Foreign exposures of the Dutch financial sector rose by over EUR 60 billion in the second quarter of 2014, mainly on the back of rising equity prices. The increase was primarily accounted for by Dutch banks and pension funds.
The Dutch financial sector's foreign exposures in the second quarter of 2014 rose by more than EUR 60 billion, or 3.3%, to EUR 1,913 billion, in part as a result of rising equity prices and falling government bond yields in the euro area. The global MSCI World equity index was up 3.7% in the second quarter, while the United States S&P 500 rose by 4.7% and the EURO STOXX 50 by 2.1%. By contrast, yields on 10-year government bonds fell from an average of 2.89% in March 2014 to 2.28% in June 2014. This means bond prices were up, producing gains for those institutions holding them.
Foreign exposures of Dutch banks increased by almost EUR 18 billion, or 1.8%, driven mainly by increased exposures to euro area countries and the United States (up EUR 11 billion and EUR 6 billion, respectively), offset to some extent by lower exposures to the United Kingdom (down EUR 9 billion). Dutch pension funds saw their exposures increase by an even greater proportion (up EUR 39.5 billion, or 5.7%). As for the banks, their increase was primarily concentrated in the euro area countries (up EUR 10.4 billion) and the US (up EUR 14 billion). The insurers' increase was EUR 3 billion (up 1.7%), EUR 2 billion of which were exposures to the euro area.
The Dutch financial sector as a whole saw a considerable increase (up EUR 24 billion, or 2.8%) in its exposures to the euro area. Dutch banks and pension funds increased their exposures to Germany by EUR 3.5 billion and EUR 5 billion, respectively, in the second quarter of 2014. Sector-wide exposures to the peripheral euro area countries show a mixed picture. Whereas exposures to Italy (up EUR 3.6 billion, or 6.9%) and Portugal (up EUR 600 million, or 13.3%) were higher, those to Spain were lower (down EUR 1 billion, or 1.5%). Outside the euro area, exposures to the United States increased (up EUR 20 billion, or 6.4%), again accounted for by banks (up EUR 6 billion) and pension funds (up EUR 14 billion), possibly fuelled by the positive market sentiment about the US economy, which accompanied the appreciation of the US dollar against the euro. Exposures to the United States were mainly related to purchases of US equities. A different picture emerges with regard to the United Kingdom, to which the Dutch financial sector had lowered its exposures totalling by EUR 7.4 billion, or 4.4%, by the end of June 2014. Dutch banks, in particular, scaled down their net exposures to UK to British sovereign and central bank debt (down EUR 5.2 billion) and the private sector (down EUR 4.6 billion).
Broken down by counterparty sector, foreign exposures to the private sector increased by EUR 35 billion. Most of the increase concerned the US (up EUR 19 billion), the lion's share of which were equities. Despite the slower-than-expected economic recovery in the euro area, European equities were in high demand in financial markets. While European equity prices increased overall during the second quarter of 2014, government bonds in the euro area were especially sought after by the Dutch financial sector. As a result, exposures to the public sector were up by almost EUR 19 billion, of which EUR 15 billion were exposures to the euro area. Exposures to government bonds in both core and peripheral euro area countries increased in the second quarter of 2014: Germany (up EUR 5.8 billion, or 3.9%), Austria (up EUR 1.5 billion, or 5.4%), Italy (up EUR 1.9 billion, or 7.5%) and Spain (up EUR 1 billion, or 7.8%). Lastly, exposures to the foreign banking sector climbed EUR 6.7 billion, owing mainly to pension funds' higher exposures to banks in the euro area (up EUR 5 billion).