10 February 2020
The European Banking Authority (EBA) published today an Opinion following the notification by the Central Bank of the Netherlands (De Nederlandsche Bank – DNB) of its intention to modify capital requirements in order to address an increase in macroprudential risk. Based on the evidence submitted by the DNB, the EBA does not object to the adoption of the proposed measure, which is based on Article 458 (2) of the Capital Requirements Regulation (CRR). This new measure aims at enhancing the resilience of the Dutch banking sector to a potential severe downturn in the residential real estate market against the background of sustained price increases in real estate over the past few years.
In particular, the DNB notified the EBA of its intention to introduce a new macroprudential measure, which consists of a minimum average risk weight floor at the portfolio level based on the loan-to-value (LTV) ratio of the individual loans. More specially, a 12% risk weight is assigned to the portion of the loan not exceeding 55% of the market value of the property that serves to secure the loan, and a 45% risk weight is assigned to the remaining portion of the loan. If the LTV ratio is lower or equal to 55, then a fixed 12% risk weight is assigned to the loan.
In its Opinion, addressed to the Council, the European Commission and the DNB, the EBA acknowledges, in line with the ESRB recommendation on medium-term vulnerabilities in the residential real estate sector in the Netherlands, the concerns on the build-up of risk in this sector, the large proportion of high-LTV loans, high level of indebtedness in Dutch households and the low risk weights for real estate exposures by Dutch IRB banks. In light of this conclusion, the EBA does not object to the deployment, by the DNB, of its proposed macroprudential measure.
Franca Rosa Congiu