Circular NBB_2021_11 / Modification of Schema A, Book I

NBB_2021_11 – June 1, 2021 Circular – Page 1/8 14 Berlaimont Boulevard – BE-1000 Brussels tel. +32 2 221 54 65 company number: 0203.201.340 RPM Brussels www.bnb.be

Circular
Brussels, June 1, 2021
Reference: NBB_2021_11
Your contacts:
Pieter-Jan Janssens – Claudine Gouyette tel. +32 2 221 20 23 – +32 2 221 26 99 pieterjan.janssens@nbb.be – claudine.gouyette@nbb.be

Modification of Schema A, Book I

Scope of application

• Belgian credit institutions
• Branches in Belgium of credit institutions subject to the law of another Member State of the European Economic Area
• Branches in Belgium of credit institutions subject to the law of a non-Member State of the European Economic Area

Summary/Objectives
This circular introduces the impact of the introduction of the new Regulation (EU) 2021/379 of the European Central Bank of 22 January 2021 concerning the balance sheet items of credit institutions and the monetary financial institutions sector (recast) (ECB/2021/2), as well as the impact of the law of 22 April 2016 amending and inserting provisions on consumer credit and mortgage credit in several books of the Code of Economic Law, and some clarifications regarding Schema A reporting.

Circular – Page 2/8 NBB_2021_11 – June 1, 2021

Madam,
Sir,
The implementation from February 2022 (for the reference period January 2022) of the Regulation (EU) 2021/379 of the European Central Bank of 22 January 2021 concerning the balance sheet items of credit institutions and the monetary financial institutions sector (recast) (ECB/2021/2) requires the modification of certain supplementary description tables of Schema A, Book I to enable the National Bank of Belgium to fulfill its statistical obligations vis-à-vis the ECB.

The law of 22 April 2016 transposing into Belgian law Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property (applicable to credits requested from April 1, 2017) has modified the definition of "mortgage credits," which can now have an immovable or movable purpose 1. This legal modification requires an adaptation of Schema A, Book I to be able to provide adequate "mortgage credit" statistics to the ECB.

Furthermore, the Bank wishes to explain certain clarifications regarding Schema A reporting.

Reporting modalities: The sections below explain in detail the adaptations made to Schema A 2. Regarding implementation:

• the modifications appearing in Part I (with the exception of the point relating to netting applied at the level of (reverse) repo operations and the use of lists of domestic economic units composing the economic sectors) and in points 3 to 6 inclusive of Part II of this circular will enter into force for the situation relating to the reference month of January 2022 for monthly reports and for the situation relating to the reference month of March 2022 for quarterly reports;
• the modifications relating to netting applied at the level of (reverse) repo operations as well as the use of lists of domestic economic units composing the economic sectors which appear in Part I will enter into force for the situation relating to the reference month of August 2021 (at the same time as circular NBB_2021_001);
• the modifications appearing in points 1 and 2 of Parts II and III of this circular can be applied immediately in reporting, but must be implemented no later than in the reporting for the reference month of August 2021 (with circular NBB_2021_001).

I. Regulation (EU) 2021/379 of the European Central Bank of 22 January 2021 concerning the balance sheet items of credit institutions and the monetary financial institutions sector (recast) (ECB/2021/2)

The revision of Regulation ECB/2013/33 induces the following modifications in the supplementary description tables of Schema A (territorial basis):

1. new instruments for the analysis of monetary and credit evolution, in particular:
   1.1 notional cash pool positions – tables 02.11, 02.22 and 03.49;
   1.2 loan transfers: harmonization of balances, flows and adjustments related to valuation effects – the new tables 02.14, 02.15 and 02.16 replace table 02.12;
   1.3 joint liabilities – table 02.11 3;
   1.4 credits for the advance payment of tax – table 02.11 4.

2. more detailed breakdowns of generic balance sheet items of banks intended to provide a more complete interpretation of bank activities from the point of view of monetary and financial stability (new table 03.61):
   2.1 capital and reserves;
   2.2 non-financial assets;
   2.3 other claims and commitments.

3. breakdown "of which United Kingdom" within the geographic breakdown "Rest of the world";

4. more detailed breakdown of initial credit maturities (table 02.11) in order to align with interest rate statistics (MIR): ≤ 1 year, > 1 year and ≤ 2 years, > 2 years and ≤ 5 years and > 5 years.

