DNBulletin

Dutch banks benefit from low interest rates in 2010

Date 8 February 2011
Theme Statistics
Dutch banks benefit from low interest rates in 2010

Dutch banks issued EUR 39 billion in debt securities in 2010 (money market paper and bonds), less than half as much as in 2009 (EUR 92 billion). As in 2009, the resulting growth in outstanding debt securities (8%) considerably outpaced the average of euro area banks (Chart 1). Unlike in 2009, Dutch banks did not use the guarantee scheme set up by the government.

Chart Annual net issuance of debt securities by Dutch banks

A significant part of the net issuance by Dutch banks in 2010 was accounted for by the Rabobank, the Bank for Netherlands Municipalities (BNG) and the Nederlandse Waterschapsbank (NWB Bank), all three banks with the highest possible credit rating (AAA). Dutch banks benefited from the relatively low yield to be paid on debt in 2010 (Chart 2).

Chart Average yield on euro-denominated, non-convertible and non-subordinated fixed-rate bonds

By issuing debt securities, banks may extend more credit than if they were solely dependent on deposits, which form their main source of funding. However, a consequence of financing through debt securities is that funds must be raised annually to redeem maturing debt. For such funds, banks rely mainly on foreign investors.  At end-2011, over 90% of the debt securities issued by Dutch banks were in foreign hands. In 2011, Dutch banks must refinance an estimated EUR 140 billion in maturing debt securities, including EUR 78 billion in money market paper (instruments with a maturity of less than a year).

Owing to the decline in long-term interest rates in 2010, it became more attractive, from a cost perspective, to issue debt securities with longer maturities. Banks extended the average maturity of the bonds they issued from 5 years in 2009 to 6.5 years in 2010. In addition, they lowered the share of money market paper in total outstanding debt securities from 16% to 15%. Nonetheless, the proportion of outstanding money market paper relative to total outstanding debt securities was still around twice as high as before the credit crisis and also above the average for euro area banks (12%).