) VaR component (including the 3× multiplier) 100

(ii) SVaR component (including the 3× multiplier) 787

All portfolios subject to the standardised method

Based on the original exposure method

Total subject to the CVA capital charge 2,078 887

The drop in CVA Capital is due to the effect of the scenarios

underlying the computation, becoming less extreme under last

year's market conditions, compared to the ones used in the

previous year. As required by JST as part of the Counterparty

Credit Risk TRIM on-site, the capital figures have been multiplied

by 1.1. This reduces most of the decrease.

Template 27: EU CCR8 – Exposures to CCPsRabobank clears mainly derivatives but also repo and securities

financing transactions deals through major CCPs, recognised as

Qualifying Central Counterparty by European Securities and

Market Authority (ESMA). The bank makes use of the ‘alternative

calculation’ method prescribed in CRR Article 310 of EU

Regulation 575/2013 and applies a minimum floor of 5 million

scaled by 1.1 following TRIM on-site (69 million RWA) on the own

funds requirements to these exposures. In the template below,

EAD value of trade exposures and funded default contribution is

also presented for information purposes only as the capital charge

is captured in the floor amount (RWA remain blank in the

template). Initial margin posted to CCPs is kept in bankruptcy

remote accounts and therefore does not represent exposure.

Pillar 3


Template 27: EU CCR8 - Exposures to CCPs

Amounts in million of euros EAD post CRM RWAs

Exposures to QCCPs (total) 69

Exposures for trades at QCCPs (excluding initial margin and default fund contributions); of which 167

(i) OTC derivatives 127

(ii) Exchange-traded derivatives 33

(iii) SFTs 7

(iv) Netting sets where cross-product netting has been approved -

Segregated initial margin -

Non-segregated initial margin -

Prefunded default fund contributions 83

Alternative calculation of own funds requirements for exposures 69

Exposures to non-QCCPs (total)

Exposures for trades at QCCPs (excluding initial margin and default fund contributions); of which

(i) OTC derivatives

(ii) Exchange-traded derivatives

(iii) SFTs

(iv) Netting sets where cross-product netting has been approved

Segregated initial margin

Non-segregated initial margin

Prefunded default fund contributions

Alternative calculation of own funds requirements for exposures

Template 28: EU CCR3 – Standardised approach – CCRexposures by regulatory portfolio and riskStandardised Approach is applied in exceptional cases to

exposures where no PD and LGD models are available. The

exposures can be considered not material, representing just 1%

of RWA under Counterparty Credit Risk framework. It concerns

mainly exposures to Corporate SMEs and Retail. The template

below presents EAD amounts per Risk Weight applied.

Template 28: EU CCR3 - STD approach - CCR exposures by regulatory portfolio and risk

Risk Weight

Amounts in million ofeuros 0% 2% 4% 10% 20% 50% 70% 75% 100% 150% Others Total Of which

unrated

Central governments orcentral banks - - - - - - - - - - - - -

Regional government orlocal authorities - - - - - - - - - - - - -

Public sector entities - - - - - - - - - - - - -

Multilateraldevelopment banks - - - - - - - - - - - - -

Internationalorganisations - - - - - - - - - - - - -

Institutions - - - - - - - - - - - - -

Corporates - - - - - - - - 16 - - 16 16

Retail - - - - - - - 9 - 1 - 10 10

Institutions andcorporates with a short-term credit assessment

- - - - - - - - - - - - -

Other items - - - - - - - - - - - - -

Total - - - - - - - 9 16 1 - 27 27

Template 29: EU CCR4 – IRB approach – CCR exposures byregulatory portfolio and PD scaleThe following template presents exposures treated under Internal

Ratings Based Approach. Rabobank uses the Advanced Method

for these exposures using own estimates for PD and LGD

parameters. The figures on the next page do not include

exposures to CCPs or CVA charges.

An increased number of derivatives with Central Governments

or Central Banks (CGCB) led to an 44% increase in the EAD.

Maturing interest rate swap contracts with Corporates in our

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Domestic Retail Banking business segment caused a 13%

decrease in EAD and a 1% decline in RWA in this portfolio. The

reduction in RWA is lower, given the higher average risk weight

for these derivatives. The reduction on Interest Rate Swap with

Financial Institutions did not have a material effect on EAD or

RWA.

Template 29: EU CCR4 - IRB approach - CCR exposures by portfolio and PD scale

Amountsin million ofeuros

PD Scale EAD / Post CRM Average PD Number ofobligors Average LGD Average

maturity RWAs RWA density

CGCB 0.00 to <0.15 883 0.0% 31 6.2% 3.10 4 0.5%

CGCB 0.15 to <0.25 45 0.2% 3 48.6% 1.00 16 36.3%

CGCB 0.25 to <0.50 18 0.5% 3 41.1% 0.13 9 49.8%

CGCB 0.50 to <0.75 1 0.7% 1 44.0% 1.00 0 66.4%

CGCB 0.75 to <2.50 5 1.1% 1 72.0% 1.00 6 130.5%

CGCB 2.50 to <10.00

CGCB 10.00 to <100.00

CGCB 100.00 (Default)

CGCB* Subtotal 950 0.0% 39 9.2% 2.94 36 3.8%

Corporates 0.00 to <0.15 996 0.1% 306 25.7% 3.23 390 39.2%

Corporates 0.15 to <0.25 496 0.2% 162 25.7% 3.72 158 31.8%

Corporates 0.25 to <0.50 615 0.4% 592 28.2% 3.48 277 45.0%

Corporates 0.50 to <0.75 339 0.7% 422 27.2% 3.89 201 59.3%

Corporates 0.75 to <2.50 532 1.3% 1,386 23.0% 3.48 297 55.8%

Corporates 2.50 to <10.00 267 4.1% 1,311 24.9% 4.03 205 76.6%

Corporates 10.00 to <100.00 17 15.8% 63 48.3% 4.74 41 243.8%

Corporates 100.00 (Default) 102 100.0% 470 9.3% 4.66 27 26.1%

Corporates Subtotal 3,365 3.8% 4,712 25.4% 3.57 1,595 47.4%

Institutions 0.00 to <0.15 3,398 0.1% 340 32.2% 1.94 685 20.2%

Institutions 0.15 to <0.25 58 0.2% 26 53.0% 1.47 33 57.1%

Institutions 0.25 to <0.50 64 0.4% 30 49.6% 1.97 51 80.2%

Institutions 0.50 to <0.75 8 0.7% 18 68.4% 0.93 8 103.3%

Institutions 0.75 to <2.50 2 1.1% 11 59.4% 1.79 3 140.1%

Institutions 2.50 to <10.00 0 5.8% 4 8.0% 1.30 0 31.2%

Institutions 10.00 to <100.00 2 14.9% 2 68.8% 3.18 9 416.5%

Institutions 100.00 (Default)

Institutions Subtotal 3,531 0.1% 431 32.9% 1.93 789 22.3%

Total 7,847 1.7% 5,182 26.8% 2.76 2,419 30.8%

* CGCB – Central Government or Central Banks

Template 30: EU CCR7 – RWA flow statements of CCRexposures under the IMMTemplate 30 describes the change of RWA and Capital

requirements due to certain predefined categories. It shows that

there were no model updates, methodology updates nor

acquisitions or disposals which had any impact on RWA. The JST

on-site Counterparty Credit Risk TRIM led to the application of a

1.1 multiplier. This multiplier is included in the category “Other”.

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Template 30: EU CCR7 – RWA flow statements of CCR exposures under the IMM

Amounts in million of euros RWA amounts Capital requirements

RWAs as at the end of the previous reporting period 1,933 155

Asset size 14 1

Credit quality of counterparties -155 -12

Model updates (IMM only) - -

Methodology and policy (IMM only) - -

Acquisitions and disposals - -

Foreign exchange movements -13 -1

Other 184 15

RWAs as at the end of the current reporting period 1,963 157

Template 31: EU CCR5-A – Impact of netting and collateralheld on exposure values CRR Art 439 (e)Template 31 provides a quantitative analysis of counterparty

credit risk that arises from derivatives repo and securities

financing transactions. The table shows Rabobanks's notional

derivatives exposure, including whether these derivatives are

OTC or traded on recognized exchanges. For OTC derivatives also

the amount is shown, which is settled via a CCP. For repos and

securities financing transactions the collateral benefit is taken into

account in the Positive or Negative Fair Value. Therefore the

Netted Current Credit Exposure equals the Net Credit Exposure.

Financial term Definition

Gross positive fairvalue

Sum of all aggregate positive MTM values for each counterparty in each netting agreement before any benefit is given for offsetting negative MTMvalues in the same netting pool. Prudent Valuation Adjustments are not taken into consideration, since they are applied on total level againstcapital, not on trade level.

Netting benefits The netting benefits applicable to each netting agreement are derived by referencing the impact of negative MTM values but only to the extentthat positive MTM exists. Netting benefit recognised only when a legally enforceable netting agreement is in place.

Netted current creditexposure

The gross positive fair value less netting benefits for each netting agreement.

Collateral held The offset arising from collateral held to collateralize the netted current credit exposure is quantified on a netting pool basis. Collateral benefit isonly recorded for collateral held and only to the extent that positive netted current credit exposure exists. Collateral consists of cash and eligiblesecurities. Collateral is modelled using the Internal Model Method to calculate EAD.

Collateral held withno impact on theexposure

Collateral held in excess of the positive net current exposure with no further effect on the exposure (over-collateralization).

Net credit exposure The netted current credit exposure less the collateral benefit for each netting agreement produces the net credit exposure. Net credit exposurecontains as well non-bankruptcy remote Initial Margin placed for exchange traded products and CCPS. Over collateral posted as part of CSAagreements is also captured here.

EAD Exposure At Default as calculated and reported following CRR guidelines, using the Mark-to-Market method or Internal Model Method.

Template 31: EU CCR5-A – Impact of netting and collateral held on exposure values

Amounts in million of euros

Gross positivefair value or net

carryingamount

Nettingbenefits

Netted currentcredit exposure

Collateralheld

Collateralheldwith noimpactonexposure

Net creditexposure Notional

Derivatives 81,810 72,273 9,537 6,711 245 3,272 3,515,064

Derivatives - CCP 60,281 60,255 27 1 - 27 2,614,023

Derivatives - ETP 230 177 52 - - 338 104,230

Derivatives - under netting agreements 21,093 11,841 9,252 6,709 245 2,701 785,092

Derivatives - Gross 206 - 206 - - 206 11,720

Repo / SFTs 15,515 14,998 518 - - 518 -

Repo/STF - under netting agreement 15,515 14,998 518 - - 518 -

Repo/SFT - gross - - - - - - -

Total 97,326 87,271 10,055 6,711 245 3,790 3,515,064

Compared to end 2017 there is an increase on the notional of

derivatives with CCPs, which is in line with the obligation of

Rabobank to centrally clear derivatives, where required.

Template 32: EU CCR5-B – Composition of collateral forexposures to Counterparty Credit RiskBelow an overview is given of the fair value of collateral posted

or received to mitigate exposures arising from Counterparty

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Credit Risk, broken down by the type of collateral. The reported

figures for derivatives include collateral in the form of variation

margin on transactions cleared through CCP or brokers, initial

margin to CCPs and collateral on Credit Support Annex and

equivalent agreements, regardless whether exposure is over-

collateralised. The amounts reported under segregated headings

as per CRR Article 300, capture initial margin posted to CCPs in

bankruptcy remote accounts.

Template 32: EU CCR5-B - Composition of collateral for exposures to CCR

Amounts in million of euros Collateral used in derivativetransactions

Collateral usedin SFTs

Fair value of collateralreceived

Fair value of postedcollateral

Fair value ofcollateral received

Fair value ofposted collateral

SegregatedUnsegregated SegregatedUnsegregated

Cash - 6,638 - 10,305 301 15,335

Equity - - - - 17,316 8,456

Debt Security - Government - 336 491 2,338 6,201 4,765

Debt Security - Non-Government - - 85 - 4,936 531

Total - 6,974 575 12,643 28,755 29,087

Collateral requirements depend on the market conditions

transaction volumes of financial counterparties. In 2018 our

activities focussed predominantly on CCPs and counterparties

with CSAs. For derivatives, markets moved in a favourable way for

Rabobank, leading to higher collateral received and lower

collateral posted. Also, initial margin declined by 44%. With regard

to security financing transactions, both received and posted

collateral went down. This was driven by a shift in collateral from

equity to debt securities. Overall, collateral received decreased

by 6% and posted collateral by 5%.

Template 33: EU CCR6 – Credit derivatives exposures CRR Art439 (g) (h)Rabobank is a very small player in the credit derivatives market

as a net purchaser of credit risk protection for exposure hedging

and does not participate in intermediation activities related to

credit derivatives. Rabobank's counterparties are large

international financial institutions rated from A+ to BBB+. In

principle we do not engage with corporate or government

counterparties on such deals. All bought CDS are index CDS.

Rabobank prefers entering into the most liquid CDS. When a new

series is more liquid, we close out the previous series.

In case Rabobank engages in single name CDS, correlation

between the reference asset and the counterparty is avoided and

liquidity is sought by using market convention standards and

liquid underlying referenced assets. The figures below represent

the notional amount of credit derivatives subject to the

Counterparty Credit Risk framework on a gross basis.

Template 33: EU CCR6 - Credit derivatives exposures

Amounts in million of euros Credit derivative hedges Other credit derivatives

Protection bought Protection sold

Notionals

Single-name credit default swaps - - -

Index credit default swaps 45 - -

Total return swaps - - -

Credit options - - -

Other credit derivatives - - -

Total notionals 45 - -

Fair values

Positive fair value (asset) 1 - -

Negative fair value (liability) - - -

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6.4 Developments in Loan Portfolios

Residential Mortgage Loans

The Housing MarketFollowing record sales in 2017, 2018 saw transaction activity

decline by almost 10%. Prices kept rising though, with residential

properties in the Netherlands 9% more expensive than a year

earlier. That is the strongest price growth since 2001.

Mortgage Loan Portfolio Decreased by 3.1 billionRabobank’s share of the Dutch mortgage market decreased to

19.9% (2017: 22.0%) of new mortgage production up till Q3

20181. The local Rabobanks’ market share dropped to 16.7%

(2017: 18.0%) and Obvion’s decreased to 3.2% (2017: 4.0%). The

quality of Rabobank’s residential mortgage loan portfolio

remained high thanks to the positive developments in the Dutch

economy and the strong domestic housing market. In 2018,

financing backed by the National Mortgage Guarantee (Nationale

Hypotheek Garantie, (NHG)) slightly decreased to 19.4% of the

mortgage loan portfolio. The weighted average indexed loan-to-

value (LTV) of the mortgage loan portfolio was 64% at the end of

2018. Net additions relating to residential mortgage loans

amounted to -29 million (-1.5 basis points) in 2018, which is lower

than last year. Improved asset quality helped keep impairment

charges low.

Residential Mortgage Loans

31 December2018

31 December2017

Mortgage portfolio 190,008 193,110

Weighted-average LTV 64% 69%

Non-performing loans (amount) 2,057 1,112

Non-performing loans (in % of total mortgageloan portfolio) 1.08% 0.58%

More-than-90-days arrears 0.30% 0.34%

Share NHG portfolio 19.4% 20.0%

Impairment allowances on financial assets 209 169

Coverage ratio based on non-performing loans 10% 15%

Net additions -29 12

Net additions (in basis points, including non-recurring effects) -1.5 1

Write-offs 42 77

The non-performing loans of the mortgage portfolio were higher

than at year-end 2017. This is the result of the introduction of the

new Definition of Default, which recognizes possible default

situations earlier. Aside from this one-off increase, the underlying

trend of the credit quality is positive.

6.5 Country Risk

With respect to country risk, a distinction is made between

collective debtor risk and transfer risk. Collective debtor risk is the

risk that a large number of debtors in a particular country will all

be unable to fulfil their obligations owing to the same cause, (e.g.

war, political or social unrest, natural disasters, or government

policy that fails to create macro economic and financial stability).

Transfer risk is the risk that payments in non-local currency could

in any way be hindered or prohibited due to insufficient

availability of non-local currency financial resources (economic

transfer risk), and/or to unwillingness of the government (political

transfer risk) to permit the non-local currency outflow of financial

resources.

Rabobank uses a country limit system to manage collective

debtor risk and transfer risk. After careful review, relevant

countries are given an internal country risk rating, after which,

general limits and transfer limits are set. Transfer limits are

introduced based on the net transfer risk, which is defined as

total loans granted less loans granted in local currency,

guarantees, other collateral obtained to cover transfer risk and a

deduction related to the reduced weighting of specific products.

The limits are allocated to the local business units, which are

themselves responsible for the day-to-day monitoring of loans

that have been granted and for reporting on this to the Risk

Management function. At Rabobank Group level, the country risk

outstanding is reported to the Country Limit Committee (CLC).

Special Basel II parameters, specifically EATE (Exposure at Transfer

Event), PTE (Probability of Transfer Event) and LGTE (Loss Given

Transfer Event), are used to calculate the additional capital

requirement for transfer risk. These calculations are made in

accordance with internal guidelines and cover all countries where

transfer risk is relevant.

Based on the concept of country of ultimate risk, the collective

debtor risk for non-industrial non-OECD countries stood at 26.5

(2017: 23.4) billion at year-end 2018. The net ultimate transfer risk

before allowances for these countries amounted to 16.4 (2017:

13.9) billion at year-end 2018, which corresponds to 2.8% (2017:

2.3%) of total assets. Total assets were 590.4 (2017: 603.0) billion.

The total allowance for ultimate country risk amounted to 526

(2017: 354), which corresponds to 13.6% (2017: 6.5%) of the total

allowance of 3,865 (2017: 5,490).

1 Source: Dutch Land Registry Office (Kadaster); following data issues at CBS the September mortgage shares are the most recent available

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Table 6.5.1: Ultimate Risk in Non-Industrial Non-OECD Countries

31 December 2018

Regions Europe Africa Latin America Asia/Pacific TotalAs % of total

assets

Ultimate country risk (exclusive of derivatives)1 413 614 12,286 13,148 26,497 4.5

- of which in local currency exposure 259 4 6.909 2.909 10,081

Net ultimate country risk before allowance 153 610 5,377 10,276 16,416 2.8

As % of total allowance

Total allowance for ultimate country risk 2 - 261 262 526 13.6

31 December 2017

Regions Europe Africa Latin America Asia/Pacific TotalAs % of total

assets

Ultimate country risk (exclusive of derivatives)1 571 695 10,706 11,475 23,447 3.9

- of which in local currency exposure 248 6 6,410 2,853 9,518

Net ultimate country risk before allowance 323 688 4,296 8,622 13,929 2.3

As % of total allowance

Total allowance for ultimate country risk 1 - 148 204 354 6.5

1 Total assets after third party coverage, plus guarantees issued and unused committed credit facilities

Given the political developments in the UK (Brexit) and Italy the

exposure in these countries are monitored intensively.

Since the failed coup attempt in July 2016 a more restrictive

country risk policy towards Turkey was introduced and

monitoring has been intensified. This policy is still applicable in

view of the sharp slowdown in economic activity, after the Lira

crisis in 2018.

Despite the economic crisis in Argentina our portfolio that is

focused on existing export oriented F&A clients was not affected.

6.6 Equities in the Banking Book

Total exposure value as per 31 December 2018 of equities in

banking books amounted to 3,525, resulting in a capital

requirement of 718.

Table 6.6.1 shows Rabobank’s equity holdings outside the trading

book based on the purpose of the ownership. All equities in the

investment portfolio are stated at fair value. Published price

quotations in an active market are the best evidence of fair value,

and if they exist they are used to measure the value of financial

assets and financial liabilities. For equities with no published price

quotations, fair values are estimated based on appropriate price/

earnings ratios, and adjusted to reflect the specific circumstances

of the respective issuers. Strategic investments are recognised in

accordance with the equity method. With this method,

Rabobank’s share in the profit or loss of an associate – subject to

Rabobank’s accounting policies – (after the acquisition) is

recognised in profit or loss, and its share in the changes in

revaluation reserves after the acquisition is recognised in

Rabobank's revaluation reserves. Any post-acquisition changes

are taken to the cost of the investment.

Table 6.6.1: Overview of Equities in the Banking Book

Exposure valueRisk-weighted

exposure amount Capital requirement

Cumulativeunrealised gains/

lossesGains/losses realised

in the period

Investment portfolio 1.433 4.142 331 71 16

Strategic investment 2.092 4.836 387 187 1

Total 3.525 8.978 718 258 17

Included in the total exposure value, 779 relates to private equity

exposures in sufficiently diversified portfolios (190% risk weight),

2,163 relates to exposures in significant financial institutions

(250% risk weight), 81 relates to exchange traded equity

exposures (290% risk weight) and 502 to all other equity

exposures (370% risk weight). The exchange traded equity

exposures compose of equity investments in foreign credit

institutions. No material differences exist between the carrying

value and the market price of these exchange traded equity

exposures.

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Rabobank uses securitisations in its long-term funding and capital strategy. Therefore Rabobank isactive in own asset securitisation, sponsor transactions and investor transactions., where the activitiesemployed did not significantly change compared to the prior year.

A securitisation is a transaction or scheme, whereby the credit risk associated with an exposure orpool of exposures of interest producing assets is tranched. The payments to investor are dependentupon the performance of the exposure or pool of exposures and the subordination of the tranches .Therefore, Rabobank sometimes sells financial assets to a Special Purpose Vehicles (SPVs) that issuessecurities to investors.

Rabobank follows IFRS with regard to recognition and derecognition of assets and liabilities and theconsolidation of SPVs. Investor positions in securitisations issued by other originators than Rabobankare classified as financial assets. Assets which could be securitised in the near future with the objectiveto derecognise assets and release regulatory capital in the near future are still accounted for in thebanking book, as it is uncertain if and when those assets will be securitised. Assets that are securitisedfor funding purposes remain on the balance sheet. Further details of the Rabobank accountingpolicies with regard to securitisation transactions and the recognition of gains or losses on sales areprovided in the Rabobank Group Consolidated Financial Statements 2018, note 2.9 Accounting policySecuritisations and (de)recognition of financial assets and liabilities and note 53 Structured entities.The accounting policy for recognising a provision (if any) to provide financial support for securitisedassets is covered in note 2.21 Provisions.

As per 31 December 2018, Rabobank does not hold resecuritisation positions.

7.1 Own Asset Securitisation(Originator Role)

Within Rabobank, own asset securitisation is used by Obvion

(STORM and STRONG RMBS programmes), DLL (US ABS

Programmes and LEAP) and Coöperatieve Rabobank U.A.

