2016 Q2: Quarterly decision of the National Bank of Belgium on the countercyclical buffer rate (1 April 2016): 0%

Quarterly decision of the National Bank of Belgium on the countercyclical buffer rate (1 April 2016): 0 % Pursuant to Art. 5 §2 Annex IV to the Banking Law, the National Bank of Belgium has decided to keep the countercyclical buffer rate for exposures in Belgium at 0 %. This rate has been set in the NBB regulation of 24 November 2015 1 . Justification

1. The countercyclical capital buffer is a macroprudential instrument designed to mitigate cyclical systemic risks and to counter pro-cyclicality in lending. Its objective is to support the sustainable provision of credit through the cycle by strengthening the resilience of banks. In particular, capital buffers are imposed whenever there is an increase in cyclical systemic risks (i.e. with excessive growth in lending), so that these additional requirements can be relaxed when the cycle turns and the risks start to decline. If risks emerge – in a situation of financial stress for instance – a decision can be taken to release the buffer instantly in order to give the banks some extra breathing space and thus put them in a better position to absorb losses and keep up their level of lending when the economic and financial environment is vulnerable. The countercyclical buffer rate, expressed as a percentage of banks’ risk-weighted assets, is generally between 0 and 2.5 %, but can be set higher when justified by the underlying risk. It should be noted that the countercyclical capital buffer is only one of the macroprudential instruments available to the National Bank of Belgium for achieving its mission of contributing to the stability of the financial system.
2. Pursuant to Article 5 of Annex IV to the Law of 25 April 2014 on the legal status and supervision of credit institutions, the National Bank of Belgium sets each quarter the countercyclical buffer rate applicable to credit exposures to counterparties located on Belgian territory on the basis of one or more reference indicators that reflect the credit cycle and the risks stemming from excessive credit growth in Belgium, and that account for the specific elements of the national economy. These indicators shall include the deviation of the credit-to-GDP ratio from its long-term trend (the credit￾to-GDP gap), accounting for the change in volumes of credit granted on Belgian territory and the evolution of Belgian GDP, the recommendations issued by the ESRB, and any other variable that the National Bank of Belgium deems relevant to capture cyclical systemic risk.
3. The National Bank of Belgium sets the countercyclical buffer rate pursuant to its policy strategy regarding the countercyclical capital buffer published on 28 December 2015. 2 In line with the Basel III framework and the ESRB Recommendation of 18 June 2014 on guidance for setting countercyclical buffer rates, the quarterly decision on the countercyclical buffer rate is partially based on a ‘buffer guide’ derived from the credit-to-GDP gap.3 Given the specific features of the domestic financial system and statistical properties of the credit series monitored, the National Bank of Belgium sets the credit-to-GDP variable on the basis of resident bank loans. The quarterly decision on the countercyclical buffer rate also takes into account additional macrofinancial indicators, including broader credit measures. More generally, the analysis for the countercyclical capital buffer forms an integral part of the National Bank of Belgium’s overall risk assessment framework, which covers a broad range of threats to the stability of the financial system.

1 NBB Regulation of 24 November 2015 on determining the rate of the countercyclical tier 1 capital conservation buffer, as approved by Royal Decree of 25 November 2015, M.B. of 4 December 2015. 2 ‘Setting the countercyclical buffer rate in Belgium: a policy strategy’. 3 The buffer guide is the result of the credit-to-GDP gap being mapped into a benchmark buffer rate, as specified in the ESRB Recommendation of 18 June 2014 on guidance for setting countercyclical buffer rates. The benchmark buffer rate equals 0 % for credit-to-GDP gap levels up to 2 percentage points. When the credit-to-GDP gap exceeds 2 percentage points, the benchmark buffer rate increases linearly, reaching its maximum level of 2.5 % for credit-to-GDP gap levels of 10 percentage points and higher.

Key indicators1 Variable Unit Latest period Value Non-financial private sector credit cycle (resident bank loans) Credit-to-GDP gap % GDP 2015 Q4 -0.6 Households % GDP 2015 Q4 -0.1 Non-financial corporations % GDP 2015 Q4 -0.5 Bank loan growth y-o-y % 2015 Q4 3.7 Households y-o-y % 2015 Q4 4.5 Non-financial corporations y-o-y % 2015 Q4 2.3 p.m. Credit-to-GDP ratio2 % GDP 2015 Q4 77.0 Non-financial private sector resilience Debt-to-GDP ratio % GDP 2015 Q3 113.9 Households % GDP 2015 Q3 59.1 Non-financial corporations % GDP 2015 Q3 54.9 Net financial assets % GDP 2015 Q3 143.8 Financial and assets markets Equity prices, nominal (BEL 20) y-o-y % 2016 M2 -7.8 Price-earnings ratio (BEL 20)3 – 2016 M2 19.2 House prices, nominal y-o-y % 2015 Q3 3.3 House prices, real y-o-y % 2015 Q3 2.6 10-year government bond yield % points/y 2016 M2 0.7 Bank lending rate on mortgage loans to households % points/y 2015 M12 2.5 Bank lending rate on loans to non-financial corporations % points/y 2015 M12 2.1 Banking sector resilience CET 1 capital ratio % 2015 Q4 15.4 Equity-to-total assets ratio % 2015 Q4 6.8 Loan-to-deposit ratio % 2015 Q4 93.1 Source: NBB. 1Monthly averages for daily data. Data are shown end of quarter (March, June, September, December) or for the latest month available. 2Outstanding amounts of loans granted by resident monetary financial institutions to households and non-financial corporations, including those securitised and otherwise transferred, in percentage of GDP. 3 Price earnings (P/E) ratio is a trailing (12 months) P/E ratio.

STATISTICAL ANNEX Credit-to-GDP gap (quarterly data, percentage points) Credit-to-GDP gap: sectoral breakdown (quarterly data, contributions in percentage points) Bank loan growth (monthly data, y-o-y % changes) Non-financial private sector debt (quarterly data, % of GDP) Equity prices (monthly data, BEL 20 index) House prices (quarterly data, y-o-y % changes) Source: Thomson Reuters, NBB. -8 -6 -4 -2 0 2 4 6 8 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 -8 -6 -4 -2 0 2 4 6 8 2005Q1 2005Q4 2006Q3 2007Q2 2008Q1 2008Q4 2009Q3 2010Q2 2011Q1 2011Q4 2012Q3 2013Q2 2014Q1 2014Q4 2015Q3 Households NFCs Credit-to-GDP gap -5 0 5 10 15 20 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Loans to households Loans to NFCs 0 20 40 60 80 100 120 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 Households NFCs 0 5 10 15 20 25 30 -80 -60 -40 -20 0 20 40 60 80 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Price-earnings ratio (rhs) Equity prices (y-o-y % changes, lhs) -4 -2 0 2 4 6 8 10 12 14 16 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 Nominal house prices Real house prices

STATISTICAL ANNEX (cont.) Short- and long-term interest rates (monthly data, % points per year) Bank lending rates (monthly data, % points per year) Bank solvency (quarterly data, %) Loan-to-deposit ratio (quarterly data, %) Source: NBB. -1 0 1 2 3 4 5 6 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 3-month OIS 10-year government bond yield 2,0 2,5 3,0 3,5 4,0 4,5 5,0 5,5 6,0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Households (mortgage loans, maturity over 10 years) NFCs (maturity over 5 years) 0 5 10 15 20 0 2 4 6 8 10 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 Equity-to-total asset ratio (accounting value, lhs) CET1 capital ratio (rhs) 80 85 90 95 100 105 110 115 120 125 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 Loan-to-deposit ratio