Foreign exposures of the Dutch financial sector grew by almost EUR 50 billion in the third quarter of 2014, largely outside the euro area. Dutch pension funds accounted for most of the increase, as beneficial interest rate and exchange rate movements pushed up the value of both bond and equity portfolios.
Foreign exposures of the Dutch financial sector increased by EUR 46 billion (up 2.4%), to reach EUR 1,964 billion in the third quarter of 2014. A large portion of the increase was caused by revaluations as bond prices rose, notably in the euro area, driven by a 40 basis point drop in the weighted average 10-year rate for public debt instruments to 1.79%. In addition, beneficial exchange rate effects pushed up the value of non-euro-denominated portfolios, particularly those held in US dollars.
Foreign exposures of Dutch banks increased by EUR 4 billion (up 0.4%), largely owing to increased exposures to the United States and, to a lesser extent, the United Kingdom (EUR 3.8 billion and EUR 2.0 billion, respectively), whereas exposures to euro area countries were down by EUR 4.5 billion. Pension funds saw a significant increase in their foreign exposures (up EUR 37 billion, or 5%), half of which was attributable to the United States (EUR 19 billion), with euro area countries also accounting for growth. Foreign exposures of insurers showed a EUR 5 billion increase in the third quarter (up 2.9%), which was entirely attributable to the euro area .
Chart 1: Exposures of the Dutch financial sector to selected countries
(in EUR billion)
The Dutch financial sector as a whole expanded its exposures to the euro area by EUR 8 billion (up 2.8%) in the third quarter of 2014, with exposures to Germany being up in particular, by almost EUR 8 billion(see Chart 1). Dutch banks, pension funds and insurers increased their exposures to this core country to EUR 317 billion, representing 16% of their total foreign exposure. Exposures to Austria and France likewise increased, whereas those to peripheral countries were down by EUR 6 billion, mainly owing to lower exposures to Spain. Outside the euro area, exposures to the United States showed substantial growth (up EUR 23 billion, or 6.8%), around EUR 5 billion of which reflected purchases of equities and bonds. The lion's share of the increase, however, was caused by appreciation of the US dollar, boosting the value of US equities portfolios. Exposures to the United Kingdom and Japan also grew.
Broken down by counterparty sector, foreign exposures to the private sector showed the strongest increase, at EUR 32 billion, predominantly reflecting growth relating to the United States (up EUR 19 billion), most of which was in the form of equities, and to the United Kingdom (up EUR 6 billion). By contrast, exposures to the private sector in euro area countries was down, by EUR 2 billion. Exposures to the public sector were up by EUR 16 billion (see Chart 2), entirely attributable to euro area governments. More than half of the increase related to the German government (EUR 9 billion) and, to a lesser extent, to the French and Austrian governments (up EUR 4 billion and EUR 2 billion, respectively). The value increase of sovereign bond portfolios was caused not only by purchases of government debt securities, but also by price increases fuelled by lower interest rates.
Lastly, exposures to foreign banks fell by EUR 2 billion. Those to banks in the euro area were down by EUR 7 billion, with half of the contraction being attributable to French banks, mostly involving their own shares. This was largely counterbalanced by a EUR 5 billion increase in exposures to banks outside the euro area, partly in the form of securities of US and Canadian banks (up EUR 2 billion). Exposures to Turkish and Swiss banks also showed increases (up EUR 2 billion).
Chart 2: Exposures of the Dutch financial sector to foreign governments (in EUR billion)