Rabobank Group

23-7-2010 | Press Releases

The stress test for banks initiated by the Committee of European Banking Supervisors (CEBS) has not revealed any surprising results for Rabobank. The test once again confirms the bank’s low risk profile, combined with strong buffers against any setbacks. The stress situation defined by the CEBS shows Rabobank’s Tier 1 ratio for 2011 to be 12.5%. This is more than double the 6% threshold that the CEBS has set as the lower limit for this exercise.

The test was carried out based on the scenarios, methodology and assumptions established by the CEBS. It was not problematic for Rabobank to carry out the test because it corresponds with the framework the bank uses itself (Pillar 2 of Basel II) to monitor its risk position.

As a result of the presumed shocks in the stress scenario, the Tier 1 ratio would be reduced by 1.6 percentage points from 14.1% at year-end 2009[1] to 12.5% at year-end 2011.

The benchmark scenario (based on moderate assumptions) shows the Tier 1 ratio at year-end 2011 to be 14.8%. Given that the stress test was carried out under a number of key common simplifying assumptions (e.g. constant balance sheet) the information on benchmark scenarios is provided only for comparison purposes and should in no way be construed as a forecast.The results of the stress test were extensively discussed with and endorsed by DNB.

The decline in the Tier 1 ratio calculated in this manner is caused primarily by the higher provisions related to the Rabobank credit portfolio that ensue from the stress scenario. Moreover the capital requirements for the credit portfolio are higher. The losses in the trading environment (without management intervention) are limited. The presumed additional shock to the value of government bonds also has a  minimal impact on Rabobank.

The bank’s exposure to the southern European and Irish governments that are encountering financial problems currently amounts to EUR 1.29 billion.

In the interpretation of the outcome of the exercise, it is imperative to differentiate between the results obtained under the different scenarios developed for the purposes of the EU-wide exercise. The results of the adverse scenario should not be considered as representative of the current situation or possible present capital needs. A stress testing exercise does not provide forecasts of expected outcomes since the adverse scenarios are designed as "what-if" scenarios including plausible but extreme assumptions, which are therefore not very likely to materialise. Different stresses may produce different outcomes depending on the circumstances of each institution.

[1]  Redefined  compared to  the outcome of 13.8% shown in the 2009 Financial Statements, in order to comply with CEBS’ definitions and assumptions.