In March, the Dutch Central Bank (DNB) announced a number of measures for banks in response to COVID-19, in large part following the approach and recommendations of the European Central Bank (ECB) and the European Banking Authority (EBA). The most important measures include:
- Lowering of systemic capital buffers for the most systemically important Dutch banks
- Postponing the introduction of a mortgage loan risk-weighting floor
- Requesting banks not to pay out dividends and refrain from share buybacks.
DNB estimates that as a result of these measures, EUR 8 billion in capital will be freed up to support lending to the Dutch economy, including households, small businesses and corporate borrowers, and/or to absorb expected losses of existing exposure to these borrowers.
Lowering capital buffers
The systemic buffer requirement for the three major Dutch banks - ING, Rabobank and ABN AMRO - has been lowered. Although all three banks were required to maintain a 3% systemic risk buffer, their lowered buffer requirements vary. The overall impact of the changes is that ING will need to keep a 2.5% buffer, Rabobank a 2% buffer and ABN AMRO a 1.5% buffer.
In due course, the lowered systemic capital buffer will be compensated by gradually raising the countercyclical capital buffer (CCyB) requirement from its current level of 0% to a level of 2%. The fact that the future CCyB increase has a dissimilar impact on the three banks explains the difference in reduced buffer requirements for each bank. As the CCyB is calculated on Dutch exposures only, the future increase will be relatively limited for ING, which holds many international exposures. For ABN AMRO, whose exposure is almost entirely limited to the Dutch economy, the CCyB increase will have the greatest impact.
Postponing introduction of mortgage loan risk-weighting floor
The postponed measure, which precedes a similar measure that will be introduced with the implementation of the Basel III reforms, sought to impose a floor to the risk weighting assigned by banks to their mortgage loan portfolios, thereby improving banks’ resilience against the systemic risk of a significant drop in house prices.
The measure would have subjected the Dutch banking sector to a combined additional capital requirement of over EUR 3 billion. The postponement ensures that this amount will be available to support lending. The new effective date will be decided later this year but DNB expects the measure to be introduced before the CCyB is gradually built up.
Calling on banks not to pay dividends or effect share buy backs
DNB has endorsed the ECB's recommendation for banks not to make dividend payments or effect share buy backs until at least 1 October 2020. The recommendation therefore applies both to significant and less significant Dutch banks.
For a comprehensive overview of the approach taken by supervisory authorities to the application of banking regulation through the COVID-19 pandemic, please see our client bulletin 'Banking Regulation during the COVID-19 Crisis' attached.