Practical Application of the Law of 25 April 2014 on Credit Institutions and Brokerage Companies, Amended by the Law of 26 November 2021 to Transpose Directive 2019/2162

NBB_2022_15 – 17 January 2022 Circular – Page 1/9 boulevard de Berlaimont 14 – BE-1000 Brussels tel. +32 2 221 54 65 company number: 0203.201.340 RPM Brussels www.bnb.be Circular Brussels, 14 June 2022 Reference: NBB_2022_15 your contact: Lisanne Vanderstappen tel. +32 2 221 41 97 lisanne.vanderstappen@nbb.be Practical Application of the Law of 25 April 2014 on the Status and Supervision of Credit Institutions and Brokerage Companies, as Amended by the Law of 26 November 2021 to Ensure the Transposition of Directive 2019/2162 Concerning the Issuance of Covered Bonds and Public Supervision of Covered Bonds Scope This circular is addressed to credit institutions listed in Article 82, paragraph 1, of the Law of 25 April 2014 on the Status and Supervision of Credit Institutions and Brokerage Companies, and to Belgian covered bonds issued and listed in Article 82, paragraph 2, of the same law. Summary/Objectives This circular clarifies the practical application of the Law of 25 April 2014 on the Status and Supervision of Credit Institutions and Brokerage Companies, as amended by the Law of 26 November 2021 to ensure the transposition of Directive 2019/2162 concerning the issuance of covered bonds and public supervision of covered bonds, and of the Royal Decree of 11 October 2012 on the issuance of Belgian covered bonds by Belgian credit institutions, as amended by the Royal Decree of 27 January 2022. This circular will enter into force on 8 July 2022. Structure

1. General authorization of the credit institution
2. Specific authorization for each covered bond issuance
3. Clarifications on the limitation of covered bonds to be issued
4. List of credit institutions authorized to issue covered bonds – List of issued covered bonds
5. Clarifications on the definition and valuation of cover assets
6. Clarifications on the maintenance of a special asset register
7. Clarifications on the liquidity test
8. Clarifications on risk management
9. Reporting

Circulaire – Page 2/9 NBB_2022_15 – 14 June 2022 Madam, Sir,

1. General authorization of the credit institution Pursuant to Article 79 of the Law of 25 April 2014 on the Status and Supervision of Credit Institutions and Brokerage Companies, as amended by the Law of 26 November 2021 to ensure the transposition of Directive 2019/21621 (hereinafter "the Banking Law"), a credit institution wishing to issue covered bonds must obtain prior authorization from the supervisory authority2. This authorization is granted only if the supervisory authority is convinced that the credit institution, on the one hand, meets the requirements set out in Article 80 of the Banking Law regarding the organizational capacity to issue and supervise Belgian secured obligations, and on the other hand, meets any specific conditions imposed by itself based on the requirements of Article 80 of the Banking Law for the issuance of covered bonds. The supervisory authority assesses compliance with the requirements of the law and regulations based on a complete and detailed application file submitted by the credit institution, the conclusions of on-site inspections, and information collected from the credit institution and possibly third parties. The minimum information required to obtain authorization to issue covered bonds is described in Annex 1. The supervisory authority assesses compliance with these requirements taking into account the structure set up within a group for the issuance of covered bonds. A credit institution may outsource part of the activities or processes related to the initiation and management of credits serving as cover for the issued covered bonds, taking into account the conditions defined by the supervisory authority. In this regard, the requirements defined in Article 66 of the Banking Law and the standards defined regarding outsourcing by the supervisory authority serve as reference. Each application file for authorization, general or specific, must be preceded by a letter in which the institution formally requests authorization to issue covered bonds. In this letter, the senior management of the institution declares that all relevant information is communicated in the file and that this information correctly reflects the situation at the time of submitting the application. The senior management of the institution also confirms having conducted a self-assessment regarding compliance with the legal and regulatory requirements set for the issuance and management of covered bonds, resulting in a positive outcome. The letter is signed by at least one member of the management committee. Furthermore, a copy of the letter and the general authorization application file is also sent to the institution's approved auditor, who is responsible for drawing up a report on the organizational quality of the institution with regard to the provisions on the issuance of covered bonds, as specified in Article 80, §2, paragraph 2, of the Banking Law. The supervisory authority may always request additional information if it deems it necessary to rule on a general authorization application to issue covered bonds. The 1 Directive (EU) 2019/2162 of the European Parliament and of the Council of 27 November 2019 concerning the issuance of covered bonds and public supervision of covered bonds and amending Directives 2009/65/EC and 2014/59/EU. 2 The European Central Bank (ECB) is the supervisory authority for significant institutions (the list of institutions subject to direct ECB supervision can be consulted via the following link: https://www.bankingsupervision.europa.eu/banking/list/who/html/index.en.html) The NBB is responsible for the supervision of less significant institutions.