(traditional securitisation of Dutch mortgages and synthetic

securitisations of loans to corporates and SMEs). As per

31 December 2018 Rabobank had four own asset securitisation

programs that achieve significant risk transfer for a total amount

of EUR 5.9 billion. These are, together with the own asset

securitisations that do not achieve significant risk transfer (SRT),

classified as originator securitisation exposures. In 2018, there

were no material gains or losses on the sale of securitisation

exposures.

One securitisation transaction (Retained RMBS program BEST

2010) is set up to improve liquidity ratios and create collateral for

the ECB. This transaction does not mitigate credit risk exposure

and is retained by Rabobank in full, and Rabobank is still holding

capital for the underlying assets amounting to EUR 50 billion as

per 31 December 2018.

The securitisation transactions concluded by Rabobank are

compliant with the European Capital Requirements Regulations

(CRR) on solvency requirements for credit risk. Compliance with

the Regulation is documented and signed-off by the internal

7. Securitisation

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Legal department and the Control department. Own asset

securitisation transactions can be initiated by subsidiaries and at

Group level. All transactions received an approval of the ALCO

Group.

For transactions originated after January 1, 2011, compliance with

CRR (CRD IV) is warranted by a) retaining the first loss positions

and, if necessary, other tranches with the same or more severe

risk positions than those transferred or sold to investors with a

minimum of 5% of securitised assets or randomly selected assets

that would otherwise have been securitised or b) retaining 5% of

the notes placed with external investors. For traditional own

assets securitisations a certain amount of liquidity risk is retained

by Rabobank by acting as liquidity facility provider. Contingent

liquidity risk in securitisation swaps has been identified and is

taken into account in the liquidity risk management framework,

see also Chapter 10 Liquidity Risk.

Given the current rating of Rabobank Group, the role as an

account bank is also fulfilled by Rabobank. The processes in place

to monitor the changes in credit risk of securitised assets do not

differ from those to extend credit for non-securitised assets. See

Chapter 6 Credit Risk for more information. Interest rate risk for

own asset securitisation positions are monitored and if needed

are hedged.

7.2 Sponsor Transactions

Rabobank supports Nieuw Amsterdam Receivables Corporation

B.V., which issues Asset Backed Commercial Paper (ABCP) in

various currencies and provides Rabobank’s core corporate

customers access to liquidity via the commercial paper market

instead of financing by Rabobank. The ABCP of Nieuw Amsterdam

carries short-term ratings of A-1/P-1 based on the credit and

liquidity support provided by Rabobank and the quality of the

transactions that are funded in Nieuw Amsterdam. The conduit

provides loans to an SPV set up by Rabobank or clients of

Rabobank and finances these pools in the ABCP market. As a

sponsor, the bank manages/advises on the program, places ABCP

in the market, and provides liquidity and credit risk

enhancements and other facilities to underlying transactions and

to the conduit itself and holds as a minimum 5% risk retention.

When a pool of assets is structured a risk assessment takes place

based on rating agency criteria for that asset type. The pool of

assets is structured to a certain overcollateralization level

dependent on the desired level of creditworthiness for the

transaction. The risk drivers and their importance vary per

transaction, for example different asset types: the risk drivers for

trade receivables are different to those for credit card loans. Even

within asset types there can be much variance: within trade

receivables the payment terms could vary as well as the dilution

risks. In addition to a quantitative assessment, a qualitative risk

assessment of the whole transaction takes place. This assessment

looks at the whole structure besides the quality of the assets. The

total funding size of Nieuw Amsterdam was EUR 6.6 billion as per

31 December 2018.

Rabobank underwrites sponsor transactions in close consultation

with Rabobank's Risk Management function and theLegal

department. The bank conducts pre-closing due diligence and

collateral audits on the customers, their servicing operations (e.g.

credit and collection policies, management information systems,

disaster recovery) and on their origination and supply chains.

Rabobank either engages external audit firms or makes use of the

Rabobank collateral inspection teams. All transactions are subject

to approval by requisite deal, business, and credit committees.

When necessary, the tax, control and compliance departments

are involved upfront.

Rabobank monitors each transaction on a continuous basis. At a

minimum, clients provide servicing reports on a monthly basis.

These reports provide overall assessments of the performance of

the overall portfolio that is being financed and determine key

trends in terms of delinquency, default and dilution data. The

reports also determine compliance with transaction parameters,

triggers, financial covenants, and the borrowing base.

On at least an annual basis, each client transaction undergoes an

assessment, in accordance with standard Rabobank credit

policies and procedures. Each review or approval will be subject

to an analysis of and supplemented with an opinion of Risk

Management Financial Markets before submissione to the

relevant Credit Committee. Depending on the size of the

transaction, final credit approval is required from the authorized

Credit Committee Rabobank.

Nieuw Amsterdam produces an Investor- and Rating Agency

report on a monthly basis. In these reports detailed information

on the underlying transactions and their assets is given to

investors, who buy the ABCP, and to the Rating Agencies, who

provide for each structuring and restructuring of the transactions

Rating Affirmation Confirmation (RAC).

7.3 Investor Transactions

As investor, Rabobank operates in the securitisation market as a

arranger, book runner and provider of ancillary products such as

liquidity facilities, swaps and current accounts. In this context

Rabobank holds a portfolio of senior tranches in trade receivable

securitisations and a very limited number of senior tranches of

ABS in its run-off portfolio. The liquidity facilities for securitisation

transactions (mostly Dutch RMBS) rank senior to any payment to

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note holders and, as such, the credit risk is limited. After a

downgrade of Rabobank below a certain rating trigger (typically

long-term A-), the liquidity facilities must be replaced by other

parties. Contingent liquidity risk in liquidity facilities has been

identified and taken into account in the liquidity risk

management framework. For all swap transactions of Rabobank

with SPVs, the market risk position is fully hedged with opposite

swaps. As such, the market risk related to these swaps only

becomes relevant after a default of a party providing the hedge

to Rabobank. Credit risk on the SPVs is limited due to a senior

position over payments to note holders. Contingent liquidity risk

in securitisation swaps has been identified and is also taken into

account in the liquidity risk management framework.

Rabobank has procedures in place, ensuring compliance of its

investor transactions with due diligence and minimum retention

requirements These entail the involvement of our Risk

Management function as well as our Credit, Legal and/or Tax

departments. Depending on the size of the transaction, final

credit approval is required from the authorized Credit Committee

Rabobank.

All the individual 'investor' securities, liquidity and swap facilities

are subject to an annual credit review. For swap transactions, the

underlying market risk in the portfolios is monitored closely with

typically daily valuation. Transaction analysis is based on trustee

reports, rating agency reports and industry-wide reports. From

these reports information is gathered on the overall performance

of the transaction, the development of credit enhancement,

trends in delinquencies and defaults, and performance versus

trigger levels.

7.4 Regulatory Capital Approaches

All of Rabobank’s securitisation positions in own asset

securitisation transactions and investor positions are reported

using the Internal Ratings Based (IRB) approach. For investor

positions the Rating Based Method is applied. For Corporate

Tranched Purchased Receivables, Rabobank applies the

Supervisory Formula Approach. Market risk is reported using the

Standardised Approach. To determine regulatory capital

Rabobank uses the following External Credit Assessment

Institutions (ECAIs): Fitch Ratings, S&P Global Ratings, Moody’s

Investors Service and DBRS Ratings Limited. These ECAIs are used

for all investor, sponsor and trading book positions.

The Internal Assessment Approach (IAA) has been approved and

rolled out for Nieuw Amsterdam transactions. Solvency

calculations for a given transaction aredependent on the

protections built into each transaction and the funding

requirements for the liquidity facility. IAA calculations should be

confirmed with Risk Management Financial Markets early in the

renewal process so that accurate solvency calculations are used.

This methodology is used to assign a risk weight to a securitisation

exposure in the event that a direct rating based approach or

inferred rating based approach cannot be used and is only

applicable to exposures within an ABCP. The outcome of the IAA

is an internal rating for the liquidity facilities. Nieuw Amsterdam

and the underlying transactions are analysed, and the

commercial paper is rated by the rating agencies (Moody’s

Investor Service and S&P Global Ratings). For a more detailed

explanation on the liquidity facilities please see section 7.2 above.

When a pool of assets is structured and placed in the conduit, new

commercial paper is issued. The specific pool is fully supported

by the liquidity facility.


Table 7.5.1: Total outstanding exposure securitised byRabobank and subject to the securitisation framework byexposure type

Amounts in millions of euros Ownassets

Thirdparty

assets(sponsor

deals)

Total

Traditional securitisations

- Residential mortgages 69,511 - 69,511

- Loans to corporates or SMEs - 6,594 6,594

- Leasing 3,651 - 3,651

Subtotal 73,162 6,594 79,756

Synthetic securitisations

- Corporate loans 5,103 - 5,103

Total portfolio 78,265 6,594 84,859

Table 7.5.2: Impaired/past-due assets securitised by Rabobankand losses, broken down by exposure type

Amounts in millions of euros Past due Losses


- Residential mortgages 64.0 -65.5

- Loans to corporates or SMEs - -

- Leasing 7.9 -10.5

Subtotal 71.9 -76.0


- Corporate loans 0.1 -2.5

Total portfolio 72.0 -78.5

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Table 7.5.3: Aggregate amount of securitisation exposure retained or purchased, broken down by exposure type

Amounts in millions of euros Banking book on-balance

Banking book off-balance

Trading book On-balance

Total


- Residential mortgages - 83 83

- Loans to corporates or SMEs - - -

- Leasing - - -

Subtotal - 83 83


- Loans to corporates or SMEs 4,805 - 4,805

Subtotal 4,805 - 4,805

Sponsored positions - 6,594 6,594

Investor positions 2,645 533 1 3,179

Total 7,450 7,210 1 14,661

Table 7.5.4: Aggregate amount of securitisation exposure retained or purchased and the associated IRB capital charges

Amounts in millions of euros IAA approach IRB approach STD approach Total exposure Of which:resecuritisation

Total exposure inthe trading book

Regulatorycapital charges

before cap

Risk weight bands

≤ 10% 3,651 7,173 1 10,826 - 1 90

> 10% ≤ 20% 2,414 326 - 2,739 - - 32

> 20% ≤ 35% 297 165 - 462 - - 10

> 35% ≤ 100% 41 561 - 602 - - 28

> 100% ≤ 850% - 2 - 2 - - -

6,403 8,227 1 14,631 - 1 160

Unrated

Deduction own funds - - - 30 - - -

Total 6,403 8,227 1 14,661 - 1 160

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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 andmanaging these risks. The objective of ORM is to identify, measure, mitigate and monitor operationalrisks, and promote risk awareness and a healthy risk culture within Rabobank. 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.

8.1 Operational Risk ManagementFramework

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

aims to ensure that risks as a result of inadequate or failing

processes, people, systems and/or external events are managed

within accepted risk levels. To manage operational risks

effectively, an integrated, forward-looking view by the risk owner

is in place. In addition, quarterly In Control meetings by the risk

owners are in place to manage and discuss operational risks.

Rabobank performs a structured and integrated risk analysis to

manage its RCF in a holistic way. Performing this risk assessment

across all entities helps to ensure Rabobank Group’s risk

management is sound and in compliance with regulatory

requirements. Risk control activities are included in the following

process steps:

• Risk identification

• Risk assessment

• Risk response

• Risk monitoring

• Risk reporting

• Finding and action management

• 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.

The Risk Management Committee Group (RMC Group) has OpRisk

regular on its agenda and is responsible for ratifying the

operational risk policy, its parameters and framework at Rabobank

Group level. The primary responsibility for the management of

operational risk lies within the business, as it should be

fundamentally woven into their strategic and day-to-day

decision-making. Within the group entities, risk management

committees have an important role in identifying and monitoring

the operational risks of the entity supported by Operational Risk /

RCF. On a quarterly basis the Group Operational Risk report is

submitted to and discussed in the RMC Group. Included in the

quarterly Group Operational Risk report is the risk appetite on

operational risk and other developments impacting the group

wide operational risk profile.

8.2 Advanced MeasurementApproach (AMA)

Rabobank Group applies the Advanced Measurement Approach

(AMA) to calculate operational risk capital requirements.

Rabobank’s capital model undergoes regular changes where

deemed applicable to safeguard alignment with regulatory

requirements and internal and external data.

The operational risk model of Rabobank includes the following

elements:

• Internal loss data;

• External loss data from consortium;

• Scenario analyses; and

• Business environment and internal control factors (BEICFs).

Internal Loss DataInternal loss data is captured from the mandatory reporting

threshold on operational losses of gross EUR 10,000. Incident

8. Operational Risk

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reporting is signed-off by management and validated by the

Operational Risk function of the entity for quality assurance.

Internal loss data is used in the capital model for defining

frequency distributions and for calculating regulatory capital per

entity.

External Loss DataExternal loss data is based on quarterly reports from a data

consortium that specialises in operational risk loss data collection.

External loss data is reviewed in terms of relevance and suitability

for the Rabobank organisation before being added to the capital

model. Consortium data is used in the capital model for defining

severity distributions.

ScenariosRabobank has developed a number of loss scenarios which are

used to substantiate and benchmark the model based on internal

and external historical data. An example is an external fraud

related scenario, which estimates the probability and impact for

Rabobank of the execution of unauthorised transactions.

Business Environment and Internal Control Factors (BEICFs)The BEICFs are used in the capital model by using internal loss

data, external loss data and the operational risk scenario

programme. Rabobank is using risk and control self-assessments

at entity level and has key risks and controls at entity level.

Risk MitigationThe option to reduce capital requirements through insurance

mitigation or other risk-transfer instruments is currently not used.

A schematic overview of Rabobank’s capital model is presented

in the following figure:

Internal loss dataStand-alone annual

loss distributions

DiversiÞed annual loss

distribution Group

Regulatory Capital

Group

Incident frequency

distributions

Per business unit, business line and event type

Internal loss+

External loss+

Scenario data

Incident severitydistributions

Per business line and event type

Incident frequency distributions

• Poisson distributions

• Average frequencies determined using weighting method

Stand-alone annual loss distributions

• Combination of frequency distribution and severity

distribution using Monte Carlo

Incident severity distributions

• Body: Empirical distribution

• Tail: Parameterised distribution

DiversiÞed annual loss distribution Group

• Aggregation of stand-alone annual loss distributions

using copula approach

Per business unit

Regulatory Capital

BUs

Figure 2: Rabobank’s capital model

Operational Risk CapitalRabobank calculates and reports the Regulatory Capital per

quarter. The Regulatory Capital per year-end 2018 amounts to

€ 2.179m compared to €2.071m per year-end 2017.

Risk CategoriesRabobank recognises the following operational risk types in line

with regulatory and industry practice:

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Risk type Definition Management actions

Fraud Risk that an internal or external party obtains an undue personalbenefit at the expense of our organisation (or at the expense of acustomer or client whose assets we are responsible forsafeguarding).

Rabobank has implemented measures on all levels in theorganisation to mitigate this risk, including transactionmonitoring and Know-your-customer (KYC) policies.

System Failure(IT / Cyber Risk)

Risk that infrastructure or systems fail, possibly leading to businessdisruption, creating a financial impact. Also the risk of losses arisingfrom systems intrusion and invasion, online data fraud or deceptionschemes for profit, external identity theft through system intrusionand skimming or electronic eavesdropping.

Maintaining a well-functioning and secure IT environmentis crucial to the performance of Rabobank. To this end aspecific IT risk management team within OpRisk has beenappointed.

Clients, Products and BusinessPractices

The risk of not exercising due care in dealings with clients andcustomers, conduct and contract breaches by the organisation andits staff, conflicts of interest, inappropriate products and businesspractices, as well as compliance or governance breaches.

Various risk and compliance measures have beenimplemented to deal with this area, including a ProductApproval Process.

Execution, Delivery and ProcessManagement

The risk of direct and indirect losses incurred when a prearrangedoperational task or transaction is executed improperly. Includestransactional errors, non-transactional errors and errors relating toclient or customer service delivery and includes errors or mistakesarising from reference data issues.

As this category is part of the day-to-day operations ofRabobank, primary responsibility lies with the businessunits, as they are the first line of defense.

Business Disruption (BusinessContinuity)

The risk of impact to the organisation which disrupt its ability tocontinue to deliver Rabobank products and services at acceptablepredefined levels.

Within Rabobank, a specific Business ContinuityManagement organization liaises with the entities foreffective management of risks.

Damage to Physical Assets and Injury The risk of losses attributable to natural disaster, wilful injury oraccident/negligence, entailing significant property damage,contamination or physical injury.

This category is primary managed by Business Continuity,Security Department and amongst others by assessingspecific risks and controls in the Rabobank ScenarioProgram and Risk Assessments.

Employment Practices and WorkplaceSafety

The risk of losses arising from acts inconsistent with laws oragreements governing employment, employee health or safety, orfrom diversity or discrimination events involving internal andexternal employees.

This category is managed by the first line of defensesupported by second line functions such as HR,Compliance, Legal and Operational Risk Management.

All types of operational risk are mapped to Basel II event types.

Operational Risk LossesFigure 4 shows the distribution of losses within Rabobank in terms

of the percentage of total net loss (orange bar) and the number

of losses (blue bar). The main buckets remain Clients Products and

Business Practices (CPBP), Execution Delivery and Process

Management (EDMP) and External Fraud (EF). Compared to 2017

the losses for EDPM decreased slightly, the losses for CPBP

decreased by a high percentage and the losses for EF increased

by a high percentage. Losses in the other Basel II event types

were very limited in 2018.

% of Total Number of records along Risk Category

% of Total Net Loss (EUR) along Risk Category

Figure 3: Losses per risk type

in %

60

70

80

90

50

40

30

20

10

0

2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018

5.4

4.5

1.3

1.1

30

.6

26

.1

61

.1

12

.9

0.4

0.2

32

.7 39

.3

25

.5

19

.4 25

.6

27

.1

8.9

65

.4

5.0

3.0

2.2

1.2

0.3

0.1

0.7

0.0

Business disruption

and systems failure

Clients, products and

business practices

Damage to

physical assets

Employment practices

and workplace safety

Execution delivery and

process management

External fraud Internal fraud

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8.3 Developments in 2018

GeneralThe global environment Rabobank is operating in requires

constant adaption to changing circumstances and clients'

expectations. This fits and aligns with our mission, vision and

strategy of ‘Growing a better world together’ and to perform as a

rock-solid bank with excellent client focus. A fast changing

environment requires agility and adaptability. Change initiatives

bear inherent risks which are managed by the first line of defense.

Therefore Rabobank is constantly improving its change readiness

and its operational risk management as integral part of material

change initiatives.

Cybercrime RiskCyber related threat levels continuously increase, with attacks

becoming more frequent and more sophisticated. Rabobank

significantly invests in cyber security to protect our information

systems and our customers’ interests. In doing so, we find it

important to continuously stay informed about state-of-art

knowledge on threats and protection methods, provided by

experts and leading organizations from all over the world. In

taking protection measures, Rabobank closely collaborates with

other players in the financial sector.

Rabobank applies a structured approach in dealing with cyber

security risks. Our Cyber Defense Centre plays a key role, where

we continuously strengthen our capabilities to deal with cyber-

threats by protection, detection and response. Emerging

technologies like data analytics, and self-learning pattern

recognition play a key role in protecting our assets and the

availability of our online channels e.g. during distributed denial

of service attacks.

Outsourcing RiskIn order to focus on its core abilities, Rabobank outsources certain

activities to external parties. In doing so, it is key for the bank to

stay in control and protect our customers’ interests. Before

Rabobank outsources activities, we conduct an evaluation of and

perform the necessary due diligence for a prospective service

provider. Rabobank has put in place a control framework for

outsourcing that defines controls and responsibilities related to

the risk of outsourced services. This framework drives us and our

vendors to be knowledgeable and compliant with the controls

necessary for well-controlled outsourced services, and with

controls that are required from a regulatory perspective.

Transition RiskCurrently quite a number of transitional, remedial and regulatory

driven change projects are running. Together with other relevant

stakeholders, such as the Compliance and Legal departments,

ORM provides risk opinions and risk analyses on material business

changes. During both the project design, execution and

implementation phases ORM is actively involved to support the

business mitigating the operational risks of changes and making

the material change project a success.

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Market risk entails that the bank’s earnings and/or economic value

may be negatively affected by changes in interest rates or market

prices. Exposure to a certain degree of market risk is inherent in

banking and creates the opportunity to realise profit and value.

In managing and monitoring market risk, a distinction is made

between the trading and banking environments.

Section Description Key risk indicators Monitoring

9.1Market risk trading environment

Market Risk arising from the bank’s own trading activities. Rabobank’strading activities are customer-focused or for the bank’s own balance sheetmanagement.

Event Risk Daily

9.2Interest rate risk bankingenvironment

Interest rate risk arising from the bank’s activities not related to trading.Occurs mainly within the retail banking business as a result of the differencein interest rate fixing periods between assets and liabilities and implicitoptions in various customer products.

Modified Duration, Basis PointValue and Earnings at Risk

Monthly

9.3Currency risk bankingenvironment

Currency risk arising from the bank’s activities not related to trading. Thismainly concerns translation risk resulting from capital invested in foreignoperations.

Value at Risk Monthly

Within the trading environment, the most significant types of

market risk are: interest rate risk (including basis risk), credit spread

risk and currency risk. Risk positions acquired from clients can

either be redistributed to other clients or managed through risk

transformation (hedging). The trading desks are also acting as a

market-maker for secondary markets (by providing liquidity and

pricing) in interest rate derivatives and debt, including Rabobank

bonds and Rabobank Certificates. Market risk in the trading

environment is managed and monitored on a daily basis within

the trading market risk framework. This framework covers all

derivatives in trading books, as well as the loan syndication

books, the short term funding books, securities finance & repo

books and the bond trading books. A prudent limit and control

framework is in place.

A large part of the structural interest rate and currency risks arising

from the banking activities are transferred through internal

derivative transactions to the trading environment. Risks within

the trading environment are mostly hedged in the market.

A direct link cannot be made between the items on the bank’s

balance sheet and the various figures for market risk. This is

because the bank’s balance sheet only contains transactions with

third parties. The published market risk figures for the trading

books are based on both transactions with third parties and

transactions with internal parties in the banking environment. The

same applies to the published interest and currency risk figures

for the books in the banking environment.

9.1 Trading Market Risk

9.1.1 Trading Market RiskMarket risk arises from the risk of losses on trading book positions

affected by movements in interest rates, equities, credit spreads,

currencies and commodities. Market risk in the trading

environment is monitored daily within the market risk framework.

Rabobank’s market risk is relatively small as evidenced by the low

Risk Weighted Exposure Amounts (RWEA) compared to that of

credit risk and, to a lesser extent, operational risk.

9.1.2 Trading Market Risk FrameworkThe trading market risk framework has been put in place to

measure, monitor and manage market risk in the trading books.

