National Bank of Belgium sets the countercyclical buffer rate at 0,5 %
Pursuant to its macroprudential powers laid down in the Belgian Banking Law of 2014, the National Bank of Belgium decided on 28 June 2019 to increase the countercyclical buffer rate for credit risk exposures to the Belgian private non-financial sector from 0 % to 0.5 % for the third quarter of 2019. This decision is subject to a one-year implementation period, which means that the countercyclical buffer rate of 0.5 % will become binding as from 1 July 2020. The countercyclical buffer is a temporary buffer that is built up during the upward phase of the credit cycle in order to ensure sufficient absorption capacity for banks to have sufficient margin to cover credit losses during the downward phase of the cycle.
The activation of the countercyclical capital buffer by the National Bank of Belgium is purely preventive in nature, in line with the principles of the macroprudential policy. In view of the acceleration of the Belgian credit cycle for the private non-financial sector, a precautionary and gradual build-up of countercyclical capital buffers is justified to ensure sufficient resilience in the Belgian banking sector, to secure the necessary absorption capacity for potential credit losses and to safeguard the continuity of credit supply to the Belgian economy going forward. These buffers will be immediately released in the event of a financial shock. Should cyclical systemic risks decrease and the credit cycle turn, these additional buffer requirements will be relaxed towards a 0 % neutral level, commensurate with the cycle.
The measure entails the build-up of an additional (countercyclical) buffer of approximately € 1 billion for the Belgian banking sector. Given Belgian banks’ current solvency position and the relatively limited 0.5 % buffer rate imposed, this measure should not disrupt credit pricing or credit availability to the Belgian economy.
A number of reference indicators currently point to an acceleration of the Belgian credit cycle. The credit-to-GDP gap – which, according to the Belgian law, is a key reference indicator for the credit cycle – once again reached 2.1 % in 2019Q1. Pursuant to the Guidelines of the European Systemic Risk Board, this level could justify the activation of the countercyclical buffer. Going forward, baseline projections for credit growth and GDP suggest a further - sustained - increase in the credit-to-GDP gap, above the 2 % threshold. The relevant key indicators, including the credit-to-GDP gap, are further detailed in the document “Quarterly decision of the National Bank of Belgium on the countercyclical buffer rate (2019 Q3)”.
The National Bank of Belgium has adopted this measure as a precaution in light of an accelerating credit cycle. However, the Bank is also taking due account of the current economic uncertainty.In this context, the Bank stands ready to withdraw the measure if a significantly negative and persistent shock were to occur during its phase-in period, in order to avoid any procyclical effects of the measure.
By implementing a countercyclical buffer, Belgium is in line with numerous other European countries, including France, Luxembourg and Ireland, which have activated or increased the countercyclical buffer.
This measure is subject to mandatory reciprocity and hence applies to all EU banks operating in Belgium, at both the individual and the consolidated level.