National Bank adjusts macroprudential capital requirements
The National Bank of Belgium (NBB) has decided to activate the countercyclical capital buffer (CCyB). The buffer will be built up in two stages, as from 1 April 2024. At the same time, the NBB will lower the sectoral systemic risk buffer for Belgian mortgage loans. In this way, it aims to improve the banking sector’s overall resilience to unexpected losses.
In its press release of 30 June 2023, the NBB announced that it would consider reactivating the countercyclical capital buffer (CCyB) and lowering the sectoral systemic risk buffer for Belgian mortgage loans. As there is now less uncertainty regarding the impact of the rate hikes on the economy and given that the downturn in the credit and real estate cycles has been orderly thus far, the NBB is confirming this intention by means of a formal decision.
Risk of unexpected losses for Belgian banks
As the pass-through of tighter financial conditions to the real economy is a gradual and ongoing process, the NBB continues to believe that banks remain potentially exposed to unexpected losses, whereas their provisions for expected credit losses have dropped back to pre-pandemic levels. Reactivating the CCyB will heighten the banking sector’s resilience to potentially higher-than-expected losses.
Given the generally high level of compliance with supervisory expectations for Belgian mortgage loans, the NBB believes that the sectoral systemic risk buffer for such loans may be lowered.
A countercyclical capital buffer of € 2.3 billion
More precisely, the countercyclical capital buffer will be activated on 1 October 2023, leading to the creation of a buffer of around €1.1 billion on 1 April 2024 (CCyB rate of 0.5%) and of around €2.3 billion on 1 October 2024 (CCyB rate of 1%). The sectoral systemic risk buffer for Belgian mortgage loans will be lowered from its current level of 9% to 6%, effective 1 April 2024. The value of this buffer will then fall from around €2 billion to approximately €1.3 billion.
The two macroprudential capital buffers will therefore rise from a current combined level of €2 billion to €2.5 billion on 1 April 2024 and to €3.6 billion on 1 October 2024.
The Council of Ministers has already endorsed the NBB’s new regulation on the macroprudential capital buffers. The royal decree approving the regulation will be published in the Moniteur belge/Belgisch Staatsblad in the coming weeks.