DNB leaves countercyclical buffer unchanged at 0% – March 2020
The countercyclical capital buffer (CCyB) is a macroprudential instrument that aims to protect banks against systemic risks arising from excessive credit growth in a member state. It is a variable add-on to the minimum capital requirements of up to 2.5% of risk-weighted assets – or even higher, should the circumstances dictate.
Since January 2016, DNB publishes the CCyB add-on on a quarterly basis, in accordance with the prevailing rules and regulations. Banks are required to apply the add-on to their exposures to Dutch counterparties. As a rule, CCyB decisions are internationally recognised instruments, which means that non-domestic banks must apply the add-on set by DNB to their Dutch exposures.
At the last decision in December 2019, DNB left the CCyB unchanged at 0 percent. One of the main considerations underlying this decision has been the subdued trend of credit growth. This situation has not fundamentally changed: lending is still showing below-trend growth (Chart 1). This credit gap, as it is known, is internationally considered as one of the key indicators for the CCyB. Besides the credit gap, DNB also considers other variables such as trends in real estate prices and credit growth in subsectors (Table 1).See the Financial Stability Report Autumn 2019 for further analysis of these developments.
Based on these developments, DNB has decided to leave the CCyB unchanged at 0%. The recent decision by DNB to reduce the systemic buffers has no impact on this decision. Having said this, DNB intends to build up a CCyB of 2% in the foreseeable future. Additional information can be found here.
Chart 1: The credit gap for the Netherlands*
*Based on statistics ranging from Q1 1960 up to and including Q3 2019. The credit/GDP-trend has been calculated using a HP-filter. The buffer guide is a mechanical mapping of the credit gap into a buffer add-on. See ESRB (2014), Recommendation on guidance for setting countercyclical buffer rates, ESRB/2014/1, for the calculation. Source: Statistics Netherlands, DNB
Table 1: Credit conditions indicators
Source: Statistics Netherlands, BIS, IPD, DNB. Figures are in %, unless otherwise indicated. Bp = basis points.
1. Difference between (a) the ratio of loans extended to the non-financial private sector to GDP and (b) the long-run trend of this ratio as calculated in ESRB (2014), Operationalising the countercyclical capital buffer: indicator selection, threshold identification and calibration options, Occasional Paper No. 5.
2. The ratio of the mortgage amount to the value of the property at the time the morrtgage is taken out.
3. The ratio of the mortgage amount to the income of the borrower at the time the mortgage is taken out.