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Bad debt costs/average private sector lending per business unitSix monthsended 30 JuneYear ended 31 December2009 2008 2007 2006Domestic retail .................................................. 0.34% 0.08% 0.06% 0.07%Wholesale and international retail banking........ 1.23% 0.93% 0.02% 0.39%Leasing .............................................................. 1.33% 0.64% 0.61% 0.53%Rabobank Group................................................ 0.55% 0.31% 0.08% 0.15%In determining the bad debt costs, corporate loans are assessed on a loan-by-loan basis and the followingfactors are considered:• the financial standing of the customer, including a realistic assessment of the likelihood of repaymentof the loan within an acceptable period and the extent of Rabobank Group’s commitments to thecustomer;• the realisable value of any collateral (security) for the loan; and• the costs associated with obtaining repayment and realisation of any security.Country riskLoans to parties abroad expose Rabobank Group not only to the customary credit risk but also to country risk.Country risk is specifically attributable to events in a specific country or group of countries. Rabobank Groupencounters country risk in its lending, trading and investment activities. Country risk is managed using asystem of internal ratings for relevant countries. Based on these ratings and the determination of the CountryLimit Committee as to how much risk to take on, internal limits per country are established. Decisions oncountry risk limits are taken at Executive Board level and are based on recommendations of the Country LimitCommittee. The calculation of additional capital requirements and provisions for country risk are made inaccordance with internal guidelines and relate primarily to countries with a high transfer risk.Liquidity riskLiquidity risk is the risk that a member of Rabobank Group will not be able to meet its financial liabilitieswhen due. Rabobank Group policy provides that the maturity of funding is aligned with the maturity of theloans. In addition, this risk is managed in three different ways. First, the Bank limits outgoing cash flows bymeasuring and reporting on a daily basis which incoming and outgoing cash flows are to be expected over thenext 30 days. In addition, limits have been set for such outgoing cash flows for each currency and location. Inorder to be prepared for possible crises, detailed contingency plans are in place that provide the procedures tobe followed.Secondly, a large buffer of liquid securities is being held. If necessary, these assets can be used for borrowingsfrom central banks, in repo transactions or for direct selling in the market as a way of generating liquidity.Thirdly, liquidity risk is limited by Rabobank Group’s prudent funding policy, which is to meet the fundingrequirements of Rabobank Group entities at an acceptable cost. In this context, diversification of fundingsources and currencies, flexibility of the funding instruments used and active investor relations play animportant role. This prevents Rabobank Group’s overdependence from a single source of funding.290