Annual disclosure regarding the designation of Belgian O-SIIs and capital surcharges (1 December 2022)

Annual disclosure regarding the designation of Belgian systemically important institutions and determination of their capital surcharges (1 December 2022) In its capacity as Macroprudential Authority, the Board of the National Bank of Belgium (NBB), as it does every year, has examined what Belgian banks should be considered as domestic systemically important institutions, (in EU legislation: “other systemically important institutions”, or O-SIIs). The NBB has also examined what capital surcharges to impose on such institutions. Systemically important banks are institutions whose failure would have a significant impact on the financial system or the real economy. The NBB imposes upon such banks additional capital requirements on two grounds: (1) to reduce their probability of default, given the high economic and social costs of such a default; (2) to ensure that the institution has such buffer as reflects the negative externalities that its failure would generate. O-SII identification The NBB based the renewed identification of the O-SIIs on the methodology specified in the EBA guidelines on the identification of O-SIIs 1 . This methodology consists of two steps, the first of which involves automatic designation of O-SIIs on the basis of a score and the second of which allows for discretionary designation of additional banks as O-SIIs. In the first step, a score is attributed to each institution to match its systemic importance, using quantitative criteria based on one or more mandatory indicators in the categories of size, substitutability (the ability of other institutions to rapidly take over critical services from an ailing bank), complexity, and interconnectedness. The individual score per indicator for each institution reflects its share in the total value for all Belgian banks and thus, in a way, represents its market share. The overall score for an institution is calculated as the weighted average of the scores for each indicator. Any institution whose overall score lies above a given threshold value is automatically designated as an O-SII. The indicators and their weights in the overall score are as follows:
Criterion Indicators Weight
Size Total assets 25.00%
Importance (including substitutability/financial system infrastructure) Value of domestic payment transactions 8.33% Private sector deposits from depositors in the EU 8.33% Private sector loans to recipients in the EU 8.33% Complexity/cross-border activity Value of OTC derivatives (notional) 8.33% Cross-jurisdictional liabilities 8.33% Cross-jurisdictional claims 8.33% Interconnectedness Intra-financial system liabilities 8.33% Intra-financial system assets 8.33% Debt securities outstanding 8.33% In the second step of the methodology, authorities may designate additional institutions as O-SIIs. In doing so, they may make use of other indicators, or place different weights on the mandatory indicators. 1 EBA guidelines EBA/GL/2014/10 of 16 December 2014 on the criteria to determine the conditions of application of Article 131(3) of Directive 2013/36/EU (CRD) in relation to the assessment of other systemically important institutions (O-SIIs).

The application of this methodology has resulted in the renewed O-SII designations of the eight Belgian banks that were designated as O-SIIs in 2021, albeit sometimes at a higher consolidation level. They are KBC Group, BNP Paribas Fortis, ING Belgium, Belfius Bank, Euroclear Holding, The Bank of New York Mellon, Investeringsmaatschappij Argenta and Crelan (following the takeover of Axa Bank Belgium). The first six of these banks qualified automatically as O-SIIs according to their scores in the first step of the EBA methodology. Argenta and Crelan have been designated as O-SIIs in the second step, through supervisory discretion. The scores of these eight institutions that were obtained in the first step of the methodology are reported below. EBA recommends using a threshold score of 350 basis points for the automatic designation of O-SIIs, but this threshold may be raised or lowered slightly, provided a sufficient degree of supervisory motivation is given. Institution O-SII score KBC Group 2511 BNP Paribas Fortis 2505 ING Belgium 1411 Belfius Bank 1339 Euroclear Holding 858 The Bank of New York Mellon 482 Investeringsmaatschappij Argenta 348 Crelan 338 Alternative indicators considered in the second step of the methodology were (1) private sector deposits from depositors in Belgium, (2) private sector loans to recipients in Belgium, (3) intra￾financial system liabilities with respect to Belgian counterparts and (4) intra-financial system assets with respect to Belgian counterparts. As the scope of these indicators is domestic, they are considered to be more appropriate for identifying domestic systemically important institutions than are some of the indicators with European or global scope that were employed in the first step. On the basis of these alternative indicators, both Argenta and Crelan can be designated as O-SIIs because their alternative score lies above the threshold of 350 basis points. O-SII buffers As the failure of larger, more systemically important institutions would give rise to greater-than￾proportional social costs, additional core equity tier-1 (CET1) capital requirements are imposed on institutions that are judged to be systemically important. This means that their capital requirements increase more than proportionally to their risk-weighted assets. For each of the eight O-SIIs, the NBB Board has decided to maintain the CET1 capital surcharges announced in 2015, albeit sometimes at a higher consolidation level. Such surcharges are imposed on the basis of Article 14 of Annex IV of the Belgian Banking Law 2 . Several criteria were taken into account in the O-SII buffer calibration, including the institution’s systemic importance as determined on the basis of its size and its O-SII score, as well as historical losses in the Belgian banking sector, stress test results, and level playing field considerations with respect to O-SIIs in other EU jurisdictions in terms of buffer levels and total capital requirements. The levels of
the CET1 capital surcharges are determined on the basis of the degree of systemic importance of the bank concerned. Less systemically important institutions (bucket 1 in the table 2 Law of 25 April 2014 on the legal status and supervision of credit institutions.

3. below) are required to maintain a 0.75% buffer, while more systemic institutions (bucket 2 in the table
   below) are required to maintain a 1.5% buffer3:
   Institution Bucket O-SII buffer rate
   KBC Group 2 1.5%
   BNPP Fortis 2 1.5%
   ING Belgium 2 1.5%
   Belfius Bank 2 1.5%
   Euroclear Holding 1 0.75%
   The Bank of New York Mellon 1 0.75%
   Investeringsmaatschappij Argenta 1 0.75%
   Crelan 1 0.75%
   This additional buffer requirement comes into force on 1 January 20234. This buffer is primarily structural., In the case of a persistent crisis, it can only be released temporarily, after coordination with the national and international institutions concerned. If the need for additional support measures were to arise, release of this buffer would likely be one of the final macroprudential tools used. 3 Taking into account such caps as laid down in Article 14, § 5, of Annex IV of the Belgian Banking Law. 4 Royal decree of 10 November 2022 approving the NBB Regulation of 12 April 2022 determining the method for designating domestic systemically important institutions and for setting the level of their CET1 capital buffer.