The European debt crisis remains the largest threat to the stability of the Dutch financial sector. The combination with other factors, such as the increasing differences between euro countries, in particular as regards competitiveness, enlarges the risks. In addition, the risk remains that financial institutions will be hit by further price falls on European real estate markets. For instance, in the Dutch office market, structural vacancies are looming. In order to prevent losses from remaining hidden, it is essential that banks, insurers and pension funds are transparent about their investments in real estate and in countries that have been hit by the sovereign debt crisis. At the same time, the value of these investments must be estimated with sufficient caution.
The outlook for the global economy has improved over the past months. Thanks to the economic recovery, the capital buffers of financial institutions have strengthened. However, it is vital that they increase their buffers further to become less vulnerable to new shocks. This will also be enforced by the internationally agreed stricter regulations, such as the Basel III standards for banks and additional requirements for systemically important financial institutions. These rules and regulations are to be implemented over the next few years.
The economic recovery, partly boosted by the strong growth in emerging markets, is accompanied by rising commodities prices and increasing inflationary pressure. Some financial institutions try to profit from the developments in commodity markets. The emergence of complex products and trading strategies form a risk, should the present trend suddenly turn around. In addition, the recent economic developments have heightened the risk of interest rate shocks. A sudden rise in market rates would hit Dutch households, banks and the government. Over the past few years, Dutch households have become more vulnerable to interest rate shocks as the total outstanding mortgage debt has increased.
For more information, you may contact Tobias Oudejans (Tel. +31 (0)20 524 3100, +31 (0)6 524 96 961) or Herman Lutke Schipholt (Tel. + 31 (0)20 524 2712, + 31 (0)6 524 96 900) and Kees Verhagen. (Tel. +31 (0)20 524 2272, +31 (0)6 211 23 922).