NBB_2022_15 – 14 June 2022 Circular – Page 3/9 request for additional information does not in principle affect the time limit required for the supervisory authority to rule on the application, unless the quantity and content of the requested additional information are significant and/or if the credit institution does not provide them to the supervisory authority in time (i.e., within the time limit specified in the request for additional information). 2. Specific authorization for each covered bond issuance Any credit institution generally authorized to issue covered bonds must, for each covered bond issuance (if it does not fall under an already authorized program) and for each covered bond issuance program, request prior specific authorization from the Bank. This specific prior authorization is granted only if the credit institution meets the requirements set out in Article 81 and the provisions of Annex III of the Banking Law and meets any specific conditions imposed by the Bank for the issuance of covered bonds based on the requirements set out in Article 81 of the Banking Law. Credit institutions that organize covered bond issuances through issuance programs need only request specific authorization at the beginning of each program. However, they regularly transmit to the Bank a statement of the issuances concerned and inform the Bank of any new issuance, so that the Bank can update the list defined in Article 82, §2. The minimum information that must be contained in the file transmitted to the Bank is described in detail in Annex 2. As mentioned in point 1 ("General authorization of the credit institution"), the application file for a specific authorization must be preceded by a letter in which the institution formally requests authorization to issue covered bonds. The Bank may always request the additional information it deems necessary to rule on the authorization application for a specific issuance. Here again, the request for additional information will not in principle extend the period required by the Bank to rule on the application, unless the quantity and content of the necessary additional information are substantial and/or if the credit institution does not transmit them in time (i.e., within the time limit specified in the request for additional information). The covered bond issuer provides the portfolio supervisor with all the cooperation required and transmits to him all the information necessary for the proper conduct of his mission, up to the end of his mandate. The issuing institution transmits to the duly authorized portfolio supervisor all reports concerning this activity and in particular: • reports of senior management assessments; • reports, findings or any other form of information emanating from the approved auditors of the institution; • internal audit reports. The covered bond issuer immediately informs the Bank and the supervisor if it no longer meets one or more of the requirements set out in the Banking Law and in the Royal Decree of 11 October 2012 on the issuance of Belgian covered bonds by Belgian credit institutions, as amended by the Royal Decree of 27 January 20223 (hereinafter "the RD" or "the Royal Decree"). Furthermore, the credit institution immediately informs the Bank and the supervisor of any adaptation of the contractual provisions of the issuances. 3 Royal Decree of 27 January 2022 amending the Royal Decree of 11 October 2012 on the issuance of Belgian covered bonds by Belgian credit institutions, the Royal Decree of 11 October 2012 on the portfolio manager in the context of the issuance of Belgian covered bonds by a Belgian credit institution, the Royal Decree of 12 November 2012 on collective investment undertakings that meet the conditions of Directive 2009/65/EC and the Royal Decree of 25 February 2017 on certain public alternative investment funds and their management companies, and containing various provisions.

