National Bank of Belgium releases full countercyclical buffer
Due to the challenges for the economy posed by the coronavirus crisis, the NBB has decided to release the CCyB
The countercyclical buffer is a temporary macroprudential buffer that is built up during the upward phase of the credit cycle in order to ensure sufficient absorption capacity for banks to have a big enough margin to cover credit losses during the downward phase of the credit cycle.
In June 2019, the National Bank of Belgium (NBB) decided to activate the CCyB. However, the global economy is now facing important challenges, and the NBB does not expect the impact of the coronavirus crisis to remain limited to financial markets but believes it will also affect the real economy, possibly leading to loan losses on banks’ credit portfolios.
Macroprudential action can help mitigate the potential procyclicality of the banking sector that may result from such a scenario and work as a shock amplifier. In particular, releasing the CCyB early enough frees up capital buffers that can then be used to absorb any potential loan losses and thus contribute to ensuring financial intermediation services to the real economy and preserving financial stability.
In previous communications, the NBB had clearly indicated its readiness to relax the countercyclical buffer requirements in the event of a severe and persistent financial shock. In the current exceptional circumstances, and anticipating potential significant and long-lasting effects on global economic growth, the NBB therefore decided on 10 March 2020, pursuant to its macroprudential powers laid down by the Belgian Banking Law of 2014, to preventively release the full countercyclical buffer for credit risk exposures to the Belgian private non-financial sector.
The NBB would emphasise that Belgian banks are sound and sufficiently capitalised to cope with major shocks. The release of the countercyclical capital buffer provides the banks with extra (preventive) capacity to deal with possible loan losses should the worldwide slowdown in growth persist or gain momentum and, in this situation, therefore also ensures continuity of financial service provision and lending to the real economy. Through this release of the countercyclical buffer, the NBB is making approximately €1 billion worth of capital buffers available to Belgian banks to cover potential risks.
This draft NBB decision is to be notified to the European Central Bank and will be formalised through a Royal Decree by the Minister of Finance.