2022 Q4 Quarterly decision on the countercyclical buffer rate: 0%

Quarterly decision of the National Bank of Belgium on the countercyclical buffer rate for 2022Q4: 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 %. 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. 1 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.2 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.
4. To ensure that Belgian banks have full flexibility to use their ample free capital resources to support the real economy, the National Bank of Belgium decided on 6 September 2022 to maintain the countercyclical buffer (CCyB) rate at 0% for the fourth quarter of 2022.
5. The National Bank of Belgium counts on Belgian banks to help, where necessary, Belgian households and non-financial corporations cope with the challenges posed by record high energy prices and challenging macroeconomic conditions. The focus should be on (1) ensuring the continuation of an adequate flow of credit to the real economy and (2) proactively offering moratoria and other debt rescheduling options to borrowers experiencing temporary or more structural repayment problems due to high energy bills and rising living or operating expenses. The National 1 "Setting the countercyclical buffer rate in Belgium: a policy strategy". 2 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.

Bank of Belgium therefore strongly welcomes the banks’ unilateral commitment to offer, as from 1 October 2022, moratoria to eligible mortgage holders and, more generally, case-by-case solutions to households and non-financial corporations (Febelfin press release of 8 September 2022). 6. The National Bank of Belgium’s CCyB decision was based on a thorough assessment of all relevant data. Based on this analysis, the activation of a countercyclical instrument no longer appeared justified. Since the last decision (press release of 29 June 2022), the macroeconomic context has worsened and growth forecasts have been revised downwards. There are also preliminary indications that the peak of the financial and credit cycle may have been reached, particularly when considering developments in inflation-adjusted terms. 7. At the same time, the probability has increased that vulnerabilities — accumulated during the lengthy period of very low interest rates — will trigger losses for the banking sector. While the available asset quality indicators do not (yet) point to an increase in loan repayment problems, banks should look ahead and base their credit risk provisions on sufficiently conservative assessments of potentially stressful economic scenarios and use their current strong capital position to proactively raise loan loss provisions, where necessary. 8. In the current macrofinancial context still characterised by a high level of uncertainty, the National Bank of Belgium also urges 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. 9. The National Bank of Belgium will continue to closely monitor bank credit, moratoria and other forms of debt restructuring.

Table 1: Key indicators1 Variable Unit Latest period Value Non-financial private sector credit cycle (resident bank loans) Preferred credit-to-GDP gap % GDP 2022 Q2 -1.6 Households % GDP 2022 Q2 -2.5 Non-financial corporations % GDP 2022 Q2 1.0 CCyB guide related to preferred credit gap2 % RWA 2022 Q2 0.0 Standardised credit-to-GDP gap % GDP 2022 Q1 -22.6 CCyB guide related to standardized credit gap2 % RWA 2022 Q1 0.0 Bank loan growth y-o-y % 2022 M07 6.0 Households y-o-y % 2022 M07 5.8 Non-financial corporations y-o-y % 2022 M07 6.4 p.m. Credit-to-GDP ratio3 % GDP 2022 Q2 83.5 Non-financial private sector resilience Debt-to-GDP ratio % GDP 2022 Q1 120.0 Households % GDP 2022 Q1 61.1 Non-financial corporations % GDP 2022 Q1 58.9 Net financial assets % GDP 2022 Q1 135.8 Financial and assets markets Equity prices, nominal (Euro Stoxx 50) y-o-y % 2022 M08 -11.4 Price-earnings ratio (Euro Stoxx 50)4 – 2022 M08 12.7 House prices, nominal y-o-y % 2022 Q1 8.6 House prices, real y-o-y % 2022 Q1 1.7 10-year government bond yield % points/y 2022 M08 1.7 Bank lending rate on mortgage loans to households % points/y 2022 M07 2.1 Bank lending rate on loans to non-financial corporations % points/y 2022 M07 2.5 Banking sector resilience CET 1 capital ratio % 2022 Q2 17.6 Equity-to-total assets ratio % 2022 Q2 6.6 Loan-to-deposit ratio % 2022 Q2 89.2 External imbalances Current account % GDP 2022 Q1 -0.7 Net international investment position % GDP 2022 Q1 53.1 Asset quality NPL ratio Belgian non-financial corporations % total loans 2022 Q2 3.2 Belgian households % total loans 2022 Q2 1.3 Forbearance ratio Belgian non-financial corporations % total loans 2022 Q2 3.3 Belgian households % total loans 2022 Q2 1.2 Loan loss ratio5 Consolidated, including interbank loans b.p. 2022 6M (annualised) 5.6 Non-consolidated, excluding interbank loans b.p. 2021 10.6 Sources: Thomson Reuters, Refinitiv, NBB. 1 Monthly averages for daily data. Data are shown end of quarter (March, June, September, December) or for the latest month available.

2 CCyB guides are expressed in percentage of risk-weighted assets. 3 Outstanding amounts of loans granted by resident monetary financial institutions to households and non-financial corporations, including those securitized, in percentage of GDP. 4 Price earnings (P/E) ratio is a trailing (12 months) P/E ratio. 5 The loan loss ratio is the net flow of new impairments for credit losses, expressed as a percentage of the total stock of loans (one basis point is one-hundredth of one per cent).

STATISTICAL ANNEX Sources: Thomson Reuters, Refinitiv, NBB.

STATISTICAL ANNEX (cont.) Sources: Thomson Reuters, Refinitiv, NBB.

STATISTICAL ANNEX (cont.) Sources: NBB.