Some requirements that have become obsolete (in particular because they are no longer required by the ECB) or that can be derived from other statistical collections have also been removed:

1. credits secured by real estate security (table 02.11);
2. distinction between "fixed rate" and "variable rate" for term loans > 1 year (table 02.11);
3. margins related to derivative instruments (tables 01.11, 01.21, 02.11 and 02.22);
4. table 03.41 (Securities, other negotiable instruments and financial fixed assets: sectoral distribution according to the issuer), insofar as the latter can be calculated with sufficient accuracy based on the "Securities Holding – SHS" reporting.

Finally, two elements that allow the Bank to satisfy the requirements of Regulation ECB/2021/2:

1. a certain form of netting is authorized for certain repo and reverse repo operations under Belgian GAAP, and therefore also in Schema A. Insofar as such netting is not consistent with the methodology of Regulation ECB/2021/2 5, an additional table (table 03.62) has been introduced, in order to ensure conceptual compliance between Schema A and the ECB Regulation without having to modify the accounting provisions applicable to Schema A. More precisely, table 03.62 collects the amount of netting applied at the level of (reverse) repo operations;
2. banks are required to use the lists of domestic economic units composing the economic sectors to establish their sectoral breakdown of domestic counterparties.

II. Law of 22 April 2016 transposing into Belgian law Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property

The law of 22 April 2016 induces the following modifications:

1. following the law of 22 April 2016, references to the law of 4 August 1992 on mortgage credit in the relevant paragraphs of the Schema A instructions have been adapted as provided in the text at the end of this circular;
2. given the definition of a mortgage credit under the law of 22 April 2016, the Bank wishes to clarify that for the purposes of Schema A, bridge credits (or linking credits) 6 must be treated as mortgage credits and must therefore be declared in item 121.5 and the sub-items of Schema A;
3. the breakdown of item 3 of table 02.11 ("Non-mortgage term loans") has also been modified to allow isolating credits intended for the renovation of an immovable property that are not secured by a mortgage or comparable security, insofar as the latter are considered as consumer credits under the law of 22 April 2016 but must be included in the category of mortgage credits within the framework of the ECB Regulation;
4. the subdivision of item 4 of table 02.11 ("Mortgage loans") of table 02.11 has been adapted to isolate non-immovable destination mortgage loans that must be allocated, within the framework of the ECB Regulation, not to mortgage credits but to consumer credits;
5. the structure of table 03.49 being quite comparable to that of table 02.11 (at least for the part relating to credits), the adaptations of this table are similar to those applied to table 02.11;
6. the structure of tables 02.14, 02.15 and 02.16 is modeled on the same logic as that of table 02.11, and this in order to be able to isolate:
   6.1 within mortgage credits: securitizations or sales of mortgage credits with non-immovable destination;
   6.2 within non-mortgage term loans: securitizations or sales of credits intended for the renovation of an immovable property that are not secured by a mortgage or comparable security.

III. Other modifications

Furthermore, the Bank has decided to make other modifications to Schema A in order to clarify the current reporting instructions.

1. Treatment of negative interest rates in the balance sheet and income statement
   Due to the persistent low interest rates, the remuneration of certain financial instruments has become negative. To integrate this new reality into Schema A, the following instructions have been put in place:
   regarding the income statement:

• negative "interests and similar income" (items 411.xx) must be recorded as "interests and similar charges" in Schema A (item 511.xx). Negative "interests and similar income" are therefore treated as charges;
• negative "interests and similar charges" (item 511.xx) must be recorded mutatis mutandis according to the same regulation as negative "interests and similar income". Negative "interests and similar charges" are therefore treated as income.

6 By bridge credits (or linking credits), we mean credits intended to cover the period between the purchase and sale of an immovable property.

2 For certain points, a modification of the current Schema A instructions is necessary, as provided in the text at the end of this circular.