Market risk is governed by the Market Risk Policy and the Market

Risk Standard. The Management Board determines Rabobank’s

risk appetite on an annual basis. A cascading limit structure with

an increasing granularity of limits has been implemented from

Rabobank consolidated level down to business units Markets and

Treasury and portfolio level. The Limit and Control Structures

(LCS) define the trading strategy and explain the objective and the

nature of trading and hedging activities which a business unit or

a portfolio is allowed to perform. In addition to the LCS, the

framework exists of a number of other elements. Among others,

the market risk functional document, a set of well documented

and monitored internal procedures and the new business/

product approval process, provide input for the identification,

thorough monitoring and managing of material risks within the

trading books. Hedging risk and the continuing effectiveness of

hedges are covered in the Annual Report.

9. Market Risk

Pillar 3


On consolidated level, the risk appetite is defined for VaR, event

risk and interest rate delta. In addition to the VaR limits, an

extensive system of other limits and trading controls for each

book is in place to ensure that risks that offset each other, or

which are not covered by the VaR framework are not overlooked.

These controls include tenor basis swap risk, commodity and

equity cash delta, interest rate (IR) delta bucket limits, notional

limits and FX exposure limits. In order to assess the risk of

‘abnormal’ market conditions, the effects of certain extreme

events (event risk) are calculated daily. These extreme events can

be historical events or plausible hypothetical scenarios.

Market risk exposures are calculated on a daily basis according to

the approved methodologies for the respective risk measure.

Monitoring of market risk exposures occurs on portfolio level,

business unit level (where applicable) and for Rabobank

consolidated against the approved Limit and Controls structures

or approved Risk Appetite Statement. Any limit excesses need to

follow the defined sign off and reporting procedure. Regular risk

reporting to Risk Management Committees and senior

management is in place to ensure the communication of key risk

developments takes place. Risk developments that require ad hoc

attention are communicated accordingly outside the regular

reporting cycle.

Regulatory CapitalFor portfolios that have been categorized as trading book, own

funds requirements are being calculated within the Market Risk

Solvency Framework. The VaR, stressed VaR (SVaR), Incremental

Risk Charge (IRC) and Risk Weightings for Securitizations (RWS) are

used in the calculation of Regulatory Capital (RC) for market risk

in the trading portfolios. Rabobank maintains both the

Standardized and Internal Model Approach to calculate the

Trading Book Regulatory Capital charges.

Rabobank has the approval to use the Internal Method Approach

(IMA) and specific risk for all portfolios relevant for the trading

book. The VaR, SVaR and IRC are calculated using the Internal

Method Approach (IMA), while the Standardized Approach (SA)

is used for the RWS. This methodology is based on the SA already

used for the banking book, which applies a fixed risk weight to a

position based on rating, seniority, granularity and product type

(securitization or re-securitization). All banks for which IMA is

approved are required to use the Standardized Approach for RWS.

A confidence interval of 99% and a holding period of 10 days is

used for the VaR and SVaR in the calculation of the Regulatory

Capital of the trading portfolios. All assumptions in the RC

models are subject to periodic review and validation ensuring

validity of all model assumptions and correctness of underling

premises.

In addition to RWS, Rabobank uses the SA for positions in the

Trade & Commodity Finance (TCF) department and for FX

positions, which are both categorized as non-trading. The SA is

also applied to positions in Collective Investment Units (CIU). The

CIU charge is very small with only EUR 0.3 of capital charge.

Finally, a capital charge is calculated for Risks Not in Model

(RNIM). Next to the significant risks coveredby the (s)VaR and IRC

models, Rabobank has a RNIM framework in place to capture risks

that are not adequately covered by those models. Risk factors

included in RNIM are amongst others some basis and volatility

risks. Risks that are not covered by the models are checked

frequently and added to the RNIM framework. RNIM are

frequently reviewed to assess if inclusion in the model is possible.

The capital charge as per 31 December 2018 amounts to EUR 7.5

(RWA: EUR 94) and is reported in Template 4 under the Advanced

IRB (AIRB) approach.

The tables below depict the capital requirements for Market Risk

under SA and IMA.

Template 34: EUR MR1 - Market Risk under the StandardizedApproach

Amounts in millions of euros RWAs Capitalrequirements

Outright products

Interest rate risk (general andspecific)

- -

Equity risk (general andspecific)

- -

Foreign exchange risk - -

Commodity risk 307 25

Options

Simplified approach - -

Delta-plus method - -

Scenario approach - -

Securitisation (specific risk) - -

Total 307 25

The reduction in the RC charge for commodity risk under the SA

is driven by a lower volume of Cash & Carry business. The RWA and

capital requirements for positions in CIU are EUR 3.4 and EUR 0.3

respectively. These values are not included in Template 34, but

reported in Template 4, Market Risk.

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Template 35: EU MR2-A - Market risk under the IMA

Amounts in millions of euros RWAs Capital requirements

1 VaR (higher of values a and b) 460 37

(a) Previous day's VaR (Article 365(1) of the CRR (VaRt-1)) - 12

(b) Average of the daily VaR (Article 365(1)) of the CRR on each of the preceding 60 business days (VaRavg) x multiplicationfactor (mc) in accordance with Article 366 of the CRR

- 37

2 SVaR (higher of values a and b) 2,176 174

(a) Latest SVaR (Article 365(2) of the CRR (SVaRt-1)) - 75

(b) Average of the SVaR (Article 365(2) of the CRR) during the preceding 60 business days (SVaRavg) x multiplication factor(ms) (Article 366 of the CRR)

- 174

3 IRC (higher of values a and b) 931 74

(a) Most recent IRC value (incremental default and migration risks calculated in accordance with Article 370 and Article371 of the CRR)

- 69

(b) Average of the IRC number over the preceding 12 weeks - 74

4 Comprehensive risk measure (higher of values a, b and c) - -

(a) Most recent risk number for the correlation trading portfolio (Article 377 of the CRR) - -

(b) Average of the risk number for the correlation trading portfolio over the preceding 12 weeks - -

(c) 8% of the own funds requirement in the standardised approach on the most recent risk number for the correlationtrading portfolio (Article 338(4) of the CRR)

- -

5 Other - -

6 Total 3,567 285

Template 36: EU MR2-B – RWA flow statements of market risk exposures under the IMA

Amounts in millions of euros VaR SVaR IRC Comprehensiverisk measure Other Total RWAs Total capital

requirements

1 RWAs at previousperiod 328 2,298 692 - - 3,318 265

1a Regulatory adjustment -27 202 -164 - - 11 1

1bRWAs at the previousquarter-end (end of theday)

301 2,499 528 - - 3,329 266

2 Movement in risk levels 158 328 339 - - 826 66

3 Model updates/changes - - - - - - -

4 Methodology andpolicy - - - - - - -

5 Acquisitions anddisposals - - - - - - -

6 Foreign exchangemovements - - - - - - -

7 Other - - - - - - -

8aRWAs at the end of thereporting period (end ofthe day)

459 2,828 868 - - 4,155 332

8b Regulatory adjustment - -652 64 - - -588 -47

8RWAs at the end of thereporting period 460 2,176 931 - - 3,567 285

The main driver of the change in market risk exposures is

movement in risk levels. VaR and SVaR mostly changed due to

client related deals and increased risk levels due to volatility in the

financial markets. The latter is driven by for instance elections in

Italy, BREXIT and other geopolitical risks observed in 2018. IRC has

mainly been impacted by increased positions in government

bonds and investment grade debt issued by financial institutions.

Internal VaR ModelThe internal VaR model is a key part of Rabobank’s market risk

framework. Rabobank has opted to apply a VaR model based on

historical simulation for which one year of historical data is used

with no weighting scheme, which is updated daily. A drawback

of using historical simulations is that it does not necessarily take

into account all possible future market movements. The approved

IMA model covers all the trading activities mentioned in this

chapter. These activities are predominantly located in the Markets

and Treasury business units of Rabobank. The risk factors covered

are interest rate, FX, equity, commodity and credit.

For internal risk management purposes, Rabobank has opted for

a confidence level of 97.5% and a time horizon of one day. The

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VaR used in the calculation of the capital requirement for market

risk uses a confidence interval of 99% and a holding period of 10

days as prescribed by the regulator. Rabobank has chosen for

97.5% as this provides a more stable measure which is more

suitable for monitoring trading positions with daily monitoring

than is the case with higher confidence intervals. In addition,

Rabobank complements VaR with stress testing to look at stressed

market circumstances. This approach becomes less appropriate

when using VaR with higher confidence intervals.

For the 99%, 10 day VaR calculation used in the calculation of the

capital requirement, Rabobank uses 10 day market risk shocks,

with overlapping periods. No scaling is applied. Rabobank uses a

single model which combines general and specific risk in the

aggregation. In the calculation of VaR, relative or absolute shocks

are used to determine the potential movements in risk factors.

Whether relative or absolute shocks are applied, depends on the

risk factor. Rabobank uses full revaluation in the calculation of

VaR. For some linear interest rate and FX products delta

approximation is used.

Due to Rabobank’s strategy of client risk redistribution, risk

transformation (hedging) and the low secondary market activity,

the real market risk exposure of the trading portfolio is well within

the risk appetite boundaries. Table 9.1.1 shows the VaR with a one

day holding period and 97.5% confidence level. The relatively

limited position as evidenced by this table was well within the

internal VaR limit. Also during the year, the VaR was well within the

limit. Changes in the VaR have been driven by client related deals

and volatility in the financial markets as explained under

Template 36.

Table 9.1.1: VaR (1 day, 97.5%)

Interest Credit Currencies Shares Commodities Diversification Total

2018 - 31 December 2.3 2.9 0.1 0.0 0.2 -2.1 3.4

2018 – average 2.2 1.5 0.1 0.0 0.1 - 2.6

2018 – Highest 3.4 3.0 0.6 0.1 0.7 - 3.9

2018 – Lowest 1.7 0.7 0.0 0.0 0.1 - 1.9

2017 – 31 December 2.9 0.8 0.2 0.0 0.1 -0.8 3.1

2017– average 3.4 0.8 0.2 0.0 0.2 - 3.8

2017 – highest 4.7 1.3 1.2 0.1 2.4 - 4.9

2017 – lowest 2.6 0.6 0.0 0.0 0.1 - 3.0

Stressed Value at RiskAccording to the regulations SVaR replicates a VaR calculation for

the bank’s current portfolio using historical scenarios based on a

one year stressed period. The period that Rabobank uses for SVaR

runs from 5 June 2008 until 4 June 2009. This was the most

stressful year during the last global financial crisis. Analysis

showed that historical market data movements in this period

generated the largest losses given the positions in Rabobank’s

trading portfolios. The SVaR period is reviewed every month. In

case it appears that market movements in another historical one

year period would cause the largest losses, the SVaR period will

be changed to that period.

Rabobank uses a 99%, 10-day holding period for SVaR where the

10 day SVaR is directly modelled in similar fashion to the 99%, 10-

day VaR used in the calculation of the capital requirement for

market risk. Full revaluation is used in the calculation of SVaR. For

some linear interest rate and FX products delta approximation is

used.

Incremental Risk ChargeThe Incremental Risk Charge (IRC) captures credit risk in the

trading portfolio that is not captured by the VaR. This risk arises

from the fact that the issuers of bonds, the reference name of

Credit Default Swaps or other issuer risk related products that

Rabobank holds in its trading portfolio might default or suffer

from a rating migration. This can result in a loss for Rabobank.

Rabobank uses a transition-matrix based asset value model to

calculate IRC. The current issuer risk portfolio is used as a starting

point. The transition-matrix is estimated using statistical models

on migration and default data. Rabobank uses the regulatory floor

of 3 months as liquidity horizon, (i.e. it is assumed that positions

cannot be sold within three months in stressed circumstances).

A Monte Carlo simulation results in possible four outcomes of

losses due to defaults and migrations in the portfolio within three

months. The input parameters to the model are EADs based on

MTM, short term PDs estimated from 1 year PDs, migration

matrices, LGD per issuer type, migration losses and regulatory

prescribed IRB correlations. Under the constant risk assumption

Rabobank adds the outcomes of four 3-month profit and losses

to arrive at a one year loss. The resulting 99.9% worst observation

from the profit and loss distribution represents the IRC Regulatory

Capital. Among others, Template 37 shows the period-end, mean,

highest and lowest IRC amount during 2018.

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Extensive stress testing and sensitivity analyses are performed as

part of the periodic model review. It includes, but is not limited

to correlation, LGD and PD scenarios, as well as the impact from

adverse market scenarios and liquidity assumptions. The IRC

models are validated according to the process set out in section

4 of this document.

Template 37: EU MR3 IMA values for trading portfolios

VaR (10 day 99%)

1 MaximumValue 21

2 Average Value 11

3 MinimumValue 7

4 Period-End 12

SVaR (10 day 99%)

5 MaximumValue 75

6 Average Value 56

7 MinimumValue 40

8 Period-End 75

IRC (99.9%)

9 MaximumValue 94

10 Average Value 63

11 MinimumValue 42

12 Period-End 69

Comprehensive risk capital charge (99.9%)

13 MaximumValue -

14 Average Value -

15 MinimumValue -

16 Period-End -

The Comprehensive Risk Capital charge is not applicable to

Rabobank as it does not have a correlation trading portfolio.

Back testingBack testing is a risk management technique to evaluate the

quality and accuracy of internal VaR models. In essence, back

testing is a routine comparison of model generated risk measures

(daily VaR) with the subsequent trading outcomes (hypothetical

or actual Profit & Loss). It is expected that the calculated VaR will

be larger than all but a certain fraction of the trading outcomes,

where this fraction is determined by the confidence level

assumed by the VaR measure.

Among others, the performance of the VaR model is dependent

on the risk factors covered by the VaR framework, the accuracy

of the methodology applied and on the quality of the market

data used to generate the historical scenarios. Inaccuracies in

these items can lead to an abnormal number of outliers which

could be an indication of inadequate quality of the internal

model. Another source for outliers are technical issues. Using back

tests, the quality of the VaR model can be assessed, both in terms

of the distributional assumptions, historical market data

validation and transaction or position registration. In line with

regulation, Rabobank uses the 99% confidence level, 1-day

holding period VaR for the purpose of back testing. Back tests are

carried out at consolidated level and at book level, using both

actual P&L and hypothetical P&L. Back testing results are reported

to the regulator on a quarterly basis. Outliers are reported and

individually analyzed if they exceed an operational threshold

(50,000 for books with a VaR smaller or equal 500,000, and 0.15

times VaR for books with a VaR larger than 500,000).

The number of outliers over a rolling window of one year

determines an additional charge to the capital multiplier used on

the VaR and stressed VaR in the RC calculation. If the number of

outliers on consolidated level exceeds a given number based on

the 99% confidence level of the VaR measure, a capital multiplier

has to be applied. On 31 December 2018, the amount of back

testing outliers observed during the year was 4 (2 hypothetical

and 2 actual). The maximum of the hypothetical and actual

outliers is 2 which is within the regulatory threshold. As such,

there is no additional charge for Rabobank as the number of

outliers was below the threshold of 4 (CRR/CRD IV).

Template 38: MR4 Comparison of VaR estimateswith gains/lossesin millions of euros

10

5

0

-5

-10

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

Actual P&L Hypothetical P&L VatR 99% 1d

ValuationThe valuation of the trading portfolio positions is based on, or

derived from, observable prices or curve inputs. The availability

of observable prices or curve inputs varies by product and

market, and may change over time. In some markets or for certain

products, observable prices or inputs are not available, and fair

value is determined using valuation techniques appropriate for

the particular product. The data sources are consistent between

various products and independent of any Rabobank activity. If in

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exceptional cases, in a start-up phase, curves are not

independently maintained, a minimum of a monthly

independent validation is a requisite. These curves will be subject

to a yearly review in order to define if database providers have

caught up with the market evolution and allow independent

monitoring in the future. The department accountable for the

valuation process is independent of the front office. For the

accounting valuation methodologies and the valuation

adjustments, reference is made to the 2018 Consolidated

Financial Statements, note 4.9 Fair value of financial assets and

liabilties. The governance of valuation and IPV of the financial

instruments of Rabobank is built around the Global Valuation

Committee and the local IPV committtees. Finance and control

perfoms independent price verification (IPV) controls in order to

evaluate the reasonablesness of the front office valuation.

Rabobank aims to include all liquid inputs of its valuation models

as risk factors in its market risk models and to achieve maximum

alignment between the valuation and risk models. For instance,

for interest rate portfolios a large variety of forecasting and

discounting curves are used to value the products within them.

All these curves are treated as separate risk factors in the risk

models. The historical yield curve data which is used to generate

the historical scenarios for the VaR calculation is derived from the

yield curves which are used to value the trades. By doing so

Rabobank also aims to achieve maximum correlation between

the actual profit or loss and hypothetical profit or loss figures.

Stress testingRabobank recognizes that VaR, due to its underlying statistical

assumptions, must be complemented by stress testing for a more

complete risk assessment. Stress testing is used to measure

events that are not captured by the VaR model. It is instrumental

in gauging the impact of extreme, yet plausible predefined moves

in market risk factors on the P&L of individual trading and

investment portfolios. Rabobank designed a large number of

global scenarios based on book composition and current macro/

economic financial markets situations. Risk drivers captured by

these scenarios include among other things: tenor basis swap

spreads, interest rates, credit spreads, volatility and interest rate

rotation. The shocks applied are determined using historical

calibration or are based on expert judgment. The scenarios are

global and homogeneous for all geographical regions.

Rabobank uses sensitivity stress scenarios for the following risk

factor categories:

• Interest rates;

• Interest rate volatility;

• Interest rate curve rotation;

• Credit spreads;

• Commodities;

• Commodity volatility;

• FX rates;

• FX volatility;

• Equities;

• Equity volatility;

• Treasury spreads;

• Inflation related products;

• Tenor basis swap spreads;

• Bond - CDS spread.

In each sensitivity stress scenario extreme shocks for one

particular risk factor category are applied. These shocks generally

represent up- and downward movements in the risk factors. A

book’s sensitivity is examined daily by applying all relevant

sensitivity scenarios with an aim to report a maximum negative

result as exposure under a trading control. The size of the shocks

depends on, among other things: different asset classes, sectors,

regions and liquidity horizons. Liquidity horizons vary between

10 and 120 days, depending on the type of asset and risk factor.

The liquidity horizon provides an estimate of the amount of days

it takes to liquidate a position in the market or replace a hedging

position in times of stress. For less liquid treasuries, corporate

bonds and products with optionality the horizon is longer.

In addition to these sensitivity scenarios, Rabobank also uses real

historical and hypothetical scenarios to gain insight into the

impact of such scenarios on the P&L of the trading book. In these

stress scenarios multiple risk factor categories are shocked at the

same time.

On December 31, 2018, the event risk amounted to EUR 128 well

within the set limit. Within the Trading Book, the tenor basis swap

position remains a large concentrated position with a substantial

impact on Rabobank’s event risk. However, due to Rabobank’s

increased bond trading activity, the dominant event risk scenario

throughout the year was related to a rise in bond yields.

Table 9.1.2: Event Risk

2018 – 31 December 128

2018 – average 129

2018 – highest 157

2018 – lowest 103

Interest Rate DeltaThe Interest Delta indicates how the value of positions changes

if the relevant yield curve shows a parallel increase by 1 basis

point. These positions are shown in the table below for each key

currency in the Rabobank portfolio as per 31 December 2018.

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Table 9.1.3: Interest Rate Delta

EUR 0.4

USD 0.1

CHF 0.1

Other 0.0

Total 0.6

9.2 Non-trading Interest Rate Risk

Interest rate risk in the banking book at Rabobank is mainly caused

by:

• Maturity mismatches between loans and funds entrusted.

Rabobank provides mortgages and commercial loans with

long fixed-interest terms. These mortgages and loans are

partly financed by customers’ savings, customers’ current

account balances and partly with funding provided by

professional money market and capital market institutions;

• Quotation risk. The majority of homebuyers with a mortgage

proposal will pay the lowest of two rates: the rate offered or the

prevailing rate when the loan is effectively drawn down;

• Prepayment risk. Customers wishing to repay or to refinance

their loans early are not always required to pay breakage costs;

• Withdrawal risk. A large proportion of customers' credit

balances in current accounts, payment accounts and savings

accounts is callable on demand.

These risk factors in the banking book are influenced by customer

decisions regarding roll over, early termination or the term of

interest rate fixing. These decisions, also called customer

behaviour, are an important determining factor with respect to

interest rate risk in the banking environment. Whereas interest

rate risk in the trading environment depends on the contract

terms of each transaction, in the banking environment

assumptions regarding behaviour play a larger role. Measuring,

understanding and anticipating customer behaviour is therefore

key in managing interest rate risk in the banking book.

Non-trading Interest Rate Risk frameworkRabobank accepts a certain level of interest rate risk in the banking

environment. This follows from the investment of the bank’s own

funds as well as from the transformation function of the bank, i.e.

enabling firms and individuals to make longer-term capital

investments funded by shorter-term entrusted deposits and

savings. At the same time, the bank seeks to avoid any material

unexpected swings in earnings and economic value caused by

interest rate movements. Therefore, the Managing Board, under

supervision of the Supervisory Board, determines the interest rate

risk appetite and the corresponding limits on an annual basis.

Within these targets, the treasury department within the bank are

in charge of the steering of interest rate risk in the banking

books. They manage this exposure through funding and hedging

transactions. Reports on the actual exposure to interest rate risk

in the banking books are submitted to the responsible Asset &

Liability Management and Risk Management committees on a

monthly basis. The actual exposure is also periodically, (i.e. on a

quarterly basis), reported to the supervisory authorities.

Risk measurementRabobank uses three standard measures for measuring,

managing and controlling the interest rate risk in the banking

book arising from changes in the level of interest rates:

• Modified Duration (MD),

• Basis Point Value (BPV), and

• Earnings at Risk (EaR).

The BPV of equity per maturity is used to control and manage the

risk of changes in the shape of the yield curve. These measures

are also used to express the risk appetite of Rabobank.

In addition to the three standard measures of interest rate risk in

the banking books, Rabobank regularly analyses the effect of one

or more interest rate scenarios on its earnings and economic

value. The results of this analysis are important for integrated

interest rate risk management purposes and are included in

reports to senior management. Furthermore, the amount of

capital required to compensate for the effect of unfavourable

interest rate developments is calculated on the basis of historical

scenarios.

Risk Appetite and Developments Related to MD and BPVof EquityThe key risk indicator used by Rabobank to manage interest rate

risk from the perspective of economic value is the Modified

Duration. The MD shows the percentage decline in the economic

value of equity if interest rates rise by 1 percentage point. For

2018, the Managing Board determined a risk appetite with a

lower limit of 0% and an upper limit of 6%. The overall MD in the

banking book is the net result of client transactions in the relevant

assets and liabilities business lines (‘natural position’) as well as

their funding and hedging transactions with our Treasury

department and the investment of equity. Treasury itself operates

within a strategic mandate and risk tolerance set by the Managing

Board and monitored by the Risk Management function while

efforts are underway to include the full scope of the Treasury

activities in the MD directly. In addition, the implementation of a

uniform methodology to optimally align figures from different

parts of the bank is also underway. On a monthly basis, the Asset

and Liability Committee (ALCO), which includes the CFO and CRO

of the bank, reviews the interest rate and liquidity targets and

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positions in the context of business and market developments.

