Quarterly decision on the countercyclical buffer rate (1 July 2016): 0%

Quarterly decision of the National Bank of Belgium on the countercyclical buffer rate (1 July 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 . 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.

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. "Setting the countercyclical buffer rate in Belgium: a policy strategy". 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 2016 Q1 -0.4 Households % GDP 2016 Q1 -0.3 Non-financial corporations % GDP 2016 Q1 -0.1 Bank loan growth y-o-y % 2016 M3 4.7 Households y-o-y % 2016 M3 5.1 Non-financial corporations y-o-y % 2016 M3 4.0 p.m. Credit-to-GDP ratio2 % GDP 2016 Q1 77.4 Non-financial private sector resilience Debt-to-GDP ratio % GDP 2015 Q4 116.7 Households % GDP 2015 Q4 59.5 Non-financial corporations % GDP 2015 Q4 57.2 Net financial assets % GDP 2015 Q4 136.6 Financial and assets markets Equity prices, nominal (BEL 20) y-o-y % 2016 M4 -10.2 Price-earnings ratio (BEL 20)3 – 2016 M4 19.2 House prices, nominal y-o-y % 2015 Q4 5.6 House prices, real y-o-y % 2015 Q4 4.5 10-year government bond yield % points/y 2016 M4 0.6 Bank lending rate on mortgage loans to households % points/y 2016 M3 2.3 Bank lending rate on loans to non-financial corporations % points/y 2016 M3 2.0 Banking sector resilience CET 1 capital ratio % 2016 Q1 14.8 Equity-to-total assets ratio % 2016 Q1 6.6 Loan-to-deposit ratio % 2016 Q1 93.8 Sources: Thomson Reuters, NBB. Monthly averages for daily data. Data are shown end of quarter (March, June, September, December) or for the latest month available. Outstanding 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. Price earnings (P/E) ratio is a trailing (12 months) P/E ratio.

STATISTICAL ANNEX
Sources: Thomson Reuters, NBB.

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