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DNB lowers bank buffer requirements to support lending
Published: 17 March 2020
This afternoon, De Nederlandsche Bank (DNB), the Dutch Authority for the Financial Markets (AFM), the Ministry of Finance and representatives of the Dutch Banking Association (NVB), the Federation of the Dutch Pension Funds and the Dutch Association of Insurers discussed the consequences of the coronavirus outbreak for the Dutch economy and the financial sector.
The coronavirus outbreak has a major impact on the Dutch economy and on the financial sector. To limit the economic damage as much as possible, it is crucial that the financial sector continues to function properly. In close cooperation with the aforementioned parties, DNB is doing its utmost to safeguard the stability of the financial sector, in order to prevent lending to the business sector from being jeopardised and to ensure the payment system continues to function properly.
The Dutch banking sector is well-capitalised. Thanks to the tightened capital and liquidity requirements set by DNB in response to the financial crisis, banks have built up significant additional buffers. This has strengthened their resilience and will enable them to better withstand the impact of the coronavirus outbreak. Buffer capital allows banks to absorb rising losses, and the current situation may well prompt them to do so.
The strong starting position of the Dutch banking sector allows DNB to temporarily give banks additional leeway to continue business lending and absorb potential losses. In view of current developments, DNB considers this a prudent approach and has decided to take the following measures:
- The systemic buffers will be lowered, from its current 3% of global risk-weighted exposures to 2.5% for ING, 2% for Rabobank and 1.5% for ABN Amro.
- The introduction of a floor for mortgage loan risk weighting will be postponed.
Combined, these measures will free up EUR 8 billion in capital. This will enable the banks to continue lending to the real economy in the face of rising losses. As the total impact on lending could rise to a maximum of EUR 200 billion, it is paramount that banks use this freed-up capital to support lending, and not to pay dividend or share repurchases.
These measures will remain in force as long as necessary. Once the situation is back to normal, DNB will compensate the systemic buffers reduction by gradually increasing the countercyclical capital buffer to 2% of Dutch risk-weighted exposures. This will bring back the capital requirements to the current level, as DNB believes this is prudent in the longer term. This compensatory arrangement will work out more or less capital-neutral for the three large banks involved, and the same effect is envisaged for the other banks.
Pension funds and insurers are also hit by this crisis and DNB is considering measures to limit the impact on these sectors as well – for example by postponing planned regulatory adjustments.
DNB, the AFM and the Ministry of Finance will closely monitor developments and continue the dialogue with the sector.
For more information, please contact Corina Ruhe tel. nr 06 55418351 and Bouke Bergsma, tel. nr 06 53258400.
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