The capital support facility was initiated a few weeks after the collapse of the US investment bank Lehman Brothers, when the crisis in the financial sector was at its climax. The authorities then announced that any financial enterprise in the Netherlands that was fundamentally sound and viable could apply for capital support on market terms. EUR 20 billion was made available immediately. Over the next few weeks, a total amount of EUR 13.75 in capital support was provided to three institutions: ING (EUR 10 billion), Aegon (EUR 3 billion) and SNS Reaal (EUR 750 million). Thanks in part to this support, financial stability in the Netherlands was maintained during the global credit crisis.
In determining the terms of the support, the authorities aimed to balance out the various interests (of taxpayers, the institution and healthy competition in the financial sector). The annual interest rate on the support is basically 8.5%, but it is also linked to the recovery of the enterprise: if the institution is strong enough to pay out dividends to the shareholders, the interest rate may be higher. Conversely, if no dividends are distributed, interest is not charged. Moreover, a premium of 50% is owed on repayment of the support. More favourable terms apply for early repayment of at maximum half of the support, however. This specific design allows the price of the support to move in line with the institution's financial capacity, and creates an incentive to repay the support as soon as it is safe to do so.
Each of the three recipients have hence expressed their intention to repay the capital support as a priority. Aegon already made early repayment (on more favourable terms) of EUR 1.5 billion in 2009 and 2010. Another EUR 750 million was repaid in March of this year, and the remaining EUR 750 million was repaid in June. ING made an early repayment of EUR 5 billion in 2009, followed by a second repayment of EUR 2 billion in May of this year. ING expects to repay the final EUR 3 billion in 2012. SNS Reaal – which is contending with setbacks at its real estate subsidiary Property Finance – repaid EUR 185 million at favourable terms in 2009, and stated that it would give top priority to repaying the remainder of the outstanding support. All in all, the State has received more than EUR 13.4 in repayments, interest and premiums – almost as much as initially provided. The repayment points to continuing recovery in the Dutch financial sector.
It looks as if the capital injections in these three financial institutions will yield an attractive return for the treasury. The annual return on the support to Aegon eventually works out at 18.5%. The corresponding rates for ING and SNS Reaal cannot be calculated as yet, but they are also expected to be positive: the Ministry of Finance is provisionally assuming 17% and 8.5% respectively. That is a welcome bonus at a time when public finances are urgently in need of improvement, but it is important to remember that this is not the main issue. The primary aim of the financial sector support was to prevent the essentially healthy Dutch financial institutions from succumbing to the force of the financial crisis, at potentially enormous cost to the Dutch economy. That aim has been realised, meaning that the real gain from the capital support has already been collected.