Circular – Page 4/9 NBB_2022_15 – 14 June 2022 3. Clarifications on the limitation of covered bonds to be issued From 8 July 2022 to 1 January 2024, the transitional provision regarding the covered bond emission limit as defined in Article 26 of the Royal Decree of 27 January 2022 will apply. This transitional provision stipulates that a credit institution can no longer issue new covered bonds if the amount of cover assets exceeds 8% of its total assets, unless the Bank has previously authorized it. The Bank can only grant its prior authorization: • on a temporary basis, when justified by exceptional circumstances affecting the credit institution in question and requiring increased recourse to this source of financing. The Bank sets a deadline by which the 8% emission limit must be respected again; or • to a credit institution whose subordinated commitments offer sufficient protection to reach the threshold of 8% of its total liabilities, including own funds, as referred to in Article 255, §6, 3° of the Banking Law or in Article 27, paragraph 7, a) of Regulation (EU) No 806/2014. As long as a credit institution meets this requirement and the Bank does not deem it necessary to impose a limit on an individual basis to protect creditors other than holders of Belgian covered bonds, no emission limit will apply. As of 1 January 2024, the general 8% emission limit will be removed. Both during the transitional period and from 1 January 2024, the Bank may impose, on an individual basis, a limitation concerning the volume of issuance of Belgian covered bonds to an issuing credit institution, in order to protect the creditors of the credit institution other than holders of Belgian covered bonds. The limitation that the Bank may impose applies only to new issuances. The Bank will assess the need to set such an emission limit, notably by analyzing criteria that demonstrate that creditors of the credit institution other than holders of Belgian covered bonds must be protected. At a minimum, the following criteria will be taken into account: • the subordinated commitments of the issuing credit institution must offer sufficient protection to reach the threshold of 8% of its total liabilities, including own funds, as referred to in Article 255, §6, 3° of the Banking Law or in Article 27, paragraph 7, a) of Regulation (EU) No 806/2014; • compliance with existing indicators for encumbered assets. If the issuing credit institution individually exceeds a flashing threshold for encumbered assets in the narrow or broad sense as referred to in Circular NBB_2016_34, this credit institution must come into compliance within a certain period. Failing that, the Bank may impose an emission limit for covered bonds. If the issuing credit institution individually exceeds a recovery plan threshold for encumbered assets in the narrow or broad sense, the Bank will impose an emission limit for covered bonds. For the purpose of calculating the emission limit provided for in Article 10, §1 of the Royal Decree of 11 October 2012, the numerator, namely the amount of cover assets, is equal to the sum of the amounts included in the consolidated financial statements of the issuing institution, for each of the assets allocated to the special asset pool of the covered bonds. The calculation covers all issued covered bonds. The denominator, namely the total assets of the issuing institution, corresponds to the total balance sheet on a consolidated basis of the institution.

NBB_2022_15 – 14 June 2022 Circular – Page 5/9 4. List of credit institutions authorized to issue covered bonds – List of issued covered bonds Pursuant to Article 82, §1 of the Banking Law, the Bank maintains a list of credit institutions that it or the ECB has authorized to issue covered bonds. It publishes this list on its website. The list mentions the effective date of each authorization. If a credit institution is no longer listed, it is no longer authorized to issue new covered bonds or to proceed with new issuances under a previously approved program. Pursuant to Article 82, §2 of the Banking Law, the Bank publishes a separate list of covered bond issuances carried out by credit institutions. This separate list notably mentions the ISIN code, the outstanding amount and the maturity date (as well as, where applicable, the ultimate maturity date) of the issued covered bonds. If the authorization covers an issuance program, the list mentions the total authorized issuance amount under the program as well as the amount already issued. The published list distinguishes between covered bonds that meet the requirements defined in Article 6 of the Banking Law for a Belgian cover bond, a European covered bond, a European covered bond (of higher quality) and covered bonds that do not meet them. Covered bonds are removed from the list when they have matured and been repaid. The Bank ensures that the information provided on its website is regularly updated. 5. Clarifications on the definition and valuation of cover assets Article 3 of the Royal Decree defines the eligibility criteria for cover assets. Cover assets can belong to four categories, namely: • Category 1: mortgage claims secured by a residential property located in a Member State of the European Economic Area, • Category 2: mortgage claims secured by a commercial property located in a Member State of the European Economic Area, • Category 3: claims on or secured by: (i) central public authorities or central banks that are part of the EU (or the ESCB) and central public authorities or central banks that are not part of the EU (or the ESCB) but are members of the OECD and fall under a credit quality step of category 1 or 2, (ii) regional or local authorities or public sector entities of EU Member States and regional or local authorities or public sector entities of OECD Member States that are not part of the EU and have the same risk weighting as exposures to institutions or central public authorities and central banks pursuant to, respectively, Article 115, paragraph 1 or 2 or Article 16, paragraph 1, 2 or 4 of Regulation No 575/2013 and fall under the first or second credit quality step. (iii) multilateral development banks or international organizations that have a risk weighting of 0% pursuant to Articles 117 and 118 of Regulation No 575/2013, • Category 4: claims on credit institutions that fall under credit quality steps of category 1 and category 2, when these exposures take the form of: (i) short-term claims with a maturity equal to or less than three months or short-term deposits with an initial duration not exceeding 100 days if they are used to meet the liquidity requirement of the special asset pool as defined in Article 13, of Annex 3 of the Banking Law,

