Financial Stability Report: Belgian financial sector will play a key role in economic recovery
Today, the National Bank publishes its Macroprudential Report and Financial Stability Report. With these annual publications, the Belgian macroprudential authority, as requested by the legislator, renders account, inter alia, of the fulfilment of its mandate as guardian of the stability of the financial system in Belgium.
Besides discussing the macroprudential policy pursued, the reports pay ample attention to recent developments in the Belgian banking and insurance sectors and in the markets that are important for financial stability, such as the residential and commercial real estate markets. The impact of the COVID-19 crisis on companies and households is of course also a central part of the analysis, as the sharp economic downturn has not only caused liquidity problems but is also increasingly leading to over-indebtedness in hard-hit sectors.
Access to bank credit crucial to recovery
Thanks to a solid starting position, the Belgian financial sector was able to complement public support measures for severely affected companies and households with payment deferrals for current loans and additional lending, without jeopardising financial stability. The sector will now also have to play a key role in economic recovery, notably by ensuring sufficient access to bank credit and providing appropriate measures and sustainable solutions for viable companies which are over-indebted as a result of the corona crisis (e.g. by granting debt rescheduling). Banks have sufficient liquidity and capital buffers to play this key role and absorb the associated losses, without jeopardising financial stability. The €6 billion capital buffers that the prudential authorities released for Belgian banks at the beginning of the crisis remain available to build up additional provisions for future credit losses and to provide appropriate measures and sustainable solutions for customers. The framework for granting loans with a State guarantee is still in place and the National Bank is counting on banks to give eligible companies easy and sufficient access to this alternative financing channel during the economic recovery phase, especially when other forms of support for companies cease. Thanks to these support measures, loan defaults have remained very limited for the time being. However, financial institutions should protect themselves against a possible sharp increase in payment problems in the future.
No negative impact on access to the mortgage market for young people
A second important message of the Macroprudential Report and Financial Stability Report concerns the credit standards for mortgage lending. At the beginning of last year, the National Bank's supervisory expectations in this regard were published and the reports contain a first evaluation of the extent to which institutions have followed these guidelines. In recent months, the press has reported a negative impact on access to the mortgage market for young people. This is not confirmed by the figures, partly because the National Bank has specifically taken this justified concern into account by providing more flexible guidelines for the specific segment of "first-time buyers". Despite the corona crisis, the past year was again a grand cru for the production of new mortgage loans (with € 42 billion, the production of 2020 is in the historic top 3) and the share of young people remained stable at around 35%. On the other hand, the segment of loans for the purchase of investment property ("buy-to-let") remains a focus of attention for the Bank, as institutions generally do not (yet) meet the supervisory expectations in this respect. The reasons for this will be thoroughly and critically analysed and will be discussed and evaluated with the reporting institutions.
The stability of the financial system is important to ensure that financial institutions can properly fulfil their core tasks even in times of crisis. Today, the Belgian financial sector is well placed to play a key role in economic recovery, also thanks to the reforms undertaken since the 2008-2009 global financial crisis and the micro- and macroprudential measures taken for the real estate market and in the wake of the corona crisis.