The overall Interest Rate Rrisk in the Banking Books (MD and EaR)

position is managed across all currencies. Due to the relatively

small USD position, uncommon specialized contracts (e.g. USD

280 million of 100-year issued bonds) can have a profound

impact on the MD position in USD-terms. This is taken into

account in the existing risk framework. No limits were breached

in the presented situation as of year-end 2018.

Table 9.2.1: Modified Duration

31-Dec-18 31-Dec-17

Modified Duration (%) Group level in EUR 2.80% 2.00%

Split by main currencies

Modified Duration (%) – EUR 3.20% 2.30%

Modified Duration (%) – USD -2.20% -3.40%

Risk Appetite and Developments Relating to EaRThe key measure used by Rabobank to manage interest rate risk

from an earnings perspective is the EaR. The EaR is the largest

deviation in negative terms of the expected net interest income

in the next 12 months as a result of different interest rates

scenarios. The limit for this measure was 525 million in 2018. The

EaR analysis does not take into account active management

intervention, but it does use baseline volume projections from the

business lines.

Table 9.2.2: Earnings at Risk

31-Dec-18 31-Dec-17

Earnings at Risk 109 148

Split by main currencies

Earnings at Risk – EUR 76 104

Earnings at Risk – USD 32 37

In 2018, Rabobank’s net interest income suffered the most from

an interest rate downward scenario throughout the year. On

December 31, 2018 the EaR ended up at 109 million, lower than

the EaR of 148 million in 2017. This is mainly driven by a more

conservative net interest income risk management by ALCO/

Treasury.

9.3 Non-trading Currency Risk

FX risk is the risk that exchange rate movements could lead to

volatility in the bank’s cash flows, assets and liabilities, net profit

and/or equity. The bank distinguishes two types of non-trading

FX risks: (i) FX risk in the banking books and (ii) FX translation risk.

FX Risk in the Banking BooksFX risk in the banking books, is the risk where known and/or

ascertainable currency cash flow commitments and receivables

in the banking books are unhedged. As a result, it could have an

adverse impact on the financial results and/or financial position

of the Group, due to movements in exchange rates.

FX Translation RiskFX translation risk is the risk that FX fluctuations will adversely

affect the translation of assets and liabilities of operations –

denominated in foreign currency – into the functional currency

of the parent company. Translation risk reveals in Rabobank’s

equity position, risk weighted assets and capital ratios.

Rabobank manages its FX translation risk with regard to the

Rabobank CET1 ratio by deliberately taking FX positions,

including deliberately maintaining FX positions and not or only

partly closing FX positions. As a result of these structural FX

positions, the impact of exchange rate fluctuations on the

Rabobank CET1 ratio is mitigated.

FX translation risk at Rabobank level is covered by the Global

Standard on FX Translation Risk (“Standard”). The purpose of the

Standard is to outline the Rabobank policy towards FX Translation

risk to achieve and ensure a prudent and sound monitoring and

control system, in order to manage these risks Group wide.

Rabobank uses the pillar 2 framework for those areas where

Rabobank is of the opinion that the regulatory framework (i.e.

pillar 1) does not address the risk, or does not adequately address

the risk. FX translation risk is one of these risks.

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Liquidity risk is the risk that the bank will not be able to meet all of its payment obligations on time,as well as the risk that the bank will not be able to fund increases in assets at a reasonable price. Thiscould happen if, for instance, customers or professional counterparties suddenly withdraw morefunds than expected which cannot be absorbed by the bank’s cash resources, by selling or pledgingassets in the market or by borrowing funds from third parties. Maintaining a comfortable liquidityposition and retaining the confidence of both professional market parties and retail customers haveproved crucial, ensuring unimpeded access to the public money and capital markets for Rabobank.

10.1 Liquidity Risk ManagementFramework

Rabobank’s policy is to finance client assets of a long-term or

recurrent nature using stable funding, that is, funds entrusted by

customers and long-term wholesale funding. Responsibility for

the day-to-day management of the liquidity position, the raising

of professional funding on the money and capital markets, and

the management of the structural position lies with the Treasury

department.

Liquidity risk management is based on three pillars. The first sets

strict limits for the maximum outgoing cash flows for different

maturities within the wholesale banking business. Rabobank

measures and reports on a daily basis what incoming and

outgoing cash flows are expected during the next 12 months.

Limits have been set for these outgoing cash flows, including

limits and controls per currency. Detailed plans (the contingency

funding plans) have been drawn up for contingency funding to

ensure the bank is prepared for potential crisis situations. Periodic

operational tests are performed on these plans.

The second pillar is to maintain a substantial high-quality buffer

of liquid assets. Besides cash balances held at central banks, liquid

securities can be used to pledge to central banks, in repo

transactions or be sold directly in the market to generate liquidity

immediately. The size of the liquidity buffer is aligned with the risk

Rabobank is exposed to resulting from our balance sheet. In

addition, Rabobank has securitised a portion of the mortgage loan

portfolio internally, which could be pledged to the central bank,

thereby serving as an additional liquidity buffer. Since this

concerns a retained securitisation, it is not reflected on the

consolidated balance sheet.

The third pillar for managing liquidity risk is to have a solid credit

rating, high capital levels and a prudent funding policy. Rabobank

takes various measures to avoid becoming overly dependent on

a single source of funding. These measures include balanced

diversification of funding sources with respect to maturity,

currencies, investors, geography and markets, a high degree of

unsecured funding (and therefore limited asset encumbrance)

and an active and consistent investor relations policy.


Liquidity PositionRabobank’s liquidity buffer remained robust in 2018. The total

liquidity buffer at December 31, 2018 measured in terms of ‘High

Quality Liquid Assets’ (HQLA) was 87 (2017: 86) billion. The group

consolidated liquidity buffer does take into account transfer and

inconvertibility restrictions. During 2018 Rabobank's 'Liquidity

Coverage Ratio' (LCR) complied with the minimum 100%

requirement as set by De Nederlandsche Bank (DNB), the Dutch

central bank. The ratio stood at 135% (2017: 123%) as at

December 31, 2018. Per December 31, 2018 the ‘Net Stable

Funding Ratio’ (NSFR) as monitored by the Basel Committee, was

119% (2017: 119%), which is comfortably above the future

requirement of 100%.

10. Liquidity Risk

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Table 10.2.1: Liquidity Buffer

31-Dec-18 31-Dec-17

Liquidityvalue

Liquidityvalue

Level 1 assets

Cash and withdrawable central bank reserves,excluding reserve requirements 69.113 57,853

Level 1 securities 14.841 23,104

Total stock of Level 1 assets 83.954 80,957

Level 2 assets 3.003 4,587

HQLA liquidity buffer 86.957 85,544

Central bank eligible retained RMBS 33.653 30,562

Total liquidity buffer 120.610 116,106

The table 10.2.2 provides an overview of the average LCR

composition, calculated as the average of the 12 month-end LCR

positions preceding the end of each calendar quarter. The table

contains 15 data points, covering the period October 2017 until

December 2018.

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Table 10.2.2: LCR

Total unweighted value (average) Total weighted value (average)

Quarter: Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2018 Q2 2018 Q3 2018 Q4 2018

HIGH-QUALITY LIQUID ASSETS

1 Total high-quality liquid assets (HQLA) - - - - 89,515 89,484 88,664 87,693

CASH-OUTFLOWS

2 Retail deposits and deposits from small businesscustomers, of which: 165,955 165,550 165,638 166,150 14,022 13,873 13,725 13,505

3 Stable deposits 102,457 103,149 103,958 104,782 5,123 5,157 5,198 5,239

4 Less stable deposits 59,791 58,816 58,235 58,005 7,972 7,819 7,666 7,425

5 Unsecured wholesale funding 123,865 123,070 122,925 121,546 67,690 67,073 66,891 65,932

6

Operational deposits (allcounterparties) anddeposits in networks ofcooperative banks

- - - - - - - -

7 Non-operational deposits(all counterparties) 115,853 115,013 114,734 113,855 59,678 59,016 58,700 58,241

8 Unsecured debt 8,012 8,057 8,191 7,691 8,012 8,057 8,191 7,691

9 Secured wholesale funding - - - - 2,294 2,293 2,131 2,130

10 Additional requirements 54,047 53,219 53,409 53,770 13,645 13,343 13,245 13,212

11

Outflows related toderivative exposures andother collateralrequirements

9,103 8,782 8,579 8,398 9,103 8,782 8,579 8,398

12 Outflows related to loss offunding on debt products - - - - - - - -

13 Credit and liquidityfacilities 44,944 44,437 44,830 45,372 4,542 4,560 4,666 4,814

14 Other contractual funding obligations 3,112 2,895 2,993 2,972 3,112 2,895 2,993 2,972

15 Other contingent funding obligations 63,767 65,864 63,283 58,428 3,188 3,293 3,164 2,921

16 TOTAL CASH OUTFLOWS - - - - 103,952 102,769 102,149 100,673

CASH-INFLOWS

17 Secured lending (eg reverse repos) 30,140 29,771 26,865 25,201 18,779 18,503 19,048 18,620

18 Inflows from fully performing exposures 15,886 15,818 16,369 17,025 10,798 10,607 10,811 11,352

19 Other cash inflows 3,338 3,285 3,429 3,622 3,338 3,285 3,418 3,510

EU-19a

(Difference between total weighted inflows and totalweighted outflows arising from transactions in thirdcountries where there are transfer restrictions or whichare denominated in non-convertible currencies)

- - - - 157 129 135 162

EU-19b (Excess inflows from a related specialised creditinstitution) - - - - - - - -

20 TOTAL CASH INFLOWS 49,364 48,874 46,662 45,848 32,757 32,267 33,142 33,319

EU-20a Fully exempt inflows - - - - - - - -

EU-20b Inflows Subject to 90% Cap - - - - - - - -

EU-20c Inflows Subject to 75% Cap 47,244 46,499 44,387 43,549 32,757 32,267 33,142 33,319

21 LIQUIDITY BUFFER - - - - 89,515 89,484 88,664 87,693

22 TOTAL NET CASH OUTFLOWS - - - - 71,195 70,503 69,007 67,354

23LIQUIDITY COVERAGERATIO (%) - - - - 126 127 128 130

Qualitative information on LCR:

Rabobank’s funding strategy is characterized by broad

diversification and covers both domestic and international retail

and wholesale markets. The bank’s domestic Dutch retail funds

entrusted, for instance, are complemented with retail savings

generated in Europe (Belgium and Germany), Australia, New

Zealand and the United States.

Rabobank aims to manage liquidity from a group perspective, the

management of liquidity risk is centralized as far as deemed

possible. Funding and liquidity warehousing activities are

however performed in multiple locations to fund local balance

sheets or access local funding markets. Liquidity is preserved in

locations in accordance with local regulatory requirements and

internal guidelines. The importance of a healthy balance sheet

and prudent liquidity risk management is fully embedded in the

bank’s strategy, budgeting, procedures and measurements.

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The liquidity buffer is robust and maintained in various

currencies, see table 10.2.1. The distribution of the liquidity buffer

over the various currencies takes the currency distribution of the

net liquidity outflows into account. Liquidity surpluses are

warehoused in cash, high quality securities, short term reverse

repo/securities finance investments and central bank eligible

securities positions. Size, composition and quality of the liquidity

buffer and the corresponding buffer funding profile are

safeguarded by strict limit and control structures. For monitoring

and management purposes, position data is updated on a daily

basis.

Rabobank accepts a certain level of liquidity risk, as this has been

identified as a source of earnings and value creation, but it always

wants to be able to meet expected and unexpected cash flows

and collateral needs at any time without materially affecting

either daily operations or the financial stability of the bank.

RMC Group sets limits for the liquidity metrics adopted in the Risk

Appetite Statement (RAS). These limits are evaluated regularly by

RMC Group. On top of the risk limits, Treasury can set targets

based on the actual risk level, which is largely determined by the

issued debt maturity profile, securities finance maturity profile

and (expected) market circumstances. Treasury is expected to

steer the position in such a way that Rabobank is able to show a

positive LCR for at least two months in severe stressed market

circumstances, in which money and capital markets are closed,

and no issued debt is rolled over. This fits well within Rabobank’s

liquidity risk appetite, which is defined in the group's RAS as more

conservative than legislative constraints.

Besides the items specifically considered in the LCR disclosure

template, Rabobank also takes into account transferability and

inconvertibility restrictions of local liquidity buffers. In addition it

has been assessed whether retail deposits qualify for the higher

retail outflow treatment. Under item 11 in table 10.2.2 we have

included a 3-notch credit rating downgrade scenario and the

historical-look-back-approach.

Collateral calls are calculated on a daily basis based on the

previous day close of business MtM. The calculation takes into

account Credit Support Annex (CSA) specificities like thresholds

and minimum transfer amounts (MTA).

In our 2018 ILAAP (Internal Liquidity Adequacy Assessment

Process) we concluded that our overall liquidity risk management

is at an adequate level. The size and quality of our liquidity buffer

is significantly higher than internal limits, by which we should be

able to survive at least for three months in case of a severe

combined stress situation. Further, the liquidity buffer is also

higher than what is required by regulators, also with respect to

fully phased-in Basel III liquidity requirements such as the LCR and

NSFR.

0 40 6020 80 100

Euro

Swiss franc

Pound Sterling

Australian dollar

Other

US dollar

78%

5%

4%

11%

Figure 4: Currency split HQLAby currency, outstanding at year-end 2018

2%

1%

Of the HQLA liquidity buffer 79% (2017: 67%) consists of deposits

at central banks, mainly held at the DNB, the Federal Reserve Bank

of New York, the Swiss National Bank and the Bank of England. The

most liquid category of the buffer (Level 1 assets) constitutes

approximately 97% of the HQLA buffer (and 70% of the total

buffer). The liquidity buffer reported contains unencumbered

assets only and is managed by the Treasury department. In

addition to the HQLA buffer, a significant amount of central bank

eligible, retained unencumbered RMBS notes, secured by

residential mortgages originated by Rabobank, is held as a buffer

for liquidity purposes. Furthermore, Rabobank has a portfolio of

short-term secured financing transactions, secured mostly by

equity (16.4 billion), that can be terminated or liquidated at short

notice. Of this portfolio, 3.3 billion is eligible for inclusion in the

HQLA liquidity buffer. The remaining 13.1 billion is not included

in the liquidity buffer table.

Figure 5: Maturity date,Iong-term wholesale fundingat year-end 2018, in billions of euros

2019 2020 2021 2022 2023 2024

Years

2025 2026 2027 2028 2028+

30

25

20

15

10

5

0

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Figure 6: Remaining maturity calender,short-term debt securitiesat year-end 2018, in billions of euros

< 1 week 2-3

months

1 week -

1 month

4-6

months

7-12

months

12+

months

12

10

8

6

4

2

0

Funding StrategyThe bank’s funding strategy strives for diversification of funding

in terms of products, tenor, markets and currencies. As part of the

Strategic Framework 2016-2020, Rabobank aims to reduce its

wholesale funding. In 2018, the amount of wholesale funding,

defined as outstanding long- and short-term issued debt

instruments, decreased from 160 billion to 153 billion, also

impacted by exchange rates. Table 10.2.3 shows the various

funding sources. The Domestic Retail Banking business is to a

large extent funded by deposits from retail customers. In 2018,

funds entrusted by customers of the Domestic Retail Banking

business increased by 7.9 billion, mainly due to an increase in

current accounts and savings from small businesses and

corporates. Funds entrusted by customers of the domestic non-

retail banking business decreased by 5.5 billion.

Table 10.2.3: Funding Mix

in billions of euros at year-end 2018 at year-end 2017

Funds entrusted 337.4 335.1

Domestic retail banking business 236.7 228.8

- Private individuals 136.3 133.6

- Other customers 100.4 95.2

Domestic non-retail banking 42.2 47.7

International 58.4 58.5

- Private individuals 26.3 27.4

- Other customers 32.2 31.1

Interbank funding 19.3 18.5

TLTRO 5.0 5.0

Repos 0.1 0.5

Wholesale funding 153.2 160.4

Short-term debt securities 29.7 37.7

- Of which CD/CP 25.1 33.8

- Of which ABCP 4.6 3.9

Long-term wholesale funding 123.5 122.7

- Of which Medium Term Notes 79.7 86.7

- Of which RMBS and other ABS 20.9 17.3

- Of which covered bonds 6.3 2.5

- Of which subordinated debt securities 16.5 16.1

Additional contractual obligations in case of a ratingdowngradeIn the event of a downgrade of Rabobank’s credit rating, the bank

could be required to provide additional collateral or be faced with

an outflow of liquidity. The table below shows the potential

maximum outflow if the rating of Rabobank would deteriorate

by one, two or three notches.

Table 10.2.4: Potential Maximum Outflow of Liquidity

Amounts in millions of euros 31-12-2018

Funding Derivatives Other Total

Rating downgrade:

1 notch 1,282 28 110 1,420

2 notch 753 275 1,343 2,371

3 notch 1,145 1,824 269 3,238

Total for 3 notches 3,179 2,126 1,723 7,028

The table shows a split between funding, derivatives and other

instruments. Funding instruments include fixed-term deposits,

bonds, loans and professional funding with rating triggers.

Derivatives can also contain rating triggers that result in

additional liquidity risk. In some cases, a rating trigger may have

been agreed on services provided to clients. For instance, a Letter

of Credit or a guarantee on behalf of a client granted by Rabobank

may contain a rating trigger. Under certain circumstances, the

beneficiary of this guarantee may request that the guaranteed

sum be paid out if the rating of Rabobank drops below a certain

level. This initial outflow is recognised under ‘Other’. As a result

Rabobank has a direct claim on the customer for whom the

guarantee was provided.

Asset EncumbranceIn certain cases, assets on the bank’s balance sheet are

encumbered. The EBA considers an asset encumbered if it has

been pledged or tied-up and is subject to any form of

arrangement to secure, collateralise or credit enhance any

transaction from which it cannot be freely withdrawn. As such,

pledged assets that are subject to any restrictions in withdrawal,

such as assets that require prior approval before withdrawal or

replacement by other assets, should be considered encumbered.

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On December 31, 2018, 66 (2017: 54) billion of the assets of

Rabobank’s balance sheet were encumbered. The on-balance

sheet asset encumbrance primarily comprises mortgages and

other loans used in securitisations and covered bonds.

Furthermore assets are encumbered as a result of mandatory

minimum reserve requirements and margining of derivative

exposures.

The tables below provide an overview of the asset encumbrance

position of Rabobank. The values reported are median values

computed over the preceding four quarters. All totals are

reported using the median-of-the-sums method

Table 10.2.5: Encumbered Assets

Amounts in millions of euros Carrying amount ofencumbered assets

Fair value ofencumbered assets

Carrying amount ofunencumbered

assets

Fair value ofunencumbered

assets

Based on median values, computed over the 4 quarters preceding year-end2018

Assets of the reporting institution 63,318 - 546,288 -

Loans on demand 4,253 - 69,692 -

Equity instruments - - 1,075 1,075

Debt securities 6,669 6,669 19,114 19,114

Loans and advances others than loans on demand 51,052 - 405,652 -

Other assets 376 - 47,389 -

Securities received in reverse repo transactions are not

recognised on the balance sheet. For asset encumbrance

reporting, these securities are considered as collateral received.

Most of the collateral swaps and repurchase agreements that

Rabobank performs are conducted using securities received in

security finance transactions. These so-called re-used securities

are therefore reported as encumbered collateral received. On

December 31, 2018 the total asset encumbrance related to

collateral received was 13 (2017: 13) billion.

Table 10.2.6: Collateral Received


Fair value ofencumbered collateral

received or own debtsecurities issued

Fair value of collateralreceived or own debt

securities issuedavailable for

encumbrance

Based on median values, computed over the 4 quarters preceding year-end 2018

Collateral received by the reporting institution 13,943 31,897

Loans on demand - 262

Equity instruments 8,636 20,979

Debt securities 5,306 6,221

Loans and advances others than loans on demand - -

Other collateral received - 4,957

Own debt securities issued other than own covered bonds or ABSs - 41

The total asset encumbrance per December 31, 2018 was 77

(2017: 68) billion. This includes both assets of Rabobank and asset

encumbrance following encumbered collateral received. The

slight increase in encumbrance can mainly be explained by an

increase in secured funding. The median asset encumbrance,

measured over the balance sheet of Rabobank, was 10.4% (9.1%).

The following table combines the previous two tables along with

their associated liabilities, showing that the majority of

Rabobank’s asset encumbrance can be associated with

derivatives and funding (issued debt), which as per year end 2018

amounted to 10 billion and 33 billion, respectively.

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Table 10.2.7: Matching Liabilities

Amounts in millions of euros Matching liabilities, contingentliabilities or securities lent

Assets, collateral received andown debt securities issued other

than covered bonds and ABSsencumbered

Based on median values, computed over the 4 quarters preceding year-end 2018

Carrying amount of selected financial liabilities 54,992 58,110

Derivatives 10,888 10,916

Repurchase agreements 2,922 2,922

Collateralised deposits other than repurchase agreements 9,893 11,692

Debt securities issued 30,987 32,599

of which: asset-backed securities issued 24,799 25,076

Other sources of encumbrance 18,127 18,346

Total sources of encumbrance 73,711 76,937

Importance of Asset Encumbrance for RabobankRabobank has encumbered a small part of its loan portfolio for

issuing covered bonds and asset-backed securities (ABS) like

residential mortgage-backed securities (RMBS) and asset-backed

commercial paper (ABCP). The pool of assets that secures these

transactions exceeds the value of the issued securities, meaning

that the securities are overcollateralised. Rabobank has also

pledged cash to fulfil mandatory minimum reserve requirements.

This pledged cash cannot be freely withdrawn on a continuous

basis and is therefore considered encumbered. Furthermore,

assets are encumbered for repurchase agreements and collateral

swaps. These transactions are generally conducted using

securities received in reverse repo transactions. As a result, the

associated encumbrance generally relates to re-used collateral.

Rabobank participates in TLTRO II, for which assets are pledged

as collateral. Finally, part of Rabobank’s encumbrance results from

collateral posted for derivatives transactions and for some

mortgage saving deposits.