Circular – Page 6/9 NBB_2022_15 – 14 June 2022 (ii) derivative contracts that meet the requirements of Article 1/3 of Annex 3 of the Banking Law and Article 4 of the Royal Decree. The first two categories of assets encompass mortgage claims that are subject to "flexible" LTV limits (as required in Article 129 of Regulation No 575/2013 (CRR), as amended by Regulation (EU) 2019/2160). These limits determine up to what amount these claims can contribute to the coverage requirements of covered bonds. A mortgage claim secured by a residential property can contribute up to the lower of the values between the principal of the corresponding mortgages and 80% of the value of the residential property that is the subject of the mortgage or mortgages. A mortgage claim secured by a commercial property can contribute up to the lower of the values between the principal of the corresponding mortgages combined with all prior mortgages (i.e., the share of the claim that is covered by one or more mortgages) and 60% of the value of the commercial property that is the subject of the mortgage or mortgages. The value of the aforementioned corresponding mortgages for claims secured by a residential property is determined in accordance with the provisions of Article 6, paragraph 2, paragraphs 2 to 6 and without prejudice to the provisions provided for in Article 6, paragraph 4 which apply if the mortgage covers multiple claims and not all claims are included in the special asset pool. For a claim secured by a commercial property, the corresponding mortgages will be determined based on Article 6, paragraph 3, paragraphs 2 to 4 of the Royal Decree. For the calculation of the coverage requirements defined in Article 5, paragraphs 1 and 2 of the Royal Decree, nominal values will be determined in accordance with the valuation rules as defined in Article 6 of the Royal Decree. The "flexible" LTV limits are applied for mortgage claims secured by a residential property via Article 6, paragraph 2 of the Royal Decree and for mortgage claims secured by a commercial property via Article 6, paragraph 3 of the Royal Decree. For the calculation of the amortization test defined in Article 5, paragraph 3 of the Royal Decree, the principal of the mortgage claim will be restricted to the limit applicable to this cover asset as calculated at the time the coverage tests are performed. A residential or commercial property must be evaluated by an expert who has the qualifications, competence and expertise necessary to carry out a valuation and who plays no role in the credit acceptance process (cf. Article 208, paragraph 3, point b of Regulation No 575/2013). The valuation must be carried out at market value or below it within the meaning of Article 4, paragraph 1, point 76 of Regulation No 575/2013 and must be established clearly and transparently in a document drawn up by the independent expert (cf. Article 229, paragraph 1 of Regulation No 575/2013). The valuation of real estate must be carried out in accordance with the requirements of Circular NBB_2021_18 – EBA guidelines on granting and monitoring loans (EBA/GL/2020/06). More specifically, section 7 of the EBA guidelines (EBA/GL/2020/06) will apply to the valuation, monitoring and re-evaluation of real and personal security interests, excluding financial collateral, which has been in place since 1 January 2022. To be eligible as security for cover assets, real estate must meet the requirements of Article 208 of Regulation No 575/2013. The values of all real estate must be checked regularly, and at least once a year in accordance with Article 208, paragraph 3, point a. The issuing institution must have procedures enabling it to ensure that the real estate concerned is duly insured against the risk of damage (cf. Article 208, paragraph 5 of Regulation No 575/2013 and EBA Q&A 2015_2470).

