Dutch non-bank financial service providers once again provided less financing such as loans in 2022. The decrease is mainly due to fewer investments and price losses in investment funds. This is according to the annual study by De Nederlandsche Bank (DNB) and the Financial Stability Board (FSB); the FSB published its global results this month.
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Some financial institutions provide services that closely resemble those of a bank, while formally they are not banks (see box). These might include investment funds investing in bonds or loans, or finance companies providing mortgage loans or consumer credit.
In the Netherlands, this part of the non-bank financial intermediaries (NBFIs), as they are known, provided €362 billion in financing in 2022, which is 10.3% less than a year earlier. Financing by these NBFIs also fell by 14% between 2020 and 2021. With €362 billion in financing, this left the sector as large as one-eighth of the Dutch banking system in 2022.
At De Nederlandsche Bank, we independently compile statistics on the Dutch financial sector and economy. This article is based on these statistics. More information on our statistics and all dashboards can be found on our Statistics homepage.
Non-bank financing in a broad sense refers to all financing provided by non-bank financial institutions, such as pension funds, insurers, investment funds and other financial institutions.
In this news item, we apply the FSB's narrow measure of non-bank financing, which only includes financing by institutions that engage in activities that expose them to bank-like risks through liquidity and maturity transformation and leverage (raising relatively high amounts of borrowed capital), but fall outside prudentially consolidated banking supervision. Pension funds and insurers, for instance, are not included in this group. Previously, the institutions that are included were also called shadow banks. In 2022, they constituted 4.5% of the total size of non-bank financial institutions.
These parties provide an alternative source of financing for the economy and can thus boost its shock resilience. However, it is important to pay close attention to the build-up of potentially new financial stability risks. This is why the Financial Stability Board (FSB) conducts an annual study of the NBFI sector.
The decline in non-bank financing occurred mainly in what are known as open-ended investment funds. These are funds from which investors can generally easily divest.
In the Netherlands, financing from these funds fell by €43 billion (-14.1%) to €262 billion. A quarter of this decline was due to price losses on bonds due to higher interest rates. Without these falls in value, the decline would have been 11%. Three quarters of the decline at investment funds was caused by fewer investments in these funds, primarily as a result of pension funds divesting from affiliated investment funds with the aim of reinvesting the funds themselves.
Due to the structure of these pension-fund affiliated investment funds, the risk of sudden withdrawals, which would cause these funds to run into trouble and possibly have to sell investments at low prices on an accelerated basis, appears to be low in practice, however. Nevertheless, these funds are included in the FSB's framework because intermediation by investment funds carries liquidity risks, for example, which pension funds do not face.
Among securitisation vehicles (insofar as they are not consolidated in banking groups), the Netherlands saw a €6 billion decrease (-10.1%) to €52 billion 2022. Securitisations involve the bundling of loans extended to households and businesses, which are then repackaged and sold as bonds through dedicated securitisation firms.
The size of the other two types of institutions is smaller in the Netherlands, but did increase. The balance sheet total of securities and derivatives dealers, such as flash traders, grew by 26% to €28 billion. The balance sheet total of finance companies grew by 9% to €20 billion, mainly due to an increase in car leasing and residential mortgage loans.
Globally, the size of investment funds decreased by 5.2% to €43,940 billion, with price losses on bonds playing an important role here too. However, foreign money market fund assets grew due to inflows as a result of more attractive, higher money market interest rates.
Both in the Netherlands and internationally, investment funds were the largest category in non-bank financing, accounting for almost three quarters of the total. At 14% for securitisation vehicles, the figure is almost twice as high in the Netherlands as globally (8%).
Internationally, the United States has the largest share of non-bank financing at 30%, and the Netherlands takes 17th place at 0.6%. As a share of GDP, non-bank financing was 78% globally. The figure for the Cayman Islands (156,914%) was by far the highest, while the Netherlands was in 16th place at 38%.
Dashboard: Non-bank financial intermediation (NBFI) (dnb.nl)
Table 16.1: Size of non-bank financial intermediation (NBFI)
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