Rabobank has a low level of asset encumbrance, which results

from prudential balance sheet management. The evolution in the

level of asset encumbrance over time is limited and is mainly

driven by secured funding issuance and variation in assets

pledged due to market value variations of derivatives. The assets

reported under ‘Other assets’ in table 10.2.5 mainly relate to

derivatives, real estate, and property tax and deferred tax. The

majority of this positon is not available for encumbrance.

Rabobank has debt securities encumbered between branches

resulting from intercompany repo transactions. Given that these

branches are consolidated within the same legal entity, the

intragroup asset encumbrance is considered to be negligible.

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This chapter describes the Group Remuneration Policy of Rabobank Group.

11.1 General Principles forRemuneration

Rabobank Group has a meticulous, well-managed and

sustainable remuneration policy which is in keeping with the

strategy, the willingness to take risks, the cooperative objectives

and the core values of Rabobank. The remuneration policy is

customer-oriented and takes into consideration the long-term

interests of the bank, the international context of the markets in

which Rabobank is active and also the general interest. This Group

Remuneration Policy has been drawn up based on the bank’s

cooperative identity.

As a cooperative bank, Rabobank is sailing its own – relatively

moderate – course when it comes to defining pay levels. Our aim

is to pay no more than the median level within the relevant

market for established businesses and jobs, based on total

reward. In general, variable pay within Rabobank makes up a

relatively small proportion of total reward and is no longer

existent for the majority of functions in the organisation.

Nevertheless, Rabobank must be able to attract, retain, and

motivate the right people with the right capabilities at the right

time, leading to a (slightly) different choice of pay mix in some

environments and markets.

The key principles that are core to our remuneration policy have

been included in our Vision on Remuneration. This vision applies

across all Rabobank entities, including Rabobank and its local

banks within the Netherlands, affiliates and business lines within

the Netherlands and abroad.

11.2 Group Remuneration Policy

11.2.1. ScopeBuilding on the Vision on Remuneration, the Group Remuneration

Policy applies to all business lines and subsidiary organisations

of Rabobank, in the Netherlands and abroad. The Group

Remuneration Policy underlines our striving for a meticulous,

restrained and sustainable remuneration policy, and contains at

least the minimum requirements to be satisfied in the area of a

risk-mitigated remuneration policy under applicable national and

international laws and regulations.

Every year the Group Remuneration Policy is evaluated and

adjusted. As from January 1, 2017, the deferral scheme was altered

into a pro rata vesting scheme (instead of cliff vesting). Also, a 5-

years deferral scheme was introduced for senior management. In

2018, there were no material changes in the policy. One of the

minor changes concerns a more explicit distinction between

sign-on bonuses and buy outs and amended governance for

these pay elements.

11.2.2. GovernanceThe remuneration policy describes the processes to monitor

remuneration practice and the responsibility and competencies

of the Supervisory Board of Rabobank, as the main supervisory

body within the organisation. The Supervisory Board has the

ultimate supervisory function with regard to the design and

implementation of the Group Remuneration Policy and is

responsible for its adoption after approval by the Managing

Board. For any material exception of the Group Remuneration

Policy, the approval of the Supervisory Board is mandatory. The

Supervisory Board had 14 meetings in 2018, including extra

meetings (plus 11 sessions for continuing professional education

and several private sessions). The decisions of the Supervisory

Board concerning remuneration are prepared by the

Remuneration & HR Committee, a standing committee of the

Supervisory Board (see Annual report for more information about

this Committee). In performing its duties, the Remuneration & HR

Committee is advised by the Rabobank Group Monitoring

Committee (MC RG), which operates at group level and in which

the various monitoring functions (HR, Compliance, Control, Risk

Management) are represented.

To secure the proper implementation of the Group Remuneration

Policy, including the involvement of the monitoring functions,

Monitoring Committees also have been established at the level

of group entities and subsidiaries. These Monitoring Committees

report to the local Supervisory Boards, and to the MC RG.

11. Remuneration

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11.2.3. ContentThe Group Remuneration Policy contains specific provisions for

(1) all employees, (2) staff in monitoring functions and (3)

Identified Staff.

11.2.3.1 Remuneration Rules for All Employees

The remuneration of all employees is subject to a number of rules

and prohibitions. Thus, for example, guaranteed bonuses are

restricted and there will be no reward for failure.

The Managing Board is authorized to reclaim, either in whole or

in part, the variable pay which has already been paid to both

employees and former employees (‘claw back’), if:

• the payment was made based on incorrect or misleading

information regarding the achievement of performance

targets which formed the basis of the variable pay or

concerning the circumstances on which the variable pay was

made dependent;

• it concerns fraudulent actions by the employee in question;

• it concerns participation in or responsibility for conduct that

has led to considerable loss and/or damage to the reputation

of Rabobank and/or the subsidiary or group entity; and/or

• the employee did not meet applicable standards regarding

ability and correct conduct.

11.2.3.2 Remuneration Rules for Monitoring Functions

The remuneration of Identified Staff in a control role, referred to

as monitoring functions (HR, Control, Risk Management,

Compliance, Legal and Internal Audit), is bound by strict

conditions. This ensures their independence with regard to their

monitoring role. For monitoring functions the following

requirements are applicable:

• the amount of the fixed pay of employees in a monitoring

function will be sufficient to guarantee that Rabobank can

attract qualified and experienced employees;

• in the allocation between fixed and variable pay, fixed pay is

preferred and variable pay, if any, is always less than 50% of

fixed pay;

• objectives for awarding variable pay are predominantly

function-related. Financial criteria are not based on the

financial results of the entity being monitored by the

employee in the monitoring function;

• variable pay is only paid to employees in monitoring functions

when at least 50% of the specific job-related targets were

met, so as to emphasize the appropriate performance of the

functional role.

11.2.3.3 Remuneration Rules for Identified Staff

Following EBA guidelines, Rabobank identified material risk takers

based on qualitative and quantitative criteria, including the 0.3%

highest paid employees. At the start of 2018 423 positions were

designated as Identified Staff positions: employees in these

positions may have a material influence on the risk profile of

Rabobank. During the year, 46 positions were added, so in total

469 Identified Staff positions were in scope. Within Rabobank the

main risks are credit, market and operational risks.

Fixed remuneration is only cash based and consists of monthly

paid salaries , and where appropriate holiday allowances, 13th

month and pension contributions. Job-evaluation leads to a

function scale for each position. Each function scale is

accompanied by a salary scale. Market value allowances can be

awarded as a fixed component of the monthly paid salary if the

situation in the labour market gives rise to it. These allowances

are granted and defined for the term during which the job is held.

The amount paid in the market value allowance is fixed and

irrevocable for the term during which the job and the associated

responsibilities are held.

Strict remuneration regulations apply to the group of Identified

Staff. Any variable remuneration awarded to these employees is

based on the outcome of a mix of performance objectives, with

objectives at group level (20%), business level (minimum 20%)

and individual level (minimum 20%). In 2018 the objectives at

group level related to the ROIC of Rabobank and customer

satisfaction group-wide. In total, no more than 50% of the

objectives of Identified Staff have a financial nature.

The distribution between group, group entity and individual

targets described above, involves a minimum requirement

applicable for each Identified Staff employee who receives

variable remuneration. The final weighting of these targets per

employee depends on the function and activities of the

employee. Therefore, the applicable Monitoring Committee will

monitor the quality and distribution at the individual level in

order to ensure that there is an appropriate balance which does

not induce undesirable incentives.

Due to the different ways in which variable remuneration is

determined within Rabobank, the way in which the Performance

Management framework is elaborated may differ between the

subsidiaries and group entities. In all cases however the required

distribution of performance objectives is accounted for.

Performance management objectives are set individually, taking

strategic and year plans into account. Targets for Identified Staff

at group level are set top-down. Any material deviation (as

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defined in the policy) from the above must be fully described and

then approved by the Supervisory Board in accordance with the

exceptions procedure. More information about performance

management objectives can be found in the Annual report.

No variabele pay is paid to the members of the Managing Board

and to most executives. Payment of variable remuneration to

Identified Staff takes place over a period long enough to

adequately take risks into account, related to the underlying

business activities. Therefore, a significant proportion of at least

40% of the variable remuneration is conditional and deferred for

all Identified Staff, unless the variable remuneration does not

exceed EUR 10.000 or one month of salary. The deferred part of

the variable pay vests for Identified Staff, being not senior

management, in equal parts during three years after the end of

the relevant performance period, provided that (i) the participant

is still employed by Rabobank at that time, and (ii) the ex-post

evaluation does not give cause to adjust the deferred part of the

variable pay (malus). For senior management, the deferred part

of the variable pay vests in equal parts during five years after the

end of the relevant performance period.

With respect to the application of malus the following assessment

framework is applied to all Identified Staff:

• proof of material errors by the employee;

• award of the variable pay on the basis of incorrect, misleading

information or as a result of fraudulent conduct by the relevant

employee;

• participation in or responsibility for conduct that has led to

considerable loss and/or damage to the reputation of

Rabobank;

• proof of the employee not meeting the applicable standards

with respect to ability and correct conduct;

• overall financial performance. The minimum requirement is

that after award and payment of variable pay, Rabobank’s CET1

capital ratio must be at or above the threshold laid down

under the applicable legislation (Basel). If and to the extent

that this minimum requirement is not met, variable pay will

not be awarded or paid (in full);

• a significant breach in risk management;

• a significant negative change in the CET1 capital ratio of

Rabobank.

Of both the direct part and the deferred part of the variable pay

of Identified Staff, 50% is awarded in cash (cash component). The

other 50% is awarded in the form of an instrument (instrument

component, i.e. the Deferred Remuneration Note (DRN)). The

value of a DRN is linked to the price of a Rabobank Certificate,

registered at NYSE Euronext. For one Identified Staff employed at

Rabo Real Estate Group an alternative instrument applies.

Rabobank offers no fixed or variable pay in the form of options

or shareholding rights to employees.

Guaranteed variable remuneration is only permitted in the form

of a sign-on bonus in the first year of employment. These bonuses

can only be awarded if Rabobank has a strong and solid capital

basis.

Severance payments must be demonstrably related to the

performance of the employee over time. For daily policy-makers

(‘Dagelijks Beleidsbepalers’) severance payments are capped at a

maximum of 100% of the fixed pay on an annual basis.

11.3 Quantitative Information

Table 11.3.1 discloses the remuneration awarded to Identified

Staff relating to 2018. Because of turnover, the number of

beneficiaries is higher than the number of Identified Staff

positions. The numbers displayed for DLL (shown under line item

'Leasing) are also disclosed on a subconsolidated level in the

Pillar3 report of DLL.

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Table 11.3.1: Remuneration Identified Staff

Amounts in thousands of eurosNumberofbeneficiariesFixed pay

Cashbased

Instrumentbased

Variablepay

Directcash

DirectInstruments

DeferredCash

DeferredInstruments

Ratiovariable-fixed(mean)

Managing Board 10 10,174 10,174 - - - - - - -

Senior Management (excl. MB) Retail 28 7,434 7,434 - 610 190 180 120 120 25.7%

Wholesale 10 3,851 3,851 - 1,021 306 306 204 204 56.9%

Treasury 0 - - - - - - - - -

RealEstate 0 - - - - - - - - -

Indep.Controlfunctions 16 4,890 4,890 - 20 20 - - - 7.2%

Corp.functions 39 11,786 11,786 - 379 121 111 74 74 26.7%

All other Retail 79 24,405 24,405 - 3,825 1,095 1,109 811 811 54.5%

Wholesale 90 27,687 27,687 - 14,785 4,331 4,357 3,049 3,049 61.2%

Treasury 13 3,570 3,570 - 1,342 403 403 268 268 44.1%

RealEstate 4 1,971 1,971 - 195 64 64 33 33 12.4%

Indep.Controlfunctions 106 21,393 21,393 - 2,446 741 731 487 487 29.0%

Corp.functions 57 10,445 10,445 - 992 313 291 194 194 26.6%

Total 452 127,606 127,606 - 25,616 7,584 7,551 5,241 5,241 46.4%

The conversion of foreign currency into euro's, as shown in the

tables of this paragraph, are based on the average FX rates in the

period January to October 2018. The value of the Deferred

Remuneration Notes is based on the average closing rates of

Rabobank Certificates of February 1-7, 2019 (EUR 28.45).

For all Identified Staff variable pay is no more than 100% of fixed

pay; 262 Identified Staff received no variable pay at all. The mean

ratio variable-fixed is calculated for Identified Staff actually being

awarded variable pay.

As the Supervisory Board does not receive variable pay, this

category Identified Staff is not included in the tables of this

paragraph. The members of the Supervisory Board received in

aggragate an amount of EUR 992.000 in cash, in the form of a fixed

remuneration. Detailed information about the remuneration of

the members of the Managing Board and the members of the

Supervisory Board can be found in the annual report.

The figures in the tables in this paragraph are exclusive of any sign

on bonuses or severance payments. In 2018, no sign on bonuses

and no retention bonuses were awarded to Identified Staff. For

one Identified Staff, a buy out of EUR 94.741 was agreed upon,

subject to the full deferral schedule. Severance payments were

paid to 22 Identified Staff for the total amount of EUR 6,882,802,

with the highest being EUR 1,072,308. In total eight Identified

Staff earned a total remuneration (including pension

contributions) between 1.0 and 1.5.

Table 11.3.2 discloses the actual payments to Identified Staff.

Distinction is made between the direct payments of the cash

based direct variable pay relating to performance year 2018, and

the amounts that are payable from former years (i.e. direct

instruments, relating to 2017, that have been held for one year,

and all deferred amounts that vested in 2018).

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Table 11.3.2: Actual Payments to Identified Staff

Amounts in thousands of eurosCash, over 2018 Cash, over former years Instruments, over 2018

Instruments, over formeryears

Managing Board - - - -

Senior Management (excl. MB) Retail 190 122 - 302

Wholesale 306 159 - 435

Treasury - - - -

Real Estate - 8 - 10

Indep. Controlfunctions 20 - - 3

Corp. functions 121 30 - 97

All other Retail 1,095 1,736 - 1,555

Wholesale 4,331 4,331 - 5,850

Treasury 403 637 - 842

Real Estate 64 88 - 75

Indep. Controlfunctions 741 659 - 779

Corp. functions 313 293 - 471

Total 7,584 8,063 10,419

Malus and Claw BackNo malus (withdrawal of conditional amounts) nor claw back

(withdrawal of unconditional and/or already paid out amounts)

were applied to Identified Staff members in 2018. For three

Identified Staff members, the awarding of variable pay regarding

performance year 2018 as well as paying out deferred variable pay

relating to previous years, was suspended, awaiting the results

of a current investigation.

Table 11.3.3 shows the outstanding deferred compensation for

Identified Staff. Vested amounts are unconditional, but the

instrument parts are subject to a holding period of one year.

Deferred cash is paid out directly after vesting, so no outstanding

vested cash exists. The unvested amounts are conditional, and

may be subject to malus in the future.

Table 11.3.3: Total Amount of Outstanding Deferred Compensation Identified Staff

Amounts in thousands of euros Cash, vested Cash, unvested Instruments, vested Instruments, unvested

Managing Board - - - -

Senior Management (excl. MB) Retail - 298 305 291

Wholesale - 546 467 537

Treasury - - - -

Real Estate - 8 9 8

Indep. Controlfunctions - - - -

Corp. functions - 301 140 299

All other Retail - 2,706 2,899 2,687

Wholesale - 9,211 8,821 9,104

Treasury - 973 1,071 961

Real Estate - 128 139 130

Indep. Controlfunctions - 1,171 1,415 1,161

Corp. functions - 510 598 504

Total - 15,853 15,865 15,682

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Exceptions to the Group Remuneration PolicyThe Supervisory Board has agreed to apply the GRP of 2016

instead of the GRP 2017 (and succesively the GRP 2018) for two

employees at Rabo Real Estate Group. For those Identified Staff

employees an alternative instrument applies, and at least 50% of

their variable remuneration is deferred. One of these employees

left Rabo Real Estate Group during 2018, the other will move to

Rabobank, which means that the Deferred Remuneration Note

will apply from that moment.

For one Identified Staff member with a terminated employment

agreement, the Supervisory Board agreed upon grandfathering

the remaining part of the conditional variable pay entitlement,

that will be paid out at the end of the deferral period, whilst taking

into account the retention period, unless malus or claw back will

be applied.

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The Basel Committee published a document in July 2013 titled

‘Global systemically important banks: updated assessment

methodology and the higher loss absorbency requirement’. This

document cites 12 indicators based on which banks can be

classified as systemically important on a global scale. The

document indicates that banks with a leverage ratio exposure

exceeding 200 billion have to disclose at least these 12 indicators.

The size indicators as at December 31, 2018 will be available

online in April 2019 on www.rabobank.com/annualreports.

12. Global Systemically Important Banks - 12Indicators

https://www.rabobank.com/annualreports

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The Managing Board of Rabobank declares that the risk

management arrangements of Rabobank are adequate and

assures that the risk management systems put in place are

adequate to Rabobank’s profile and strategy.

Petra van Hoeken, member of the Executive Board, has laid down

her role as Chief Risk Officer (CRO) per 1 February 2019. Els de

Groot took over her activities as CRO. During summer 2019 Petra

will resign for her remaining tasks and her employment

relationship with Rabobank will be terminated.

Managing Board

Wiebe Draijer, Chair

Bas Brouwers, CFO

Els de Groot, CRO

Kirsten Konst, Member

Bart Leurs, Member

Mariëlle Lichtenberg, Member

Berry Marttin, Member

Jan van Nieuwenhuizen, Member

Ieko Sevinga, Member

Janine Vos, Member

13. Declaration Managing Board

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14. Appendices

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14.1 Transitional Own Funds Disclosure Template

Common Equity Tier 1 (CET1) capital: instruments and reserves

(A) (B) (C)

Amounts in millions of eurosAmount At Disclosure

Date

Regulation (eu) no575/2013 articlereference

Amounts subject topreregulation (eu) no

575/2013 treatment orprescribed residual

amount of regulation(eu) no 575/ 2013

1 Capital instruments and the related share premium accounts 7,44526 (1), 27, 28, 29, EBA list26 (3)

of which: Rabobank Certificates 7,445 EBA list 26 (3)

of which: Instrument type 2 EBA list 26 (3)

of which: Instrument type 3 EBA list 26 (3)

2 Retained earnings 26,119 26 (1) (c)

3Accumulated other comprehensive income (and other reserves, to includeunrealised gains and losses under the applicable accounting standards) -798 26 (1)

3a Funds for general banking risk 26 (1) (f )

4Amount of qualifying items referred to in Article 484 (3) and the related sharepremium accounts subject to phase out from CET1 486 (2)

Public sector capital injections grandfathered until 1 January 2018 483 (2)

5 Minority Interests (amount allowed in consolidated CET1) 84, 479, 480

5a Independently reviewed interim profits net of any foreseeable charge or dividend 1,894 26 (2)

6 Common Equity Tier 1 (CET1) capital before regulatory adjustments 34,660

Common Equity Tier 1 (CET1) capital: regulatory adjustments

7 Additional value adjustments (negative amount) -190 34, 105

8 Intangible assets (net of related tax liability) (negative amount) -962 36 (1) (b), 37, 472 (4)

9 Empty Set in the EU

10

Deferred tax assets that rely on future profitability excluding those arising fromtemporary differences (net of associated tax liabilities where the conditions in Article38 (3) are met (negative amount) -247 36 (1) (c), 38, 472 (5)

11 Fair value reserves related to gains or losses on cash flow hedges 40 33 (a)

12 Negative amounts resulting from the calculation of expected losses amounts -1,00336 (1) (d), 40, 159, 472(6)

13 Any increase in equity that results from securitised assets (negative amount) 32 (1)

14Gains or losses on liabilities valued at fair value resulting from changes in own creditstanding -39 33 (b)

15 Defined benefit pension fund assets (negative amount) -6 36 (1) (e), 41, 472 (7)

16Direct and indirect holdings by an institution of own CET1 instruments (negativeamount) -21 36 (1) (f ), 42, 472 (8)

17

Direct, indirect and synthetic holdings of the CET1 instruments of financial sectorentities where those entities have reciprocal cross holdings with the institutiondesigned to inflate artificially the own funds of the institution (negative amount) 36 (1) (g), 44, 472 (9)

18

Direct and indirect holdings by the institution of the CET1 instruments of financialsector entities where the institution does not have a significant investment in thoseentities (amount above the 10% threshold and net of eligible short positions)(negative amount)

36 (1) (h), 43, 45, 46, 49(2)(3), 79, 472 (10)

19

Direct, indirect and synthetic holdings by the institution of the CET1 instruments offinancial sector entities where the institution has a significant investment in thoseentities (amount above 10% threshold and net of eligible short positions) (negativeamount)

36 (1) (i), 43, 45, 47, 48(1) (b), 49 (1) to (3), 79,470, 472 (11)


20aExposure amount of the following items which qualify for a RW of 1250%, where theinstitution opts for the deduction alternative -30 36 (1) (k)

20b Of which: qualifying holdings outside the financial sector (negative amount) 36 (1) (k) (i), 89 to 91

20c Of which: securitisation positions (negative amount) -3036 (1) (k) (ii) 243 (1) (b)244 (1) (b) 258

20d Of which: free deliveries (negative amount) 36 (1) (k) (iii), 379 (3)

21

Deferred tax assets arising from temporary differences (amount above 10%threshold, net of related tax liability where the conditions in 38 (3) are met) (negativeamount)

36 (1) (c), 38, 48 (1) (a),470, 472 (5)

22 Amount exceeding the 15% threshold (negative amount) 48 (1)

23

of which: direct and indirect holdings by the institution of the CET1 instruments offinancial sector entities where the institution has a significant investment in thoseentities

36 (1) (i), 48 (1) (b), 470,472 (11)


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25 of which: deferred tax assets arising from temporary differences36 (1) (c), 38, 48 (1) (a),470, 472 (5)

25a Losses for the current financial year (negative amount) 36 (1) (a), 472 (3)

25b Foreseeable tax charges relating to CET1 items (negative amount) 36 (1) (l)

26Regulatory adjustments applied to Common Equity Tier 1 in respect of amountssubject to pre-CRR treatment

26aRegulatory adjustments relating to unrealised gains and losses pursuant to Articles467 and 468

Of which: 467

Of which: ... filter for unrealised loss 2 467

Of which: filter for unrealised gain on available for sale Equity instruments 468

Of which: filter for unrealised gain on available for sale Debt instruments 468

26bAmount to be deducted from or added to Common Equity Tier 1 capital with regardto additional filters and deductions required pre CRR -80 481 11

Of which: Irrevocable Payment Commitment -91 481

Of which: amendments to IAS 19 11 481 11

27Qualifying AT1 deductions that exceed the AT1 capital of the institution (negativeamount) 36 (1) (j)

