The crisis has shown that banks must strengthen their solvency and liquidity positions. DNB will continue this year to closely monitor banks' migration to Basel III rules. Despite the still difficult economic and financial conditions, Banks must persevere on the road towards the future Basel III regulatory regime. Banks that have a fair way yet to go must improve their Basel III ratios in 2013, in line with their agreed migration path. In current circumstances, this implies that there will be little or no room for dividend payments.
A continuing point for attention, in DNB’s view, are the business models of financial institutions: the ways in which they earn their income. Current market conditions raise questions about the sustainability of some business models. DNB expects banks to realize the challenges facing them when it comes to funding their banking balance sheet, both in the current difficult market climate and under the future tightened regulatory regime.
Now that Solvency II is longer in arriving, DNB has decided to take steps in 2013 towards more risk-based and forward-looking supervision. This is of high importance, since the Solvency I regime is no longer adequate, and the sector is going through a difficult phase. Moreover, since Solvency II will come eventually, insurers will do well to continue preparing for it.
The State Secretary for Social Affairs and Employment has recently announced that the new Financial Assessment Framework (Financieel toetsingskader or FTK) will take effect on 1 January 2015. During the year ahead, therefore, DNB and the AFM will provide active guidance on the transition to the new pension contract. The aim is to help the funds on their way so that they will be fully prepared when the new pension system arrives. DNB and the AFM expect funds to start anticipating the new system this year, including the choices that need to be made and their operational consequences.
Current market conditions have exerted substantial downward pressure on the value of commercial properties. Last year, DNB examined the risks associated with commercial real estate and asked the banks to improve the valuation of such properties in line with existing regulations. DNB intends to round off the valuation examination this year. DNB is currently looking at risks associated with commercial real estate on a sector-wide basis. In this context, it will also conduct examinations at pension funds and insurers.
DNB regards institutions in their wider contexts rather than as isolated entities. The supervisor makes comparisons, identifies outliers, and detects and promotes best practices. It also provides estimates of the impact which macroeconomic developments may have on the sector as a whole. Therefore DNB deploys a substantial part of its supervisory capacity towards this thematic approach, as a complement to its supervision of individual institutions.