DNB reaches agreement with Dutch State on recovery of capital position following losses
De Nederlandsche Bank (DNB) has reached agreements with the Dutch State on how to deal with its temporary but substantial losses in the coming years. This adjusted capital policy allows DNB to restore its buffers over time through retained earnings.
DNB warned the Minister of Finance of substantial losses in a letter in September 2022. DNB also explained the expected losses in more detail in its 2022 Annual Report. These losses stem from increases in key policy rates designed to combat high inflation.
This year, a joint working group of the Ministry of Finance and DNB considered how DNB will deal with the expected losses. The working group has concluded that the capital policy, in place since 2019, remains future-proof, subject to a number of technical adjustments. The Minister of Finance and the President of DNB have decided to continue to pursue the current capital policy with these adjustments.
DNB’s buffers currently amount to nearly €11 billion. The size of these buffers will decrease as long as DNB makes losses. It is possible that the buffers will enter negative territory for some years, although this is subject to uncertainty.
Negative buffers will not hinder DNB in its operational effectiveness. There will consequently be no need for a recapitalisation. When DNB returns to profitability down the road, all profits will initially be used to replenish its buffers. DNB will only resume dividend payments to the Dutch State once the bank has covered all its risks, which is expected to be in the mid-2030s. The Ministry of Finance and DNB will re-evaluate the capital policy in 2028.