28 Total regulatory adjustments to Common Equity Tier 1 (CET1) -2,538 36 (1) (f ), 42, 472 (8) 11

29 Common Equity Tier 1 (CET1) capital 32,122 36 (1) (f ), 42, 472 (8) 11

Additional Tier 1 (AT1) capital: instruments

30 Capital instruments and the related share premium accounts 3,721 51, 52

31 Of which: classified as equity under applicable accounting standards 3,721

32 Of which: classified as liabilities under applicable accounting standards

33Amount of qualifying items referred to in Article 484 (4) and the related sharepremium accounts subject to phase out from AT1 3,325 486 (3)

Public sector capital injections grandfathered until 1 January 2018 486 (3)

34Qualifying Tier 1 capital included in consolidated AT1 capital (including minorityinterests not included in row 5) issued by subsidiaries and held by third parties 85, 86, 480

35 Of which: instruments issued by subsidiaries subject to phase out 486 (3)

36 Additional Tier 1 (AT1) capital before regulatory adjustments 7,046

Additional Tier 1 (AT1) capital: regulatory adjustments

37Direct and indirect holdings by an institution of own AT1 Instruments (negativeamount) -99

52 (1) (b), 56 (a), 57, 475(2)

38

Direct, indirect and synthetic holdings of the AT1 instruments of financial sectorentities where those entities have reciprocal cross holdings with the institutiondesigned to inflate artificially the own funds of the institution (negative amount) 56 (b), 58, 475 (3)

39

Direct and indirect holdings of the AT1 instruments of financial sector entities wherethe institution does not have a significant investment in those entities (amount abovethe 10% threshold and net of eligible short positions) (negative amount) 56 (c), 59, 60, 79, 475 (4)

40

Direct and indirect holdings by the institution of the AT1 instruments of financialsector entities where the institution has a significant investment in those entities(amount above the 10% threshold net of eligible short positions) (negative amount) -1 56 (d), 59, 79, 475 (4)

41

Regulatory adjustments applied to additional tier 1 in respect of amounts subject topre-CRR treatment and transitional treatments subject to phase out as prescribed inRegulation (EU) No 575/2013 (i.e. CRR residual amounts)

41a

Residual amounts deducted from Additional Tier 1 capital with regard to deductionfrom Common Equity Tier 1 capital during the transitional period pursuant to article472 of Regulation (EU) No 575/2013

472, 472(3)(a), 472 (4),472 (6), 472 (8) (a), 472(9), 472 (10) (a), 472 (11)(a)

Of which: Intangible assets

Of which: Negative amounts resulting from the calculation of expected lossesamounts

41b

Residual amounts deducted from Additional Tier 1 capital with regard to deductionfrom Tier 2 capital during the transitional period pursuant to article 475 of Regulation(EU) No 575/2013 477, 477 (3), 477 (4) (a)

Of which items to be detailed line by line, e.g. Reciprocal cross holdings in Tier 2instruments, direct holdings of non-significant investments in the capital of otherfinancial sector entities, etc

41cAmount to be deducted from or added to Additional Tier 1 capital with regard toadditional filters and deductions required pre- CRR 467, 468, 481

Of which: 481 deducted from or added to Additional 467

Of which: ... possible filter for unrealised gains 468

Of which: ... 481

Pillar 3



42Qualifying T2 deductions that exceed the T2 capital of the institution (negativeamount) 56 (e)

43 Total regulatory adjustments to Additional Tier 1 (AT1) capital -100

44 Additional Tier 1 (AT1) capital 6,946

45 Tier 1 capital (T1 = CET1 + AT1) 39,068 11

Tier 2 (T2) capital: instruments and provisions

46 Capital instruments and the related share premium accounts 14,275 62, 63

47Amount of qualifying items referred to in Article 484 (5) and the related sharepremium accounts subject to phase out from T2 486 (4)

47 Public sector capital injections grandfathered until 1 January 2018 483 (4)

48

Qualifying own funds instruments included in consolidated T2 capital (includingminority interests and AT1 instruments not included in rows 5 or 34) issued bysubsidiaries and held by third parties 87, 88, 480

49 Of which: instruments issued by subsidiaries subject to phase out 486 (4)

50 Credit risk adjustments 62 (c) & (d)

51 Tier 2 (T2) capital before regulatory adjustments 14,275

Tier 2 (T2) capital: regulatory adjustments

52Direct and indirect holdings by an institution of own T2 instruments andsubordinated loans (negative amount) -84

63 (b) (i), 66 (a), 67, 477(2)

53

Holdings of the T2 instruments and subordinated loans of financial sector entitieswhere those entities have reciprocal cross holdings with the institution designed toinflate artificially the own funds of the institution (negative amount) 66 (b), 68, 477 (3)

54

Direct and indirect holdings of the T2 instruments and subordinated loans of financialsector entities where the institution does not have a significant investment in thoseentities (amount above 10% threshold and net of eligible short positions) (negativeamount) 66 (c), 69, 70, 79, 477 (4)

54a Of which new holdings not subject to transitional arrangements

54b Of which holdings before 1 January 2013 and subject to transitional arrangements

55

Direct and indirect holdings by the institution of the T2 instruments andsubordinated loans of financial sector entities where the institution has a significantinvestment in those entities (net of eligible short positions) (negative amount) 66 (d), 69, 79, 477 (4)

56

Regulatory adjustments applied to tier 2 in respect of amounts subject to pre-CRRtreatment and transitional treatments subject to phase out as prescribed inRegulation (EU) No 575/2013 (i.e. CRR residual amounts)

56a

Residual amounts deducted from Tier 2 capital with regard to deduction fromCommon Equity Tier 1 capital during the transitional period pursuant to article 472of Regulation (EU) No 575/2013

472, 472(3)(a), 472 (4),472 (6), 472 (8) (a), 472(9), 472 (10) (a), 472 (11)(a)

Of which: Negative amounts resulting from the calculation of expected lossesamounts

Of which: Direct, indirect and synthetic holdings by the institution of the CET1instruments of financial sector entities where the institution has a significantinvestment in those entities

475, 475 (2) (a), 475 (3),475 (4) (a)

56b

Residual amounts deducted from Tier 2 capital with regard to deduction fromAdditional Tier 1 capital during the transitional period pursuant to article 475 ofRegulation (EU) No 575/2013

475, 475 (2) (a), 475 (3),475 (4) (a)

Of which: items to be detailed line by line, e.g. reciprocal cross holdings in at1instruments, direct holdings of non significant investments in the capital of otherfinancial sector entities, etc

56cAmount to be deducted from or added to Tier 2 capital with regard to additionalfilters and deductions required pre CRR 467, 468, 481

Of which: ? possible filter for unrealised losses 468

Of which: ? possible filter for realised losses 468

Of which: 4 56 (e)

57 Total regulatory adjustments to Tier 2 (T2) capital -84

58 Tier 2 (T2) capital 14,191

59 Total capital (TC = T1 + T2) 53,259 11

59a

Risk weighted assets in respect of amounts subject to pre-CRR treatment andtransitional treatments subject to phase out as prescribed in Regulation (EU) No575/2013(i.e. CRR residual amounts)

Of which: ted assets in respect of amounts subject to pre-CRR treatment andtransitional treatments subject to phase out as prescribed in Regulation (EU) rely onfuture profitability net of related tax liability, indirect holdings of own CET1, etc)

472, 472 (5), 472 (8) (b),472 (10) (b), 472 (11) (b)

Of which: 5), 472 (8) (b), 472 (10) (b), 472 (11) (b) pre-CRR treatment andresidualamounts) (items to be detailed line by line, e.g. Reciprocal cross holdings in T2instruments, direct holdings of non-significant investments in the capital of otherfinancial sector entities, etc.)

475, 475 (2) (b), 475 (2)(c), 475 (4) (b)

Pillar 3



Items not deducted from T2 items (Regulation (EU) No 575/2013 residual amounts)(items to be detailed line by line, e.g. Indirect holdings of own t2 instruments, indirectholdings of non-significant investments in the capital of other financial sectorentities, indirect holdings of significant investments in the capital of other financialsector entities etc)

477, 477 (2) (b), 477 (2)(c), 477 (4) (b)

60 Total risk weighted assets 200,531

Capital ratios and buffers

61 Common Equity Tier 1 ratio 16.02% 92 (2) (a), 465

62 Tier 1 ratio 19.48% 92 (2) (b), 465

63 Total capital ratio 26.56% 92 (2) (c)

64

Institution specific buffer requirement (CET1 requirement in accordance with article92 (1) (a) plus capital conservation and countercyclical buffer requirements, plussystemic risk buffer, plus the systemically important institution buffer (GSII or O-SIIbuffer) 8.66% CRD 128, 129, 130

65 Of which: capital conservation buffer requirement 1.88%

66 Of which: countercyclical buffer requirement 0.03%

67 Of which: systemic risk buffer requirement 2.25%

67aOf which: Global Systemically Important Institution (G-SII) or Other SystemicallyImportant Institution (O-SII) buffer 0.00% CRD 131

68 Common Equity Tier 1 ratio available to meet buffers 11.52% CRD 128

69 [non relevant in EU regulation]



Capital ratios and buffers

72

Direct and indirect holdings of the capital of financial sector entities where theinstitution does not have a significant investment in those entities (amount below10% threshold and net of eligible short positions) 479

36 (1) (h), 45, 46, 472(10)56 (c), 59, 60, 475(4)66 (c), 69, 70, 477 (4)

73

Direct and indirect holdings by the institution of the CET 1 instruments of financialsector entities where the institution has a significant investment in those entities(amount below 10% threshold and net of eligible short positions) 2,163

36 (1) (i), 45, 48, 470, 472(11)


75Deferred tax assets arising from temporary differences (amount below 10% thresholdnet of related tax liability where the conditions in Article 38 (3) are met) 1,027

36 (1) (c), 38, 48, 470,472 (5)

Applicable caps on the inclusion of provisions in Tier 2

76Credit risk adjustments included in T2 in respect of exposures subject to standardisedapproach (prior to the application of the cap) 62

77 Cap on inclusion of credit risk adjustments in T2 under standardised approach 211 62

78Credit risk adjustments included in T2 in respect of exposures subject to internalratings-based approach (prior to the application of the cap) 62

79Cap on inclusion of credit risk adjustments in T2 under internal ratings-basedapproach 773 62

Capital instruments subject to phase-out arrangements (only applicablebetween 1 Jan 2013 and 1 Jan 2022)

80 Current cap on CET1 instruments subject to phase out arrangements 484 (3), 486 (2) & (5)

81Amount excluded from CET1 due to cap (excess over cap after redemptions andmaturities) 484 (3), 486 (2) & (5)

82 Current cap on AT1 instruments subject to phase out arrangements 3,642 484 (3), 486 (2) & (5)

83Amount excluded from AT1 due to cap (excess over cap after redemptions andmaturities) 484 (3), 486 (2) & (5)

84 Current cap on T2 instruments subject to phase out arrangements 484 (3), 486 (2) & (5)

Pillar 3


14.2 Capital Instruments Main Features Template

Capital Instruments Main Features Template

1 Issuer RABOBANK NEDERLAND

2 Unique identifier XS1002121454

3 Governing law(s) of the instrument Governed by laws of the Netherlands

Regulatory treatment

4 Transitional CRR rules Common Equity Tier 1

5 Post-transitional CRR rules Common Equity Tier 1

6 Eligible at solo/(sub-)consolidated/ solo & (sub-)consolidated Consolidated and subconsolidated

7 Instrument type (types to be specified by each jurisdiction) CET1 instruments as publiched on EBA list

8 Amount recognised in regulatory capital (currency in million, as of mostrecent reporting date) 7,445

9 Nominal amount of instrument 7,445

9a Issue price 25 (not in millions)

9b Redemption price n/a

10 Accounting classification Shareholders Equity

11 Original date of issuance 24-1-2014

12 Perpetual or dated Perpetual

13 Original maturity date No maturity

14 Issuer call subject to prior supervisory approval n/a

15 Optional call date, contingent call dates and redemption amount n/a

16 Subsequent call dates, if applicable n/a

Coupon/ dividends

17 Fixed or floating dividend/coupon Floating, with floor

18 Coupon rate and any related index

RabobankNederland intends to make payments on each Rabobank Participationon every Intended Payment Due Date (as defined below) beginning on the firstIntended Payment Due Date following the Listing of an amount equal to thehigher of: (1) €0.40625; and(2( the three-month arithmetical average (rounded totwo decimal places) on an annual basis of the effective return on the most recentReference Loan (as defined below) (or, if there is no Reference Loan, the mostrecent Alternative Reference Loan (as defined below)) for the previous CalculationPeriod (as defined below) immediately preceding the Intended Payment Period(as defined below), plus 1.5%, calculated based on a nominal value of €25 dividedby four.

19 Existence of a dividend stopper No

20a Fully discretionary, partially discretionary or mandatory (in terms of timing) Fully discretionary

20b Fully discretionary, partially discretionary or mandatory (in terms ofamount)

Fully discretionary

21 Existence of step up or other incentive to redeem No

22 Non-cumulative or cumulative Non-cumulative

23 Convertible or non-convertible

24 If convertible, conversion trigger(s)

25 If convertible, fully or partially

26 If convertible, conversion rate

27 If convertible, mandatory or optional conversion

28 If convertible, specify instrument type convertible into

29 If convertible, specify issuer of instrument it converts into

30 Write-down features

31 If write-down, write-down triggers(s)

32 If write-down, full or partial

33 If write-down, permanent or temporary

34 If temporary write-down, description of write-up mechanism

35 Position in subordinated hierarchy in liquidation (specify instrument typeimmediately senior to instrument) Subordinated to Additional Tier 1

36 Non-compliant transitioned features

37 If yes, specify non-compliant features

In addition to this appendix 'Appendix 14.2 Capital Instruments

Main Features Template' is added as a seperate document.

https://www.rabobank.com/en/image/appendix-14.2-v2018.pdf

Pillar 3


14.3 CRR Leverage Ratio

Summary reconciliation of accounting assets and leverage ratio exposures

Amounts in millions of euros Applicable Amounts

1 Total assets as per published financial statements 590,437

2 Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatoryconsolidation

3(Adjustment for fiduciary assets recognised on the balance sheet pursuant to the applicable accounting frameworkbut excluded from the leverage ratio exposure measure in accordance with Article 429(13) of Regulation (EU) No575/2013 "CRR")

4 Adjustments for derivative financial instruments -14,487

5 Adjustments for securities financing transactions "SFTs" 726

6 Adjustment for off-balance sheet items (ie conversion to credit equivalent amounts of off-balance sheet exposures) 26,912

EU-6a (Adjustment for intragroup exposures excluded from the leverage ratio exposure measure in accordance with Article429 (7) of Regulation (EU) No 575/2013)

EU-6b (Adjustment for exposures excluded from the leverage ratio exposure measure in accordance with Article 429 (14) ofRegulation (EU) No 575/2013)

7 Other adjustments 4,264

8 Total leverage ratio exposure 607,852

CRR leverage ratio exposures

On-balance sheet exposures (excluding derivatives and SFTs)

1 On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but including collateral) 552,619

2 (Asset amounts deducted in determining Tier 1 capital) -2,250

3 Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary assets) (sum of lines 1 and 2) 550,369

Derivative exposures

4 Replacement cost associated with all derivatives transactions (ie net of eligible cash variation margin) 3,026

5 Add-on amounts for PFE associated with all derivatives transactions (mark-to-market method) 11,688

EU-5a Exposure determined under Original Exposure Method

6 Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the applicableaccounting framework

7 (Deductions of receivables assets for cash variation margin provided in derivatives transactions) -6,683

8 (Exempted CCP leg of client-cleared trade exposures)

9 Adjusted effective notional amount of written credit derivatives 142

10 (Adjusted effective notional offsets and add-on deductions for written credit derivatives)

11 Total derivative exposures (sum of lines 4 to 10) 8,173

Securities financing transaction exposures

12 Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions 21,867

13 (Netted amounts of cash payables and cash receivables of gross SFT assets)

14 Counterparty credit risk exposure for SFT assets 531

EU-14a Derogation for SFTs: Counterparty credit risk exposure in accordance with Article 429b (4) and 222 of Regulation (EU)No 575/2013

15 Agent transaction exposures

EU-15a (Exempted CCP leg of client-cleared SFT exposure)

16 Total securities financing transaction exposures (sum of lines 12 to 15a) 22,398

Other off-balance sheet exposures

17 Off-balance sheet exposures at gross notional amount 86,007

18 (Adjustments for conversion to credit equivalent amounts) -59,095

19 Other off-balance sheet exposures (sum of lines 17 to 18) 26,912

Exempted exposures in accordance with CRR Article 429 (7) and (14) (on and off balance sheet)

EU-19a (Exemption of intragroup exposures (solo basis) in accordance with Article 429(7) of Regulation (EU) No 575/2013 (onand off balance sheet))

EU-19b (Exposures exempted in accordance with Article 429 (14) of Regulation (EU) No 575/2013 (on and off balance sheet))

Capital and total exposures

20 Tier 1 capital 39,068

21 Total leverage ratio exposures (sum of lines 3, 11, 16, 19, EU-19a and EU-19b) 607,852

Leverage ratio

22 Leverage ratio 6.43%

Choice on transitional arrangements and amount of derecognised fiduciary items

Pillar 3


Summary reconciliation of accounting assets and leverage ratio exposures

EU-23 Choice on transitional arrangements for the definition of the capital measure Transitional

EU-24 Amount of derecognised fiduciary items in accordance with Article 429(11) of Regulation (EU) NO 575/2013

Split-up of on balance sheet exposures (excluding derivatives, SFTs and exempted exposures)

CRR leverage ratio exposures

EU-1 Total on-balance sheet exposures (excluding derivatives, SFTs, and exempted exposures), of which: 552,619

EU-2 Trading book exposures 3,419

EU-3 Banking book exposures, of which: 549,201

EU-4 Covered bonds

EU-5 Exposures treated as sovereigns 91,706

EU-6 Exposures to regional governments, MDB, international organisations and PSE NOT treated as sovereigns

EU-7 Institutions 15,490

EU-8 Secured by mortgages of immovable properties 292,875

EU-9 Retail exposures 31,068

EU-10 Corporate 92,409

EU-11 Exposures in default 12,562

EU-12 Other exposures (eg equity, securitisations, and other non-credit obligation assets) 13,091

Pillar 3


14.4 Countercyclical Buffer by Country and Institution-specificCountercyclical Buffer Rate

As per 31 December 2018

Countries General creditexposures Trading book exposure Securitisation exposure Own funds requirements

Amountsin millionsof euros

Exposurevalue under

theStandardized

Approach

Exposurevalue under

the IRBApproach

Sum of longand short

positions oftrading

bookexposures

for SA

Value oftrading

bookexposure

under theIRB

approach

Exposurevalue under

theStandardized

Approach

Exposurevalue under

the IRBApproach

Of which:general

creditexposures

Of which:trading

bookexposure

Of which:securitisation

exposureTotal

Own fundsrequirements

weights

Countercyclicalcapital

buffer rateset by the

DesignatedAuthority

Argentina 52 1,281 0 0 0 0 67 0 0 67 0.51% 0.00%

Australia 307 19,640 0 0 0 383 374 0 5 380 2.92% 0.00%

Austria 10 150 0 0 0 0 4 0 0 4 0.03% 0.00%

Belgium 18 2,689 0 0 0 0 92 0 0 92 0.70% 0.00%

Brazil 3,219 6,340 0 0 0 411 566 0 19 585 4.50% 0.00%

Brit. VirginIslands 0 331 0 0 0 0 17 0 0 17 0.13% 0.00%

Canada 97 4,572 0 0 0 0 123 0 0 123 0.95% 0.00%

Chili 931 1,089 0 0 0 0 98 0 0 98 0.76% 0.00%

China 306 1,104 0 0 0 55 77 0 1 78 0.60% 0.00%

Curacao 0 443 0 0 0 0 9 0 0 9 0.07% 0.00%

CzechRepublic 0 35 0 0 0 0 1 0 0 1 0.01% 1.00%

Denmark 61 582 0 0 0 0 20 0 0 20 0.15% 0.00%

France 301 4,213 0 0 0 0 175 0 0 175 1.35% 0.00%

Germany 885 4,756 0 0 0 0 188 0 0 188 1.44% 0.00%

GreatBritain 295 6,360 0 0 0 85 200 0 1 201 1.55% 1.00%

HongKong 10 3,488 0 0 0 0 80 0 0 80 0.62% 1.88%

India 150 582 0 0 0 0 34 0 0 34 0.26% 0.00%

Indonesia 421 653 0 0 0 75 63 0 0 64 0.49% 0.00%

Ireland 1,138 1,472 0 0 0 27 139 0 0 139 1.70% 0.00%

Italy 147 1,644 0 0 0 0 96 0 0 96 0.74% 0.00%

Luxemburg 0 2,170 0 0 0 0 90 0 0 90 0.69% 0.00%

Mexico 262 1021 0 0 0 0 54 0 0 54 0.42% 0.00%

Netherlands 5,377 329,520 1 0 0 4,906 7,583 360 32 7975 61.37% 0.00%

NewZealand 374 9,100 0 0 0 0 193 0 0 193 1.49% 0.00%

Norway 68 714 0 0 0 0 17 0 0 17 0.13% 2.00%

Othercountries 742 3,824 0 0 0 6,676 224 0 69 293 1.70% 0.00%

Poland 482 264 0 0 0 0 50 0 0 50 0.39% 0.00%

Singapore 94 3,951 0 0 0 0 78 0 0 78 0.60% 0.00%

Spain 49 1,460 0 0 0 0 70 0 0 70 0.54% 0.00%

Sweden 63 888 0 0 0 0 32 0 0 32 0.25% 2.00%

Switzerland 108 3,431 0 0 0 218 80 0 2 82 0.63% 0.00%

Turkey 69 416 0 0 0 0 27 0 0 27 0.21% 0.00%

UnitedStates 2,169 50,584 0 0 0 1,826 1,552 0 30 1582 12.18% 0.00%

Total 18,205 468,767 1 0 0 14,662 12,473 360 159 12,994 100%

Amount of institution-specific countercyclical buffer


Total risk exposure amount 200,531

Institution specific countercyclical buffer rate 0.035%

Institution specific countercyclical buffer requirement 70

Pillar 3


14.5 Reconciliation with EBA-Guidelines and CRR Articles

Index templates of Guidelines on disclosure requirements under part eight of Regulation (EU) No 575/2013 Location in Pillar 3 report as per 31 December2018

Template 1: EU LI1 Differences between accounting and regulatory scope of consolidation and mapping of financial statementcategories with regulatory risk categories 3.1

Template 2: EU LI2 Main sources of differences between regulatory exposure amounts and carrying values in financial statements 3.1

Template 3: EU LI3 Outline of the differences in the scopes of consolidation (entity-by-entity) not applicable

