Financial Stability Report: Solid Belgian financial sector can face and help solve the challenges of the COVID-19 crisis

The COVID-19 pandemic poses challenges to the financial sector and financial stability. But the Belgian financial system, thanks to its capital and liquidity buffers, is solid and can thus play a key role in cushioning the impact of the crisis on households and businesses. In its annual Financial Stability Report, the National Bank of Belgium (NBB), as supervisor, calls on financial institutions to continue to support the real economy, if necessary, by using the buffers that have been built up.

The COVID-19 pandemic abruptly ended a long period of relative economic and financial stability. The exceptional measures taken worldwide - in particular the lockdown - have had a major impact on economic activity and on the financial markets. A global and simultaneous recession seems unavoidable on the basis of current information and was reflected, especially in the initial phase of the crisis, in significant price corrections and in the re-pricing of credit risk and even country risks on the financial markets. The Belgian economy is no exception and is also undergoing this crisis, partly as a result of the necessary restrictive measures, including those related to the lockdown.

Key role

In its Financial Stability Report published today, the NBB focuses on its macroprudential policy and places it in the context of the wide set of economic and financial policies adopted in the wake of the COVID-19 crisis.

As a result of the COVID-19 crisis, the Belgian financial system faces some serious challenges, but it can boast a solid starting position. In contrast to the financial crisis of 2007-2008, where fragile bank balance sheets were an important catalyst for the crisis, the banking sector now plays a key role in cushioning the impact of the current crisis and in supporting the real economy.

Since the financial crisis, the Belgian banking sector has been building up large capital and liquidity buffers, partly as a result of restructuring, prudent crisis management but also stricter regulation and supervision. These buffers can now be used to absorb credit losses while continuing to secure lending to the real economy. In this sense, the Belgian financial sector, and in particular the banking sector, is a crucial lever in facing and resolving the current crisis.

With the outbreak of the COVID-19 crisis, the focus of macroprudential policy, among other things, has changed abruptly and drastically from a preventive policy aimed at strengthening the resilience of the financial sector to a crisis mode, centred on ensuring financial services during the crisis, including through the partial release of accumulated capital buffers.

Economic policies at national and international level have been fundamentally adjusted, with fiscal, monetary and micro- and macroprudential policy makers providing and maintaining a decisive and coordinated response to the crisis. In addition to the direct supporting measures stemming from fiscal and monetary policies, prudential policies also play an indirect key role in tackling the crisis.

Mortgage credit

In this context, the NBB has quickly released the countercyclical buffer as soon as the first signals of the COVID-19 crisis were observed, and it may also release the accumulated macroprudential real estate buffers should the risks on the real estate markets materialise. However, a responsible lending policy on the part of banks remains necessary even during the crisis in order to limit new excessive risks on bank balance sheets. Therefore, the NBB confirms the need for conservative risk management, in particular for mortgage credit, as specified in the supervisory expectations on credit conditions as published in October 2019.

Forward guidance

How does the NBB as supervisor see the near future, and what macro-prudential actions are being considered? Here is a forward guidance overview:

  • As a macroprudential authority, the NBB subscribes to the importance of pursuing an active and supportive macro-prudential policy in the near future. In this context, the NBB would first like to stress that - taking into account the latest scenarios and prospects - the de-activation of the countercyclical capital buffer in March 2020 is likely to be extended until at least mid-2021.
  • In addition, the NBB is closely monitoring developments on the Belgian real estate and credit markets. Such monitoring is necessary in the current context, given a number of vulnerabilities in these markets.
  • Although, for the time being, there are no signs of a significant increase in real estate market imbalances or tensions, the NBB stands ready to release the macroprudential capital buffers for real estate risks if, for example, those risks should materialise and lead to a substantial increase in non-performing loans. Supervisory expectations on mortgage credit remain applicable.
  • Although the macro-prudential buffers for systemically important institutions (the so-called 'O-SII buffers') are primarily structural, a release of such buffers is in principle possible. However, such release should be seen as ultimate macro-prudential instrument to possibly strengthen banks’ solvency position.


It is very important that the financial sector itself continues to play its role as a financial intermediary and actively contributes to cushioning the impact of the crisis and supporting the real economy. In this context, the NBB makes a number of recommendations to the financial sector and, in particular, to credit institutions:

  • (1) The first recommendation aims to encourage maximum responsible use of micro- and macroprudential buffers to support the real economy. It should be stressed in this respect that the use of such buffers by individual banks is justified from a macroprudential point of view and supports the real economy by avoiding pro-cyclical credit crunches. Individual banks’ reluctance to use these buffers – e.g. on the grounds of stigma effects or as a precaution for possible future solvency issues – may be counterproductive in the context of this crisis and may substantially increase the impact of the crisis on the real economy.
  • (2) Against the backdrop of unprecedented micro- and macroprudential easing as well as significant uncertainty as to financial institutions’ future profitability, the Bank, as macro-prudential authority, also recommends that the financial sector temporarily exercises the necessary restraint with regard to current and future dividend pay-out policies (and similar operations) or in the allocation of variable remuneration for senior staff and refrain from making dividend payments or similar operations at least until the beginning of October 2020. As regards credit institutions, this recommendation applies to all banks active in Belgium and also applies to dividend payments and/or transfers or similar transactions within international banking groups by systemically important subsidiaries active in Belgium.
  • (3) Finally, in addition to the necessary focus on the short-term implications of the COVID-19 crisis, the financial sector should continue to pay attention to major longer-term structural challenges. For example, the persisting low interest rate environment remains a major structural challenge for banks’ profitability, and a reassessment of the viability of certain business models is needed. In addition, the transition to a more sustainable and digitised economy will gain more traction, and it is very important not only to exploit the opportunities of such transitions but also to closely monitor and mitigate the inherent risks that such structural transitions necessarily entail, also in terms of financial stability.