3 For the purpose of consistency analysis with AnaCredit.

4 For consistency with the ECB/2021/2 methodology (and in particular the definition of consumer credits).

5 See in particular Article 8(2)(c): “reporting agents shall not net deposit liabilities and loans against any other assets or liabilities”

Circular – Page 4/8 NBB_2021_11 – June 1, 2021

The following table schematically reflects this regulation:

INCOME STATEMENT
Positive remuneration Negative remuneration
Receivable
411.1 511.1
411.21 511.25
411.22 511.25
411.26 511.22
411.27 511.25
411.31 511.31
411.32 511.33
411.41 511.31
411.42 511.33
Payable
511.1 411.1
511.21 411.27
511.22 411.26
511.25 411.27
511.31 411.41
511.33 411.42
511.4 415.2

Negative accrued or due interest on financial instruments that are included in balance sheet accrual accounts is treated as follows 7:

• negative "interests and similar charges" to carry forward and positive "interests and similar income" accrued must be recorded respectively in items 262 "Income to be carried forward" and 261 "Charges to be charged";
• the same regulation applies mutatis mutandis to negative "interests and similar charges" to be charged and negative "interests and similar income" to be carried forward.

The following table schematically reflects this regulation:

BALANCE SHEET
Positive remuneration Negative remuneration
Receivable
Income to be charged to the current accounting period 162 261 Income to be charged to the following accounting period 262 161 Payable Charges to be charged to the current accounting period 261 162 Charges to be charged to the following accounting period 161 262

7 It should be specified that this treatment method does not apply to instruments for which negative interest must be deducted from the balance and is therefore not treated through accrual accounts.

NBB_2021_11 – June 1, 2021 Circular – Page 5/8

2. Treatment of regulated and unregulated savings products
   Only regulated savings deposits (covered by Article 2 of the Royal Decree of 27 August 1993) may be mentioned in Schema A under item 221.6 "Regulated savings products".

According to the Schema A instructions, savings products that are not considered as "regulated savings products" (savings products that do not meet the conditions referred to in the aforementioned Royal Decree) – and according to the characteristics 8 of these products – must be recorded in one of the following items of Schema A: 221.1 "Demand deposits", 221.2 "Term or with notice < 1 month", 221.3 "Term or with notice ≥ 1 month and ≤ 1 year", 221.4 "Term or with notice > 1 year" 9.

3. Treatment of modifications made to the contractual conditions of claims and securities, in particular the Belgian moratoria granted following the COVID-19 pandemic
   This circular clarifies that the economic loss incurred by these contractual modifications must be immediately recorded in the income statement. The text at the bottom of this circular takes these clarifications into account in the Schema A instructions 10.

The annexes of this circular replace the supplementary description tables and the corresponding instructions published in the current version of Schema A.

A copy of this circular is sent to the auditor(s), approved auditor(s) of your institution.

Please accept, Madam, Sir, the assurance of my distinguished consideration.

Pierre Wunsch
Governor

Annexes: 2

8 The transferability of funds, the notice period associated with savings products, the remuneration granted, the counterparties, etc.

9 This clarification is consistent with the existing Schema A instructions in Chapter 3, Part 2, namely: deposits with a fixed term, possibly renewable, of one working day at most, or with a notice period of one working day may also be recorded in item 221.1 (with the exception of special deposits referred to in sub-item 221.5), and debts resulting from deposit accounts (including passbooks) with a fixed term or with a notice period greater than one working day are recorded in items 221.1 to 221.4.

10 Modifications of conditions occurring within the usual framework of revision clauses provided for contractually or by commercial policy are not covered here.

NBB_2021_11 – June 1, 2021 Circular – Page 7/8

SUMMARY WITH CLARIFICATIONS TO SCHEMA A INSTRUCTIONS (AS PROVIDED IN THE SCHEMA FOR SOCIAL AND TERRITORIAL REPORTING - VERSION MAY 20, 2014)

1. Treatment of modifications made to the contractual conditions of claims and securities, in particular the moratoria granted following the COVID-19 pandemic

In CHAPTER I: GENERAL INSTRUCTIONS – SECTION 2: PARTICULAR COMMENTARY ON SOME RULES – § 8: Treatment of impairments and provisions, the following point 7 is added to point B:

"Modifications made to the contractual terms of claims and securities are not explicitly covered by the regulation on the annual accounts of credit institutions (Royal Decree of 23 September 1992). The modifications covered can take several forms, such as a temporary suspension of payments or a rescheduling of the claim (or security). The modifications covered can result from a renegotiation with the debtor as well as from external measures such as a general moratorium on certain claims. Modifications of conditions occurring within the usual framework of revision clauses provided for contractually or by commercial policy are not covered here.

