EBA published an opinion following the notification by DNB of its intention to modify capital requirements to address an increase in the macro-prudential risk in the Netherlands. Based on the evidence submitted by DNB, 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 to enhance 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.
DNB has notified EBA of its intention to introduce a new macro-prudential 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. As part of this measure, a 12% risk-weight is proposed to be 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 proposed for to the remaining portion of the loan. If the LTV ratio is lower or equal to 55, then a fixed 12% risk-weight is proposed to be assigned to the loan. In its opinion, addressed to the European Council, EC, and DNB, EBA acknowledges, in line with the ESRB recommendation on medium-term vulnerabilities in the residential real estate sector in the Netherlands, the concerns on build-up of risk in this sector, the large proportion of high-LTV loans, the high level of indebtedness in Dutch households, and the low risk-weights for real estate exposures by Dutch internal ratings-based banks. In light of this conclusion, EBA does not object to the deployment of the proposed macro-prudential measure by DNB.
Keywords: Europe, EU, Netherlands, Banking, LTV, CRR, Residential Real Estate, Regulatory Capital, Macro-Prudential Policy, Internal Ratings Based, EBA, DNB
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