Template 4: EU OV1 Overview of RWA's 5.2

Template 5: EU CR10 IRB (specialised lending and equities) 6.2.1

Template 6: EU INS1 Non-deducted participations in insurance undertakings not applicable

Template 23: EU CR8 RWA flow statements of credit risk exposures under the IRB approach 6.2.1

Template 30: EU CCR7 RWA flow statements of CCR exosures under the IMM 6.3.2

Template 25: EU CCR1 Analysis of CCR exposure by approach 6.3.2

Template 26: EU CCR2 CVA capital charge 6.3.2

Template 27: EU CCR8 Exposures to CCPs 6.3.2

Template 31: EU CCR5-A Impact of netting and collateral held on exposure values 6.3.2

Template 32: EU CCR5-B Composition of collateral for exposures to CCR 6.3.2

Template 33: EU CCR6 Credit derivatives exposure 6.3.2

Template 7: EU CRB-B Total and average net amount of exposures 6.2.1

Template 8: EU CRB-C Geographical breakdown of exposures 6.2.1

Template 9: EU CRB-D Concentration of exposures by industry or counterparty types 6.2.1

Template 10: EU CRB-E Maturity of exposures 6.2.1

Template 11: EU CR1-A Credit quality of exposures by exposure class and instrument 6.2.2

Template 12: EU CR1-B Credit quality of exposures by industry 6.2.2

Template 13: EU CR1-C Credit quality of exposures by geography 6.2.2

Template 14: EU CR1-D Ageing of past-due exposures 6.2.2

Template 15: EU CR1-E Non-performing and forborne exposures 6.2.3

Template 16: EU CR2-A Changes in the stock of general and specific credit risk adjustments 6.2.2

Template 17: EU CR2-B Changes in the stock of defaulted and impaired loans and debt securities 6.2.2

Template 20: EU CR5 Standardised approach 6.2.1

Template 28: EU CCR3 Standardised approach - CCR exposures by regulatory portfolio and risk 6.3.2

Template 34: EU MR1 Market risk under the standardised approach 9.1.2

Template 21: EU CR6 IRB approach- Credit risk exposures by exposure class and PD range appendix

Template 24: EU CR9 IRB approach - Backtesting of PD per exposure class appendix

Template 29: EU CCR4 IRB approach - CCR exposures by portfolio and PD scale 6.3.2

Template 18: EU CR3 CRM techniques - Overview 6.2.1

Template 19: EU CR4 Standardised approach- Credit risk exposure and CRM effects 6.2.1

Template 22: EU CR7 IRB Approach - Effect on the RWAs of credit derivatives used as CRM techniques not applicable

Template 35: EU MR2-A Market risk under the IMA 9.1.2

Template 36: EU MR2-B RWA flow statements of market risk exposures under the IMA 9.1.2

Template 37: EU MR3 IMA values for trading portfolios 9.1.2

Template 38: EU MR4 Comparison of VaR estimates with gains/ lossess 9.1.2

Template EU LIQ1 10.2

Pillar 3 disclosure topic with reference to CRR-article Location in Pillar 3 report 2018 Other locations

Risk management objectives and policies (Article 435) Paragraph 4.1 and Chapter 13 Disclosed on our website: Report on theBanking Code

Scope of application (Article 436) Chapter 3

Own funds (Article 437) Chapter 5, appendix 14.1 and 14.2

Capital requirements (Article 438) Chapter 5

Exposure to counterparty credit risk (Article 439) Paragraph 6.3

Capital buffers (Article 440) Appendix 14.4

Indicators of global systemic importance (Article 441 Chapter 12 Disclosed on our website: G-SIBassessment

Credit risk adjustments (Article 442) Paragraph 6.2

Unencumbered assets (Article 443) Paragraph 10.2

Pillar 3


Pillar 3 disclosure topic with reference to CRR-article Location in Pillar 3 report 2018 Other locations

Use of ECAIs (Article 444) Paragraph 6.2

Exposure to market risk (Article 445) Paragraph 9.1

Operational risk (Article 446) Paragraph 8.1

Exposure in equities not included in the trading book (Article 447) Paragraph 6.6

Exposure to interest rate risk on positions not included in the trading book (Article 448) Paragraph 9.2

Exposure to securitization positions (Article 449) Chapter 7

Remuneration policy (Article 450) Chapter 11

Leverage (Article 451) Appendix 14.3

Use of the IRB approach to credit risk (Article 452) Paragraph 6.2

Use of credit risk mitigation techniques (Article 453) Paragraph 6.2

Use of the Advanced Measurement Approaches to operational risk (Article 454) Not applicable

Use of Internal Market Risk models (Article 455) Paragraph 9.1

Pillar 3


14.6 Template 21: EU CR6 - IRB approach - Credit risk exposures by exposureclass and PD range

Exposure class PD scale

Originalon-

balance-sheetgross

exposures

Off-balance-

sheetexposures

pre-CCFAverage

CCF

EAD postCRM andpost CCF

AveragePD

Numberof obligors

AverageLGD

Averagematurity RWAs

RWAdensity EL

Valueadjustments

andprovisions

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Central governments orcentral banks

0.00 to<0.15 88,435 165 0.001 88,641 0.000 103 0.295 492 97 0.001 0 -1


0.15 to<0.25 28 0 0.000 28 0.002 6 0.437 1,628 19 0.659 0 0


0.25 to<0.50 281 59 0.154 333 0.005 16 0.438 831 189 0.566 1 -4


0.50 to<0.75 0 1 1.000 1 0.007 2 1.000 365 1 1.510 0 0


0.75 to<2.50 464 0 0.000 464 0.012 6 0.679 584 610 1.315 4 -1


2.50 to<10.00 368 71 0.070 402 0.060 12 0.018 1,715 30 0.076 0 0


10.00 to<100.00 1 1 0.485 1 0.176 2 0.487 365 3 2.530 0 0


100.00(Default) 0 0

Central governmentsor central banks Subtotal 89,577 295 0.002 89,870 0.000 147 0.296 499 949 0.011 5 -6

Institutions0.00 to<0.15 2,610 1,930 0.358 4,239 0.001 643 0.262 1,079 683 0.161 1 -1

Institutions0.15 to<0.25 168 109 0.127 208 0.002 50 0.171 394 32 0.156 0 0

Institutions0.25 to<0.50 134 83 0.280 246 0.005 62 0.273 780 99 0.403 0 0

Institutions0.50 to<0.75 128 112 0.359 217 0.007 107 0.258 815 101 0.466 0 0

Institutions0.75 to<2.50 201 242 0.448 400 0.016 60 0.208 1,607 253 0.631 1 -1

Institutions2.50 to<10.00 6,912 295 0.039 384 0.038 52 0.330 814 381 0.990 5 -2

Institutions10.00 to<100.00 8 20 0.350 17 0.136 8 0.625 1,488 58 3.517 1 -1

Institutions100.00(Default) 449 0 0.000 453 1.000 6 0.088 927 37 0.082 37 -35

Institutions Subtotal 10,611 2,791 0.171 6,164 0.078 988 0.248 1,042 1,644 0.267 46 -39

Corporates0.00 to<0.15 12,286 18,157 0.473 27,439 0.001 2887 0.230 1,058 4,525 0.165 102 -46

Corporates0.15 to<0.25 10,016 5,328 0.304 15,154 0.002 2120 0.222 1,033 3,617 0.239 7 -6

Corporates0.25 to<0.50 25,917 13,580 0.266 37,344 0.004 5345 0.210 973 11,157 0.299 31 -23

Corporates0.50 to<0.75 15,951 6,176 0.214 21,244 0.007 4551 0.167 1,174 6,789 0.320 25 -16

Corporates0.75 to<2.50 42,815 10,931 0.165 52,738 0.014 12904 0.175 1,237 22,579 0.428 141 -84

Corporates2.50 to<10.00 33,172 5,895 0.120 38,281 0.043 12041 0.176 1,216 20,334 0.531 296 -133

Corporates10.00 to<100.00 1,978 381 0.116 2,254 0.174 962 0.295 1,059 3,247 1.440 116 -55

Corporates100.00(Default) 10,604 524 0.043 11,278 1.000 3800 0.226 1,215 3,127 0.277 2,414 -2,094

Corporates Subtotal 152,740 60,972 0.227 205,733 0.070 44610 0.195 1,136 75,375 0.366 3,131 -2,457

Of which: Specialisedlending

0.00 to<0.15 1,437 108 0.063 1,550 0.001 289 0.127 1,427 177 0.114 -42 41


0.15 to<0.25 956 79 0.067 1,037 0.002 215 0.100 1,326 139 0.134 0 0

Pillar 3



Originalon-

balance-sheetgross

exposures

Off-balance-

sheetexposures

pre-CCFAverage

CCF


AveragePD

Numberof obligors

AverageLGD


RWAdensity EL

Valueadjustments

andprovisions

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros


0.25 to<0.50 3,505 249 0.064 3,781 0.004 555 0.114 1,383 733 0.194 2 -1


0.50 to<0.75 2,744 282 0.062 2,959 0.006 514 0.124 1,449 770 0.260 2 -1


0.75 to<2.50 7,277 1,085 0.115 8,319 0.014 1604 0.129 1,331 2,641 0.317 15 -7


2.50 to<10.00 3,115 186 0.055 3,331 0.045 904 0.144 1,234 1,485 0.446 23 -11


10.00 to<100.00 390 14 0.030 407 0.180 117 0.227 1,019 431 1.059 17 -8


100.00(Default) 1,208 27 0.016 1,246 1.000 356 0.198 1,347 342 0.274 237 -200

Of which: Specialisedlending Subtotal 20,632 2,029 0.078 22,631 0.072 4554 0.132 1,342 6,717 0.297 254 -186

Of which: SMEs0.00 to<0.15 656 710 0.603 1,566 0.001 1897 0.092 1,540 105 0.067 4 -18

Of which: SMEs0.15 to<0.25 1,047 543 0.387 1,803 0.002 1505 0.091 1,487 167 0.093 0 0

Of which: SMEs0.25 to<0.50 4,830 1,855 0.269 7,048 0.004 3430 0.119 1,355 1,120 0.159 3 -1

Of which: SMEs0.50 to<0.75 6,119 1,213 0.165 7,730 0.007 3282 0.106 1,420 1,416 0.183 6 -2

Of which: SMEs0.75 to<2.50 20,669 2,652 0.112 24,189 0.014 9217 0.121 1,443 6,582 0.272 45 -18

Of which: SMEs2.50 to<10.00 22,541 2,449 0.097 25,436 0.045 9106 0.148 1,333 10,774 0.424 176 -71

Of which: SMEs10.00 to<100.00 954 126 0.111 1,082 0.179 501 0.268 1,227 1,279 1.183 51 -25

Of which: SMEs100.00(Default) 5,912 336 0.052 6,310 1.000 2636 0.201 1,389 1,579 0.250 1,145 -988

Of which: SMEs Subtotal 62,729 9,885 0.137 75,163 0.107 31574 0.136 1,390 23,023 0.306 1,430 -1,123

Retail0.00 to<0.15 46,594 3,860 0.027 48,214 0.001 861579 0.227 2,598 0.054 85 -80

Retail0.15 to<0.25 62,226 1,537 0.025 63,943 0.002 848911 0.183 4,761 0.074 22 -12

Retail0.25 to<0.50 48,124 3,688 0.078 52,150 0.004 2017458 0.250 8,465 0.162 48 -24

Retail0.50 to<0.75 25,500 831 0.033 26,324 0.006 420333 0.193 4,782 0.182 32 -14

Retail0.75 to<2.50 35,294 1,262 0.036 35,858 0.014 977293 0.272 12,626 0.352 131 -44

Retail2.50 to<10.00 12,687 1,998 0.136 14,243 0.043 398637 0.273 6,978 0.490 165 -71

Retail10.00 to<100.00 1,187 217 0.155 1,368 0.172 197014 0.284 884 0.646 68 -41

Retail100.00(Default) 3,181 94 0.029 3,395 1.000 108466 0.278 1,010 0.298 872 -847

Retail Subtotal 234,793 13,487 0.046 245,495 0.021 5829691 0.227 42,104 0.172 1,425 -1,133

Secured by real estateproperty

0.00 to<0.15 46,290 3,334 0.024 47,748 0.001 662147 0.228 2,574 0.054 63 -57


0.15 to<0.25 61,463 1,285 0.021 62,978 0.002 636093 0.183 4,678 0.074 22 -12


0.25 to<0.50 45,026 2,050 0.044 47,327 0.004 411789 0.240 7,399 0.156 41 -22


0.50 to<0.75 22,952 539 0.023 23,614 0.006 127616 0.185 4,219 0.179 28 -12


0.75 to<2.50 24,236 472 0.019 24,791 0.013 136529 0.266 9,205 0.371 86 -26


2.50 to<10.00 4,810 820 0.146 5,637 0.041 46399 0.275 3,878 0.688 61 -22

Pillar 3



Originalon-

balance-sheetgross

exposures

Off-balance-

sheetexposures

pre-CCFAverage

CCF


AveragePD

Numberof obligors

AverageLGD


RWAdensity EL

Valueadjustments

andprovisions

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros


10.00 to<100.00 110 44 0.286 157 0.144 5417 0.268 203 1.293 6 -3


100.00(Default) 2,177 55 0.025 2,247 1.000 18286 0.229 743 0.331 455 -418

Secured by real estateproperty Subtotal 207,066 8,600 0.030 214,498 0.015 2044276 0.218 32,900 0.153 762 -572

SMEs0.00 to<0.15 0 0 0 2 0 53 -53

SMEs0.15 to<0.25 0 0

SMEs0.25 to<0.50 3,453 10 0.003 3,464 0.003 24989 0.150 249 0.072 2 -1

SMEs0.50 to<0.75 1,496 310 0.172 1,806 0.006 17795 0.147 199 0.110 2 -1

SMEs0.75 to<2.50 9,683 455 0.045 10,137 0.015 81678 0.254 3,325 0.328 38 -13

SMEs2.50 to<10.00 2,987 820 0.215 3,806 0.041 41308 0.292 2,589 0.680 45 -16

SMEs10.00 to<100.00 13 44 0.772 60 0.127 4933 0.323 78 1.301 3 -1

SMEs100.00(Default) 1,571 54 0.033 1,636 1.000 13747 0.212 409 0.250 314 -277

SMEs Subtotal 19,203 1,693 0.081 20,910 0.094 184452 0.232 6,849 0.328 456 -360

Non-SMEs0.00 to<0.15 46,290 3,334 0.024 47,748 0.001 662147 0.228 2,574 0.054 10 -5

Non-SMEs0.15 to<0.25 61,463 1,285 0.021 62,978 0.002 636093 0.183 4,678 0.074 22 -12

Non-SMEs0.25 to<0.50 41,573 2,039 0.047 43,863 0.004 386800 0.248 7,150 0.163 40 -21

Non-SMEs0.50 to<0.75 21,456 229 0.011 21,807 0.006 109821 0.188 4,021 0.184 26 -12

Non-SMEs0.75 to<2.50 14,554 18 0.001 14,653 0.012 54851 0.274 5,880 0.401 47 -12

Non-SMEs2.50 to<10.00 1,823 0 0.000 1,830 0.042 5091 0.240 1,288 0.704 16 -7

Non-SMEs10.00 to<100.00 97 0 0.000 97 0.154 484 0.234 125 1.288 3 -2

Non-SMEs100.00(Default) 606 1 0.002 611 1.000 4540 0.275 334 0.547 141 -141

Non-SMEs Subtotal 187,862 6,907 0.025 193,588 0.007 1859827 0.217 26,051 0.135 306 -211

Qualifying revolving0.00 to<0.15 0 0







Qualifying revolving100.00(Default) 0 0

Qualifying revolving Subtotal 0 0 0

Other retail0.00 to<0.15 305 525 0.229 466 0.001 199434 0.209 23 0.050 23 -23

Other retail0.15 to<0.25 763 252 0.285 965 0.002 212818 0.227 83 0.086 0 0

Pillar 3



Originalon-

balance-sheetgross

exposures

Off-balance-

sheetexposures

pre-CCFAverage

CCF


AveragePD

Numberof obligors

AverageLGD


RWAdensity EL

Valueadjustments

andprovisions

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Other retail0.25 to<0.50 3,097 1,638 0.419 4,824 0.004 1605669 0.348 1,066 0.221 7 -3

Other retail0.50 to<0.75 2,548 291 0.114 2,710 0.006 292717 0.259 562 0.207 4 -1

Other retail0.75 to<2.50 11,058 790 0.072 11,067 0.015 840764 0.287 3,421 0.309 45 -18

Other retail2.50 to<10.00 7,876 1,179 0.130 8,606 0.045 352238 0.272 3,100 0.360 104 -49

Other retail10.00 to<100.00 1,077 173 0.139 1,212 0.176 191597 0.287 681 0.562 62 -38

Other retail100.00(Default) 1,003 39 0.037 1,148 1.000 90181 0.373 267 0.233 417 -429

Other retail Subtotal 27,728 4,888 0.154 30,998 0.063 3785418 0.290 9,204 0.297 663 -561

SMEs0.00 to<0.15 285 0 0.000 254 0.001 21030 0.296 16 0.063 26 -26

SMEs0.15 to<0.25 707 0 0.000 618 0.002 39035 0.292 67 0.108 0 0

SMEs0.25 to<0.50 2,628 126 0.046 2,461 0.004 136567 0.254 348 0.142 2 -1

SMEs0.50 to<0.75 2,089 151 0.067 2,070 0.006 107881 0.220 355 0.172 3 -1

SMEs0.75 to<2.50 10,033 543 0.051 9,706 0.015 450680 0.268 2,765 0.285 38 -16

SMEs2.50 to<10.00 7,634 1,178 0.134 8,363 0.045 326076 0.272 2,989 0.357 100 -48

SMEs10.00 to<100.00 1,009 173 0.147 1,132 0.172 85612 0.269 574 0.507 52 -34

SMEs100.00(Default) 908 39 0.041 1,026 1.000 26597 0.362 258 0.251 361 -372

SMEs Subtotal 25,293 2,210 0.080 25,632 0.069 1193478 0.269 7,373 0.288 584 -498

Non-SMEs0.00 to<0.15 20 525 0.348 212 0.001 178406 0.104 7 0.035 -3 3

Non-SMEs0.15 to<0.25 55 252 0.941 348 0.002 173783 0.110 16 0.046 0 0

Non-SMEs0.25 to<0.50 470 1,512 0.938 2,362 0.004 1469102 0.446 718 0.304 4 -2

Non-SMEs0.50 to<0.75 459 141 0.291 640 0.006 184836 0.384 207 0.324 1 0

Non-SMEs0.75 to<2.50 1,025 247 0.247 1,361 0.013 390084 0.422 656 0.482 7 -2

Non-SMEs2.50 to<10.00 242 1 0.006 243 0.047 26162 0.295 110 0.455 3 -1

Non-SMEs10.00 to<100.00 68 0 0.000 79 0.241 105985 0.545 107 1.351 11 -4

Non-SMEs100.00(Default) 95 0 0.001 121 1.000 63585 0.460 9 0.077 56 -57

Non-SMEs Subtotal 2,435 2,678 0.553 5,366 0.034 2591943 0.392 1,831 0.341 79 -63

Total AIRB approach0.00 to<0.15 149,926 24,111 0.100 168,534 0.000 865212 0.264 458 7,903 0.047 188 -128






Total AIRB approach10.00 to<100.00 3,174 618 0.132 3,641 0.173 197986 0.293 662 4,193 1.152 186 -96

Pillar 3



Originalon-

balance-sheetgross

exposures

Off-balance-

sheetexposures

pre-CCFAverage

CCF


AveragePD

Numberof obligors

AverageLGD


RWAdensity EL

Valueadjustments

andprovisions

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Total AIRB approach100.00(Default) 14,233 618 0.038 15,126 1.000 112272 0.233 934 4,174 0.276 3,323 -2,976

Total AIRB approach Subtotal 487,721 77,545 0.111 547,262 0.037 5875436 0.227 521 120,073 0.219 4,607 -3,635


0.00 to<0.15 - -


0.15 to<0.25 - -


0.25 to<0.50 - -


0.50 to<0.75 - -


0.75 to<2.50 2 0 0.038 2 0.017 1 0.450 913 3 1.450 0 0


2.50 to<10.00 - 2 0.200 0 0.057 1 0.450 913 1 1.659 0 0


10.00 to<100.00 54 7 0.023 55 0.128 1 0.450 913 123 2.232 3 0


100.00(Default) - -

Central governmentsor central banks Subtotal 56 9 0.029 58 0.123 3 0.450 913 127 2.202 3 0

Institutions0.00 to<0.15 2,589 569 0.057 2,770 0.001 98 0.450 913 1,203 0.434 1 -1

Institutions0.15 to<0.25 88 24 0.043 93 0.002 13 0.450 913 60 0.644 0 0

Institutions0.25 to<0.50 207 126 0.099 240 0.005 41 0.450 913 221 0.923 0 0

Institutions0.50 to<0.75 179 57 0.049 191 0.007 20 0.450 913 216 1.130 1 -1

Institutions0.75 to<2.50 619 89 0.027 639 0.013 41 0.450 913 858 1.342 4 -3

Institutions2.50 to<10.00 711 77 0.025 732 0.045 66 0.450 913 1,342 1.832 15 -2

Institutions10.00 to<100.00 1 9 0.403 5 0.128 5 0.450 913 13 2.577 0 0

Institutions100.00(Default) 18 - 0.000 18 1.000 1 0.956 913 0 0.000 17 -17

Institutions Subtotal 4,411 952 0.051 4,688 0.014 285 0.452 913 3,913 0.835 39 -25

Corporates0.00 to<0.15 515 - 0.000 648 0.001 16 0.450 913 237 0.365 0 0

Corporates0.15 to<0.25 240 - 0.000 257 0.002 5 0.450 913 125 0.487 0 0

Corporates0.25 to<0.50 878 35 0.019 1,025 0.004 28 0.450 913 707 0.689 2 -1

Corporates0.50 to<0.75 356 18 0.024 417 0.007 24 0.450 913 364 0.873 1 -1

Corporates0.75 to<2.50 563 0 0.000 620 0.013 25 0.450 913 664 1.072 4 -2

Corporates2.50 to<10.00 80 - 0.000 81 0.029 7 0.450 913 107 1.318 1 0

Corporates10.00 to<100.00 - -

Corporates100.00(Default) 69 - 0.000 69 1.000 5 0.191 913 0 0.000 15 -13

Corporates Subtotal 2,700 53 0.010 3,117 0.028 110 0.444 913 2,203 0.707 24 -17


0.00 to<0.15 - -


0.15 to<0.25 - -


0.25 to<0.50 87 - 0.000 87 0.005 1 0.450 913 64 0.737 0 0

Pillar 3



Originalon-

balance-sheetgross

exposures

Off-balance-

sheetexposures

pre-CCFAverage

CCF


AveragePD

Numberof obligors

AverageLGD


RWAdensity EL

Valueadjustments

andprovisions

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros


0.50 to<0.75 - -


0.75 to<2.50 - -


2.50 to<10.00 - -


10.00 to<100.00 - -


100.00(Default) - -

Of which: Specialisedlending Subtotal 87 - 0.000 87 0.005 1 0.450 913 64 0.737 0 0

