National Bank maintains countercyclical capital buffer for credit institutions at 0%

The National Bank of Belgium (NBB) maintains the countercyclical capital buffer (CCyB) rate at 0% and counts on Belgian banks to use their ample available capital resources to support the Belgian economy and to increase credit risk provisions where necessary

The Belgian banks proved very resilient to the recent events in the US and Swiss banking sectors and they had no significant exposures to the institutions that required support. This resilience mainly reflects the differences between them and the US and Swiss institutions that were in the eye of the storm. These differences pertain to the banks’ business models, balance sheet composition, level of the capital and liquidity buffers and risk management. Differences in regulation and supervision also played a role in setting the Belgian banks apart from these vulnerable banks.

The most recent developments should nevertheless serve as a timely reminder for Belgian banks that periods of tightening financial conditions often go hand in hand with a materialisation of risks that remained below the water line when interest rates were low, credit and liquidity conditions ample and asset prices high. Belgian banks therefore need to remain very vigilant for losses in the current downward phase of the financial, credit and real estate cycles and beware of not exacerbating this downturn by a procyclical tightening of credit conditions in response to the most recent events.

To ensure that Belgian banks continue to have full flexibility to use their ample available capital to raise credit provisions in a pro-active way and to support the real economy, the NBB decided on 28 March 2023 to maintain the countercyclical capital buffer (CCyB) rate at 0% for the second quarter of 2023. The amount of capital of around € 1 billion provided to Belgian banks by the NBB’s decision in September to not activate the CCyB — at a time when the financial, credit and real estate cycles were starting to turn — should thus continue to be used to :

  • maintain credit to households and non-financial corporations, without an undue procyclical tightening of credit conditions. In this connection, the NBB welcomes the moderate increase of the maturities on new mortgage loans, which helps to preserve the borrowing capacity of households when mortgage loan interest rates rise;
  • offer debt restructuring solutions to clients with temporary or more structural loan repayment problems and this in a pro-active way;
  • last but not least, increase credit risk provisions, where necessary, in light of a potential materialisation of risks on assets accumulated during the low interest rate environment and in the upward phase of the credit cycle.

In the current macro-financial context, the NBB also requests financial institutions to remain cautious in their decisions regarding dividends and other types of profit distributions and to base these decisions on a conservative forward assessment of their capital and provisioning needs in light of potential macroeconomic developments. This is all the more necessary at a moment when the cost of equity and of other capital instruments, such as AT1-bonds, is expected to remain high for some time in response to the most recent developments.

The NBB will continue to closely monitor Belgian banks’ use of the capital room provided by the current CCyB decision to support credit volumes and credit conditions, offer debt restructuring to assist debtors and raise the level of credit risk provisions for potential future credit losses.

CCyB decisions are revisited each quarter, in accordance with European regulations and the NBB’s macroprudential powers under the 2014 Banking Law.