For the purposes of Schema A, when these modifications result in an economic loss for the institution (or more rarely an economic gain), this must be recognized immediately in the income statement. This recognition will be carried out by taking into account a discount at the time of the contract modification, with a corresponding reduction in the gross accounting value of the claims or securities concerned."

2. Adaptation of references for mortgage credits following the law of 22 April 2016 11 and bridge credits

In CHAPTER III: COMMENTARY ON BALANCE SHEET ITEMS – SECTION 1: ASSETS – Claims on customers, item 121.5 and its sub-items are modified as follows:

121.5. Mortgage loans
Loans referred to in the Code of Economic Law, Book I, Chapter 5, Article I.9 are recorded here.

"53/1° mortgage credit with an immovable destination: the credit contract secured by a right linked to a residential immovable property or a mortgage security which is intended for the financing of the acquisition or conservation of real estate rights as well as the costs and taxes related thereto, or the refinancing of the same credit contract.

Also considered as a mortgage credit with an immovable destination:
a) the credit contract not secured by a mortgage security intended for the financing of the acquisition or conservation of real estate rights, with the exception of the renovation of an immovable property; b) the credit contract intended for the acquisition or conservation of a building as referred to in Article 2, paragraph 1, of the law of 26 March 2012 concerning the registration of inland navigation buildings other than inland navigation boats referred to in Article 271 of Book II of the Commercial Code;

11 Law of 22 April 2016 amending and inserting provisions on consumer credit and mortgage credit in several books of the Code of Economic Law.

Circular – Page 8/8 NBB_2021_11 – June 1, 2021

53/2° mortgage credit with a movable destination: the credit contract secured by a right linked to a residential immovable property or a mortgage security which is not intended for the acquisition or conservation of real estate rights as well as the costs and taxes related thereto, or the refinancing of the same credit contract;

53/3° mortgage credit: the credit that can constitute a mortgage credit both with a movable and immovable destination."

Loans on guarantee when a mortgage security is granted in favor of the guarantor or surety, as referred to by the code, are to be reported in off-balance sheet items.

In the case where the guarantee for a mortgage loan with a movable destination changes from an immovable property to a movable property, a reclassification of the amounts appearing in the item "Mortgage loans" (line 121.5 in Schema A) into the item "Non-mortgage term loans" (line 121.4 in Schema A) is not required.

121.51. mortgage loans with capital reconstruction with the credit institution
Current claims resulting from mortgage loans with reconstruction of the lent capital with the reporting institution are included in this sub-item.

In accordance with the Code of Economic Law, Book I, Chapter 5, Article I.9, 62°, there is capital reconstruction "when the consumer undertakes to make payments during the duration of the credit contract, which, although conventionally allocated to the repayment of capital, do not entail immediate corresponding release towards the lender. They only reduce the capital at the times and under the conditions provided by the contract or by the Code of Economic Law."

121.52. mortgage loans with amortization
Current claims resulting from mortgage loans with amortization of the lent capital are included in this sub-item. In accordance with the Code of Economic Law, Book I, Chapter 5, Article I.9, 61°, there is capital amortization "when the consumer undertakes to make payments during the entire duration of the credit, which immediately reduce the capital to the extent due."

121.53. other mortgage loans
Current claims resulting from mortgage loans of a type other than those referred to in sub-items 121.51 and 121.52 are mentioned in this sub-item. In particular, mortgage loans with reconstruction with a third party referred to in the Code of Economic Law, Book VII, Title 4, Chapter 2, Article VII.135, § 1, as well as those fully repayable at maturity, but without reconstruction, or repayable in advance without any obligation of periodicity being respected, are included. Bridge credits 12 (with the exception of bridge credits intended for renovation that have no immovable property as security, these credits must be recorded in item 121.4 "Non-mortgage term loans") are also included in this sub-item.

Furthermore, in item 221.71 "Reconstruction Funds" of Schema A, the reference to the new law has also been adapted.

This sub-item includes capitals reconstructed in execution of mortgage loans granted by the reporting institution, with reconstruction with this same establishment by techniques other than that of mathematical reserves to be entered in sub-item 221.73. Among others, the savings constitutions referred to in the Code of Economic Law, Book VII, Title 4, Chapter 2, Article VII.135, § 1, other than life insurance and capitalization contracts, as well as capital repayments, repayments not entailing immediate corresponding release of the borrower, must be included here.

12 By bridge credits (or linking credits), we mean credits intended to cover the period between the purchase and sale of an immovable property.