NBB Examines Stability and Resilience of Financial Sector Amid Crisis
NBB published the financial stability report, with macro-prudential policy being one of the key focus areas in the context of the wide set of economic and financial policies adopted amid the COVID-19 crisis. The report highlights that COVID-19 pandemic posed challenges to the financial sector and financial stability; however, the Belgian financial system has solid capital and liquidity buffers and can, thus, play a key role in cushioning the impact of the crisis on households and businesses. NBB, as a supervisor, calls on financial institutions to continue to support the real economy, if necessary, by using the built-up capital and liquidity buffers.
The report discusses the macro-prudential policy in Belgium, examines the financial stability of banking and insurance sectors, and contains a couple of thematic articles on the residential and commercial real estate market and the climate-change-related transition risks associated with real estate exposures in the Belgian financial sector. In terms of the forward-looking guidance on macro-prudential aspects, NBB emphasizes that, taking into account the latest scenarios and prospects, the deactivation of the countercyclical capital buffer, which was announced in March 2020, is likely to be extended until at least mid-2021. NBB is closely monitoring developments on the Belgian real estate and credit markets and it stands ready to release the macro-prudential capital buffers for real estate risks if, for example, those risks should materialist and lead to a substantial increase in non-performing loans. Supervisory expectations on mortgage credit also remain applicable. Although the macro-prudential buffers for systemically important institutions (the so-called O-SII buffers) are primarily structural, a release of such buffers is in principle possible.
NBB highlights the importance of financial sector continuing to play its role as a financial intermediary and actively contributing to cushioning the impact of the crisis and supporting the real economy. In this context, NBB makes a number of recommendations to the financial sector, particularly the credit institutions:
- The first recommendation aims to encourage maximum responsible use of micro- and macro-prudential buffers to support the real economy. The use of such buffers by individual banks is justified from a macro-prudential point of view and supports the real economy by avoiding pro-cyclical credit crunches. Individual banks’ reluctance to use these buffers—for example, on the grounds of stigma effects or as a precaution for possible future solvency issues—may be counterproductive in the context of this crisis and may substantially increase the impact of the crisis on the real economy.
- Against the backdrop of unprecedented micro- and macro-prudential easing as well as significant uncertainty as to financial institutions’ future profitability, NBB, as the macro-prudential authority, also recommends that the financial sector should temporarily exercise the necessary restraint with regard to current and future dividend payout policies (and similar operations) or in the allocation of variable remuneration for senior staff; the sector should refrain from making dividend payments or similar operations at least until the beginning of October 2020. Regarding credit institutions, this recommendation applies to all banks active in Belgium and to dividend payments and/or transfers or similar transactions within international banking groups by systemically important subsidiaries active in Belgium.
- In addition to the necessary focus on the short-term implications of the COVID-19 crisis, the financial sector should continue to pay attention to major longer-term structural challenges. For example, the persisting low interest rate environment remains a major structural challenge for the profitability of banks and a reassessment of the viability of certain business models is needed. In addition, the transition to a more sustainable and digitized economy will gain more traction. It is very important not only to exploit the opportunities of such transitions but also to closely monitor and mitigate the inherent risks that such structural transitions necessarily entail, also in terms of financial stability.
Related Links
Keywords: Europe, EU, Banking, Insurance, Financial Stability Report, Basel, COVID-19, Credit Risk, RRE, CRE, Climate Change Risk, Systemic Risk, Macro-Prudential Policy, NBB
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.

Blake Coules
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
Previous Article
CBM Extends Application Deadline and Duration of Loan MoratoriaRelated Articles
EBA Examines Supervisory Practices, Issues Deposits Reporting Template
The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),
EC Mandates ESAs to Propose Amendments to SFDR Technical Standards
The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.
EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.
US Agency Publications Address Basel, Reporting, and CECL Developments
The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances
SEC Extends Comment Period on Climate Risk Disclosures
The U.S. Securities and Exchange Commission (SEC) looks set to intensify focus on crypto-assets and cyber risk and extended the comment period on the proposed rules to enhance and standardize climate-related disclosures for investors.
APRA Reduces Committed Liquidity Facility, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility and issued an update on the operational preparedness for zero and negative market interest rates.
EIOPA Responds to Stakeholder Views on Blockchain in Insurance
The European Insurance and Occupational Pensions Authority (EIOPA) published a feedback statement on the responses received to the consultation on blockchain and smart contracts in insurance.
HKMA Announces Decisions on CCyB and Loan Guarantee Scheme
The Hong Kong Monetary Authority (HKMA) announced that the applicable jurisdictional countercyclical capital buffer (CCyB) ratio for Hong Kong remains unchanged at 1.0%
CMF Consults on Basel Rules, Presents Roadmap to Address Climate Risks
The Commission for the Financial Market (CMF) in Chile published capital adequacy ratios (as of February 2022, January 2022, and December 2021) for 17 banks and for the banking system.
PRA Issues Statement on NPEs and Policy on Trading Activity Wind-Down
The Prudential Regulation Authority (PRA) issued a statement on the European Banking Authority (EBA) guidelines on management of non-performing exposures (NPEs) and forborne exposures.