Financial Crime World

Here is the article in markdown format:

Maturity of Loans Declines as Risk Profile Improves

======================================================

The European Systemic Risk Board (ESRB) has released data showing a significant decline in the maturity profile of loans in Belgium over the past three years.

Decrease in Long-Term Loans

According to the ESRB, the percentage of outstanding loans with a maturity longer than 20 years dropped from 16.6% at the end of 2019 to 12.7% at the end of 2022.

Improvement in Risk Profile

The ESRB also noted that the share of loans combining an LTV higher than 90% and a DSTI ratio higher than 50% decreased from 6.2% to 3.9% over the same period. This positive trend is expected to continue with the implementation of new capital buffer requirements.

New Capital Buffer Requirements

The new measures aim to address risks in the real estate market by increasing CET1 capital requirements for IRB banks’ RRE portfolios. The ESRB assessed that these measures are effective and proportional, as they directly increase capital requirements for banks with significant exposures to the RRE market.

Adjustments to Buffer Requirements

O-SII Buffer

The O-SII buffer, which is designed to address systemic risks in specific banks, has been deemed effective and proportional by the ESRB. The buffer was calibrated taking into account the institutions’ systemic importance and a level playing field for internal markets.

sSyRB Measure

The sSyRB measure, which targets RRE exposures, has also been assessed as effective and proportional. It increases CET1 capital requirements for IRB banks’ RRE portfolios, building resilience in the banking sector to overcome severe downturn scenarios.

Expected Increase in Resilience

Despite the downward recalibration of the sSyRB rate, the overall resilience of banks is not expected to decrease. The Belgian authorities intend to activate the countercyclical capital buffer (CCyB) from April 2024 at a level of 0.5%, increasing it to 1.0% in October 2024.

  • The combined buffer requirement is expected to increase from €2.0 billion to €3.6 billion by October 2024.
  • This shift in capital buffers will reflect a change in risk composition, with risks shifting from RRE and household exposures to corporate exposures.

Conclusion

=============

The ESRB has concluded that the proposed combined buffer consisting of the sSyRB and O-SII buffers for institutions concerned is appropriate for addressing identified risks without creating disproportionate adverse effects on financial stability or hindering the proper functioning of the Internal Market.