Belgian Banking Sector Remains Resilient Amidst Global Turbulence
The Belgian financial sector has demonstrated substantial resilience in recent years, despite being impacted by major global shocks such as the Covid-19 pandemic and the invasion of Ukraine. The sector’s capital and liquidity reserves remain high, allowing it to withstand potential shocks.
Proactive Measures for Future Resilience
The Bank of Belgium has taken proactive measures to ensure the future resilience of Belgian financial institutions. These include:
- Specific risk analyses
- Formulation of macroprudential policies and recommendations aimed at mitigating potential risks in the housing market and commercial real estate sector.
Housing Market Adjustment: Orderly Correction
The rise in mortgage rates led to a gradual slowdown in residential property sales and lending to households. While new mortgage lending grew by 1.6% year-on-year, it remains above the euro area average. The Bank is satisfied with this moderate extension of maturities for new mortgage loans, which helped mitigate the impact of higher interest rates.
Housing Market Correction
- Residential property transactions on the secondary market declined.
- House prices rose by 2.7% year-on-year in nominal terms in the first three quarters of 2023.
- The Bank’s macroprudential policy has encouraged responsible lending and contributed to an orderly adjustment to the higher interest rate environment.
Commercial Real Estate Market Risks
Belgian firms have shown resilience in recent years, but they face significant challenges due to the sharp rise in interest rates. The financial sector’s exposure to real estate firms and the commercial property market is a pressing issue. Insurance companies and banks are advised to assess their exposure to commercial real estate in a sufficiently prudent and conservative manner.
Countercyclical Capital Buffer Activated
The Bank has reactivated the countercyclical capital buffer to increase the resilience of the financial sector. This decision was taken due to concerns that banks may face higher-than-expected losses on corporate loan portfolios. The activation of the buffer will create a macroprudential capital buffer of about €1.1 billion, which will be increased to about €2.3 billion by October 2024.
New Statutory Framework for Natural Disaster Insurance
The Bank again recommends that a new, stable statutory framework be worked out quickly, unambiguously defining how the costs of damage arising from natural disasters should be allocated. If the current situation persists, there is a risk of reinsurers scaling back their activities in Belgium, which could oblige insurance companies to stop providing cover for natural disasters or increase premiums significantly.