NBB_2022_15 – 14 June 2022 Circular – Page 7/9 For the application of the coverage tests (Article 5 of the Royal Decree), the contribution (principal and interest or nominal value) of a cover asset for which there is a default within the meaning of Article 178 of Regulation No 575/2013 will be equal to zero. A cover asset for which a payment delay of more than 30 days has been observed will only be taken into account for 50% of its coverage contribution (principal and interest or nominal value). 6. Clarifications on the maintenance of a special asset register A register of cover assets and the relevant Belgian covered bonds is kept for any issuance or for any issuance program. The cover assets, including derivative contracts as well as the security interests securing the cover assets that are part of the covered bond's special asset pool, must be recorded in a register according to the following principles: • at all times, the cover assets

Circulaire – Page 8/9 NBB_2022_15 – 14 June 2022 must be clearly identified and linked to the covered bonds they secure; • the register must be updated regularly to reflect any changes in the composition of the cover assets or the covered bonds; • the register must allow for the verification of the eligibility of the cover assets and the compliance with the coverage requirements; • the register must be kept in a durable medium and be accessible to the supervisory authority upon request. The credit institution must ensure that the register is accurate, complete and up-to-date. The approved auditor of the institution must verify the accuracy of the register as part of its annual audit. 7. Clarifications on the liquidity test The credit institution must ensure that the special asset pool of the covered bonds meets the liquidity requirements set out in Article 13 of Annex 3 of the Banking Law. This requires the institution to maintain a sufficient amount of liquid assets in the special asset pool to cover the cash outflows related to the covered bonds in the event of a stress scenario. The liquidity test must be performed on a daily basis. The institution must define the stress scenarios to be used for the test, taking into account the specific characteristics of the covered bonds and the special asset pool. The institution must also define the liquid assets that can be included in the special asset pool for the purpose of the liquidity test. The institution must report the results of the liquidity test to the Bank on a regular basis. The Bank may request additional information or impose specific requirements if it considers that the institution's liquidity position is not adequate. 8. Clarifications on risk management The credit institution must have a robust risk management framework in place for the issuance and management of covered bonds. This framework must cover all material risks associated with the covered bonds, including credit risk, market risk, liquidity risk, operational risk and legal risk. The institution must define the risk appetite and limits for the covered bond program. It must also have procedures for identifying, measuring, monitoring and controlling these risks. The institution must report on the risk management framework to the Board of Directors and to the supervisory authority on a regular basis. The institution must ensure that the risk management framework is independent from the business lines involved in the issuance and management of covered bonds. The risk management function must have sufficient authority, resources and access to information to perform its duties effectively. 9. Reporting The credit institution must submit regular reports to the Bank on the issuance and management of covered bonds. The reports must include information on the authorization status, the list of issued covered bonds, the composition of the special asset pool, the coverage tests, the liquidity test and the risk management framework. The frequency and content of the reports will be specified by the Bank. The institution must ensure that the information provided in the reports is accurate, complete and up-to-date. The institution must also cooperate with the Bank in any supervisory review or inspection related to the covered bond program.

Annex 1 Minimum information required for the general authorization application

1. Organizational structure and capacity • Description of the organizational structure dedicated to the issuance and management of covered bonds; • Details of the senior management responsible for the covered bond program; • Description of the internal control and risk management systems; • Details of the approved auditor's report on organizational quality.
2. Legal and regulatory compliance • Confirmation of compliance with the Banking Law and the Royal Decree; • Description of the procedures for ensuring ongoing compliance; • Details of any previous supervisory measures or sanctions.
3. Financial information • Consolidated financial statements of the institution; • Projections of the covered bond program; • Details of the subordinated commitments, if applicable.
4. Other information • Any other information requested by the Bank.

Annex 2 Minimum information required for the specific authorization application

1. Issuance details • Description of the covered bond issuance program or specific issuance; • ISIN code, if available; • Amount of the issuance; • Maturity date; • Coupon rate and payment frequency; • Use of proceeds.
2. Cover assets • Description of the cover assets to be included in the special asset pool; • Valuation of the cover assets; • Confirmation of eligibility of the cover assets; • Details of the security interests securing the cover assets.
3. Coverage and liquidity • Results of the coverage tests; • Results of the liquidity test; • Description of the stress scenarios used for the tests.
4. Risk management • Description of the risk management framework for the issuance; • Details of the risk limits and appetite; • Confirmation of the independence of the risk management function.
5. Other information • Any other information requested by the Bank.

NBB_2022_15 – 14 June 2022 Circular – Page 9/9

Eurosystem Banque Nationale de Belgique Bank van België Nationale Bank van België