Of which: SMEs0.00 to<0.15 - -



Of which: SMEs0.50 to<0.75 13 - 0.000 13 0.007 1 0.450 913 10 0.774 0 0

Of which: SMEs0.75 to<2.50 17 - 0.000 17 0.011 2 0.450 913 14 0.817 0 0

Of which: SMEs2.50 to<10.00 19 - 0.000 19 0.043 2 0.450 913 26 1.382 0 0

Of which: SMEs10.00 to<100.00 - -

Of which: SMEs100.00(Default) - -

Of which: SMEs Subtotal 49 - 0.000 49 0.022 5 0.450 913 50 1.021 0 0

Retail0.00 to<0.15 - -

Retail0.15 to<0.25 - -

Retail0.25 to<0.50 - -

Retail0.50 to<0.75 - -

Retail0.75 to<2.50 - -

Retail2.50 to<10.00 - -

Retail10.00 to<100.00 - -

Retail100.00(Default) - -

Retail Subtotal - -

Secured by real estate0.00 to<0.15 - -







Pillar 3



Originalon-

balance-sheetgross

exposures

Off-balance-

sheetexposures

pre-CCFAverage

CCF


AveragePD

Numberof obligors

AverageLGD


RWAdensity EL

Valueadjustments

andprovisions

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Secured by real estate100.00(Default) - -

Secured by real estate Subtotal - -

SMEs0.00 to<0.15 - -

SMEs0.15 to<0.25 - -

SMEs0.25 to<0.50 - -

SMEs0.50 to<0.75 - -

SMEs0.75 to<2.50 - -

SMEs2.50 to<10.00 - -

SMEs10.00 to<100.00 - -

SMEs100.00(Default) - -

SMEs Subtotal - -

Non-SMEs0.00 to<0.15 - -

Non-SMEs0.15 to<0.25 - -

Non-SMEs0.25 to<0.50 - -

Non-SMEs0.50 to<0.75 - -

Non-SMEs0.75 to<2.50 - -

Non-SMEs2.50 to<10.00 - -

Non-SMEs10.00 to<100.00 - -

Non-SMEs100.00(Default) - -

Non-SMEs Subtotal - -

Qualifying revolving0.00 to<0.15 - -







Qualifying revolving100.00(Default) - -

Qualifying revolving Subtotal - -

Other retail0.00 to<0.15 - -



Pillar 3



Originalon-

balance-sheetgross

exposures

Off-balance-

sheetexposures

pre-CCFAverage

CCF


AveragePD

Numberof obligors

AverageLGD


RWAdensity EL

Valueadjustments

andprovisions

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros





Other retail100.00(Default) - -

Other retail Subtotal - -

SMEs0.00 to<0.15 - -

SMEs0.15 to<0.25 - -

SMEs0.25 to<0.50 - -

SMEs0.50 to<0.75 - -

SMEs0.75 to<2.50 - -

SMEs2.50 to<10.00 - -

SMEs10.00 to<100.00 - -

SMEs100.00(Default) - -

SMEs Subtotal - -

Non-SMEs0.00 to<0.15 - -

Non-SMEs0.15 to<0.25 - -

Non-SMEs0.25 to<0.50 - -

Non-SMEs0.50 to<0.75 - -

Non-SMEs0.75 to<2.50 - -

Non-SMEs2.50 to<10.00 - -

Non-SMEs10.00 to<100.00 - -

Non-SMEs100.00(Default) - -

Non-SMEs Subtotal - -

Total FIRB approach0.00 to<0.15 3,104 569 0.049 3,418 0.001 114 0.450 913 1,440 0.421 2 -1

Total FIRB approach0.15 to<0.25 327 24 0.014 350 0.002 18 0.450 913 185 0.528 0 0

Total FIRB approach0.25 to<0.50 1,085 162 0.041 1,264 0.004 69 0.450 913 928 0.734 3 -1

Total FIRB approach0.50 to<0.75 535 75 0.034 608 0.007 44 0.450 913 580 0.954 2 -1

Total FIRB approach0.75 to<2.50 1,183 89 0.015 1,261 0.013 67 0.450 913 1,525 1.210 7 -6

Total FIRB approach2.50 to<10.00 791 79 0.024 814 0.044 74 0.450 913 1,449 1.781 16 -2

Total FIRB approach10.00 to<100.00 55 16 0.075 60 0.128 6 0.450 913 136 2.260 3 0

Total FIRB approach100.00(Default) 87 - 0.000 87 1.000 6 0.349 913 0 0.000 32 -30

Pillar 3



Originalon-

balance-sheetgross

exposures

Off-balance-

sheetexposures

pre-CCFAverage

CCF


AveragePD

Numberof obligors

AverageLGD


RWAdensity EL

Valueadjustments

andprovisions

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Amountsin million

of euros

Total FIRB approach Subtotal 7,167 1,014 0.037 7,862 0.020 398 0.449 913 6,243 0.794 66 -42

Narrative template 21: Rabobank does not use credit derivatives

to hedge under the credit risk framework, therefore there is no

effect on RWAs.

Pillar 3


14.7 Template 24: EU CR9 - IRB approach - Backtesting of PD per exposureclass

Number of obligors

IRB approach Exposure class PD range Externalrating

equivalent

Weightedaverage

PD

Arithmeticaverage

PD byobligors

End ofprevious

year

End of theyear

Defaultedobligors in

the year

Of whichnew

obligors

Averagehistorical

annualdefault

rate

AIRB Central governments or centralbanks

0 zero-risk 0.000 0.001 32 36 -


0.000000 < 0.016565 AAA 0.026 0.019 16 14 -


0.016565 < 0.023191 AA+ 0.020 0.021 14 13 -


0.023191 < 0.032467 AA 0.004 0.022 4 5 -


0.032467 < 0.045454 AA- 0.038 0.038 10 11 -


0.045454 < 0.063636 A+ 0.052 0.048 9 12 -


0.063636 < 0.089091 A 0.075 0.075 7 6 -


0.089091 < 0.124727 A- 0.105 0.110 3 3 -


0.124727 < 0.174618 BBB+ 0.148 0.148 4 3 -


0.174618 < 0.271120 BBB 0.218 0.218 7 6 -


0.271120 < 0.406680 BBB- 0.347 0.353 2 3 -


0.406680 < 0.610019 BB+ 0.498 0.498 11 13 -


0.610019 < 0.915029 BB+/BB 0.747 0.747 3 2 -


0.915029 < 1.372544 BB 1.121 1.121 3 2 -


1.372544 < 2.058816 BB- 1.681 1.635 2 4 0.836


3.088224 < 4.632335 B+/B 3.782 3.824 8 6 1.103


4.632335 < 6.948503 B 5.673 5.677 3 4 4.952


6.948503 < 10.422754 B- 8.510 8.510 1 2 -


15.634132 < 99.999999 CCC+/CCC/

CCC-/CC

17.602 17.659 1 2 29.630

AIRB Institutions 0.000000 < 0.016565 AAA 32.961 4.195 7 6 -

AIRB Institutions 0.016565 < 0.023191 AA+ 0.030 0.030 7 8 -

AIRB Institutions 0.023191 < 0.032467 AA 0.030 0.030 16 14 -

AIRB Institutions 0.032467 < 0.045454 AA- 0.034 0.041 60 60 -

AIRB Institutions 0.045454 < 0.063636 A+ 0.054 0.054 69 74 -

AIRB Institutions 0.063636 < 0.089091 A 0.079 0.159 90 89 0.122

AIRB Institutions 0.089091 < 0.124727 A- 0.055 0.105 309 291 -

AIRB Institutions 0.124727 < 0.174618 BBB+ 0.148 0.148 71 95 0.013

AIRB Institutions 0.174618 < 0.271120 BBB 0.217 0.215 52 50 0.008

AIRB Institutions 0.271120 < 0.406680 BBB- 0.332 0.330 38 34 0.093

AIRB Institutions 0.406680 < 0.610019 BB+ 0.489 0.496 33 28 0.239

AIRB Institutions 0.610019 < 0.915029 BB+/BB 0.737 0.748 158 110 0.735

AIRB Institutions 0.915029 < 1.372544 BB 1.306 1.130 42 26 0.834

AIRB Institutions 1.372544 < 2.058816 BB- 1.745 1.664 24 29 2.285

AIRB Institutions 2.058816 < 3.088224 B+ 2.649 2.635 37 23 4.319

AIRB Institutions 3.088224 < 4.632335 B+/B 3.782 3.752 6 11 4.609

AIRB Institutions 4.632335 < 6.948503 B 5.629 5.591 5 12 6.445

Pillar 3


Number of obligors


equivalent

Weightedaverage

PD

Arithmeticaverage

PD byobligors

End ofprevious

year

End of theyear


the year

Of whichnew

obligors

Averagehistorical

annualdefault

rate

AIRB Institutions 6.948503 < 10.422754 B- 8.510 7.218 5 7 8.067

AIRB Institutions 10.422754 < 15.634132 B-/CCC+ 13.489 12.964 4 6 17.045

AIRB Institutions 15.634132 < 99.999999 CCC+/CCC/

CCC-/CC

19.148 19.148 0 2 -

AIRB Corporates 0 zero-risk 0.000 0.030 0 13 -

AIRB Corporates 0.000000 < 0.016565 AAA 0.030 0.030 12 11 -

AIRB Corporates 0.016565 < 0.023191 AA+ 0.030 0.030 6 17 -

AIRB Corporates 0.023191 < 0.032467 AA 0.029 0.030 83 71 -

AIRB Corporates 0.032467 < 0.045454 AA- 0.038 0.038 35 22 -

AIRB Corporates 0.045454 < 0.063636 A+ 0.054 0.055 94 116 -

AIRB Corporates 0.063636 < 0.089091 A 0.075 0.075 153 166 1 0.454

AIRB Corporates 0.089091 < 0.124727 A- 0.105 0.105 1306 1171 0.001

AIRB Corporates 0.124727 < 0.174618 BBB+ 0.147 0.167 1239 1280 0.043

AIRB Corporates 0.174618 < 0.271120 BBB 0.219 0.219 2326 2105 3 0.099

AIRB Corporates 0.271120 < 0.406680 BBB- 0.362 0.340 3171 2520 6 0.118

AIRB Corporates 0.406680 < 0.610019 BB+ 0.502 0.509 4079 4004 16 1 0.416

AIRB Corporates 0.610019 < 0.915029 BB+/BB 0.755 0.769 5440 4902 63 1 0.926

AIRB Corporates 0.915029 < 1.372544 BB 1.142 1.177 5990 5486 104 2 1.736

AIRB Corporates 1.372544 < 2.058816 BB- 1.712 1.741 5599 4950 36 1 2.898

AIRB Corporates 2.058816 < 3.088224 B+ 2.561 2.633 5070 4830 152 2 4.029

AIRB Corporates 3.088224 < 4.632335 B+/B 3.867 3.967 4074 3838 220 4 4.704

AIRB Corporates 4.632335 < 6.948503 B 5.810 5.945 2300 2710 129 5 6.904

AIRB Corporates 6.948503 < 10.422754 B- 8.804 8.993 930 1283 89 3 13.319

AIRB Corporates 10.422754 < 15.634132 B-/CCC+ 13.305 13.752 425 381 44 1 18.488

AIRB Corporates 15.634132 < 99.999999 CCC+/CCC/

CCC-/CC

22.543 20.891 659 576 81 6 10.095

AIRB Retail 0.023191 < 0.032467 AA 0.033 0.030 27090 19989 27 11 -

AIRB Retail 0.032467 < 0.045454 AA- 0.038 0.038 22988 22486 13 -

AIRB Retail 0.045454 < 0.063636 A+ 0.054 0.051 147662 141167 77 1 -

AIRB Retail 0.063636 < 0.089091 A 0.074 0.074 118729 108759 68 3 0.718

AIRB Retail 0.089091 < 0.124727 A- 0.124 0.115 416373 228847 417 12 -

AIRB Retail 0.124727 < 0.174618 BBB+ 0.155 0.149 467097 606458 397 26 0.102

AIRB Retail 0.174618 < 0.271120 BBB 0.211 0.206 611404 604348 700 19 0.178

AIRB Retail 0.271120 < 0.406680 BBB- 0.393 0.332 1849330 388098 5046 30 0.368

AIRB Retail 0.406680 < 0.610019 BB+ 0.525 0.435 395141 1785685 1826 113 0.402

AIRB Retail 0.610019 < 0.915029 BB+/BB 0.843 0.744 458078 452911 2687 133 0.841

AIRB Retail 0.915029 < 1.372544 BB 1.262 1.155 299966 397651 3599 245 1.399

AIRB Retail 1.372544 < 2.058816 BB- 1.859 1.739 280318 288252 5892 632 2.469

AIRB Retail 2.058816 < 3.088224 B+ 2.520 2.529 183340 179762 2978 353 2.966

AIRB Retail 3.088224 < 4.632335 B+/B 3.776 3.789 139854 141922 3171 261 3.598

AIRB Retail 4.632335 < 6.948503 B 5.689 5.630 102324 119524 3383 317 6.224

AIRB Retail 6.948503 < 10.422754 B- 8.466 8.584 49919 47871 2961 148 8.826

AIRB Retail 10.422754 < 15.634132 B-/CCC+ 12.791 13.843 53206 55397 3076 189 12.686

AIRB Retail 15.634132 < 99.999999 CCC+/CCC/

CCC-/CC

25.299 24.608 116885 132099 27141 5,340 16

FIRB Central governments or centralbanks

1.372544 < 2.058816 BB- 1.681 1.681 1 1 -


4.632335 < 6.948503 B 5.673 5.673 1 -


10.422754 < 15.634132 B-/CCC+ 12.765 12.765 1 -

FIRB Institutions 0.023191 < 0.032467 AA 0.030 0.030 1 -

FIRB Institutions 0.032467 < 0.045454 AA- 0.038 0.038 7 6 -

Pillar 3


Number of obligors


equivalent

Weightedaverage

PD

Arithmeticaverage

PD byobligors

End ofprevious

year

End of theyear


the year

Of whichnew

obligors

Averagehistorical

annualdefault

rate

FIRB Institutions 0.045454 < 0.063636 A+ 0.054 0.054 16 18 -

FIRB Institutions 0.063636 < 0.089091 A 0.075 0.075 30 22 -

FIRB Institutions 0.089091 < 0.124727 A- 0.105 0.105 12 18 -

FIRB Institutions 0.124727 < 0.174618 BBB+ 0.148 0.148 36 33 -

FIRB Institutions 0.174618 < 0.271120 BBB 0.218 0.218 19 13 -

FIRB Institutions 0.271120 < 0.406680 BBB- 0.332 0.332 26 20 -

FIRB Institutions 0.406680 < 0.610019 BB+ 0.498 0.498 22 21 -

FIRB Institutions 0.610019 < 0.915029 BB+/BB 0.747 0.747 40 20 -

FIRB Institutions 0.915029 < 1.372544 BB 1.121 1.121 30 21 -

FIRB Institutions 1.372544 < 2.058816 BB- 1.681 1.681 13 20 -

FIRB Institutions 2.058816 < 3.088224 B+ 2.522 2.522 38 25 0.667

FIRB Institutions 3.088224 < 4.632335 B+/B 3.782 3.782 9 12 -

FIRB Institutions 4.632335 < 6.948503 B 5.673 5.673 13 25 -

FIRB Institutions 6.948503 < 10.422754 B- 8.510 8.510 6 4 3.846

FIRB Institutions 10.422754 < 15.634132 B-/CCC+ 12.765 12.765 4 5 -

FIRB Institutions 100.000000 (Default) Default 100.000 100.000 1 1

FIRB Corporates 0.063636 < 0.089091 A 0.075 0.075 1 -

FIRB Corporates 0.089091 < 0.124727 A- 0.105 0.105 3 -

FIRB Corporates 0.124727 < 0.174618 BBB+ 0.148 0.148 3 12 -

FIRB Corporates 0.174618 < 0.271120 BBB 0.218 0.218 4 5 0.160

FIRB Corporates 0.271120 < 0.406680 BBB- 0.332 0.332 1 11 0.196

FIRB Corporates 0.406680 < 0.610019 BB+ 0.498 0.498 15 17 0.586

FIRB Corporates 0.610019 < 0.915029 BB+/BB 0.747 0.747 11 24 0.774

FIRB Corporates 0.915029 < 1.372544 BB 1.121 1.121 11 17 0.855

FIRB Corporates 1.372544 < 2.058816 BB- 1.681 1.681 4 8 0.784

FIRB Corporates 2.058816 < 3.088224 B+ 2.522 2.522 2 6 2.876

FIRB Corporates 6.948503 < 10.422754 B- 8.510 8.510 1 30

Pillar 3


14.8 List of Abbreviations

• ABCP - Asset Backed Commercial Paper

• ABS - Asset Backed Securitisation

• AC - Audit and Compliance Committee

• AIRB - Advanced Internal Ratings Based

• ALM - Asset Liability Management

• ALCO - Asset Liability Committee

• AMA - Advanced Measurement Approach

• AML - Anti-Money Laundering

• AT1 - Additional Tier 1

• BCBS - Basel Committee for Banking Supervision

• BCM - Business Continuity Management

• BEICF - Business Environment and Internal Control Factors

• BIC - Brexit Impact Committee

• BGOC - Brexit Group Oversight Committee

• BPD - Bouwfonds Property Development

• BPV - Basis Point Value

• BRRD - Bank Recovery and Resolution Directive

• CA - Credit Approvals

• CC - Credit Committee

• CCB - CounterCyclical Buffer

• CCCRG - Central Credit Committee Rabobank Group

• CCFI - Credit Committee Financial Institutions

• CCP - Central Counterparties

• CCR - Counterparty Credit Risk

• CDD - Customer Due Diligence

• CDS - Credit Default Swap

• CET1 - Common Equity Tier 1

• CIOO - Chief Information Operations Officer

• CIU - Collective Investement Units

• CFO - Chief Financial Officer

• CLC - Country Limits Committee

• CLR - Compliance Legal Risk

• CPBP - Cliënts, Products & Business Practices

• CRD - Capital Requirements Directive

• CRO - Chief Risk Officer

• CRD IV - Capital Requirements Directive IV

• CRR - Capital Requirements Regulation

• CRUA - Coöperatieve Rabobank U.A.

• CSA - Credit Support Annex

• CTC - Complex Transactions Committee

• CVA - Credit Value Adjustment

• DBSF - Business Disruption and System Failures

• DLL - De Lage Landen

• DNB - De Nederlandsche Bank

• DPA - Damage to Physical Assets

• DRN - Deferred Remuneration Note

• EAD - Exposure at Default

• EaR - Earnings at Risk

• EBA - European Banking Authority

• EATE - Exposure at Transfer Event

• EatR - Equity at Risk

• ECAI - External Credit Assessment Institution

• ECB - European Central Bank

• EC - Economic Capital

• EDPM - Execution, Delivery & Process Management

• EDTF - Enhanced Disclosure Task Force

• EF - External Fraud

• EL - Expected Loss

• EPWS - Employment Practices and Workplace Safety

• ETP - Exchange Traded Products

• EU - European Union

• FED - Federal Reserve Bank

• FR&R - Financial Restructuring & Recovery

• FSB - Financial Stability Board

• GHOS - Governors and Heads Of Supervision

• HQLA - High Quality Liquid Assets

• IAA - Internal Assessment Approach

• IBNR - Incurred But Not Reported

• ICAAP - Internal Capital Adequacy Assessment Process

• IF - Internal Fraud

• IFRS - International Financial Reporting Standards

• IMA - Internal Method Approach

• IMM - Internal Model Method

• IRB - Internal Ratings Based

• IRC - Incremental Risk Charge

• ISDA - International Swaps and Derivatives Association

• KPIs - Key Performance Indicators

• LAD - Loss At Default

• LB - Local Rabobanks

• LCR - Liquidity Coverage Ratio

• LCS - Limit & Control Structures

• LGD - Loss Given Default

• LGTE - Loss Given Transfer Event

• LLPC - Loan Loss Provision Committee

• LTV - Loan to Value

• LQC - Loan Quality Classification

• MD - Modified Duration

• MGC - Model Governance Committee

• MREL - Minimum Required Eligible Liabilities

• MTM - Mark to Market

• NCM - Non-Clearing Member

• NHG - Nationale Hypotheek Garantie

• NSFR - Net Stable Funding Ratio

• OLEM - Other Loans Exceptionally Mentioned

• ORM - Operational Risk Management

• OTC - Over The Counter

• P&L - Profit and Loss

• PFE - Potential Future Exposure

• PD - Probability of Default

• PPM - Policies and Procedures Management

Pillar 3


• PWCE - Program Wide Credit Enhancement

• RAROC - Risk Adjusted Return On Capital

• RAS - Risk Appetite Statement

• RC - Regulatory Capital

• RC - Risk Committee

• RCF - Risk Control Framework

• RMBS - Residential Mortgage Backed Securities

• RMC - Risk Management Committee

• RM - Risk Management

• RM FM - Risk Management Financial Markets

• RM FMA - Risk Management Financial Markets Advisory

• RMI - Regulatory Market Infrastructure

• RNIM - Risks Not In Model

• ROC - Regulatory Oversight Committee

• RRR - Rabobank Risk Rating

• RWA - Risk Weighted Assets

• RWEA - Risk Weighted Exposure Amount

• RWS - Risk Weights for Securitisations

• SA - Standardised Approach

• SDGs - Sustainable Development Goals

• SFT -Securities Financing Transactions

• S&P -Standard and Poor’s

• SREP - Supervisory Review and Evaluation Process

• SRT -Significant Risk Transfer

• SST -Sustainably Successful Together

• SSTC - Scenario and Stress Testing Committee

• STC -Stress Test Committee

• SPV - Special Purpose Vehicle

• SVaR - Stressed Value at Risk

• TCF - Trade & Commodity Finance

• TLAC - Total Loss Absorbing Capacity

• ToR - Terms of Reference

• TPS - Trust Preferred Securities

• TRS - Total Return Swap

• UL - Unexpected Loss

• VaR - Value at Risk

• WRR - Wholesale, Rural & Retail

Documents

Pillar 3 Report 2018 - RabobankPillar 3 Pillar 3 Report 2018 - Pillar 3 3 Contents Forward-looking Statements 4 1. Concise Risk Statement - Key ratios 6 2. Introduction 7 3. Rabobank