DNB issued a statement on an announcement by the Dutch Homeownership Guarantee Fund (Waarborgfonds Eigen Woningen—NHG) that NHG would provisionally compensate mortgage providers for the expected loss in the event of default. The amendment aims to demonstrate that NHG qualifies as eligible credit protection. This is of relevance to banks that use the standardized approach or elementary internal ratings-based approach to calculate their capital requirements for mortgage loans on residential property. The planned entitlement to a provisional payment is designed to meet the conditions set out in the Capital Requirements Regulation (CRR).
The planned amendment to the terms and conditions of NHG means that banks acting as mortgage lenders and beneficiaries of the guarantee will be entitled to receive a provisional payment under the guarantee if the borrower of an NHG-backed loan should default. The amount of the payment will be based on a robust estimate of the bank's loss. It will also take into account any excess amount and depend on the coverage under the guarantee at the time of the default, according to the applicable terms and conditions. NHG will make the payment at the bank's request within 21 months of the default, provided all terms and conditions are met. Banks will have the option of receiving a provisional payment not only for new mortgage loans taken out under the modified terms and conditions but this will also apply to NHG-backed mortgage loans taken out previously.
NHG expects that it will have completed the relevant legal documents and the associated processes in the first quarter of 2020, after which the planned amendments will take effect. Until that time, DNB will use its discretionary power referred to in Article 215(2)(b) of the CRR to qualify NHG as eligible credit protection under the standardized or elementary internal ratings-based approach. It will do so because of the NHG's rapid payment of NHG-backed losses, the rapid handling of loss claims, the high payout ratio, and the objection procedure for rejected loss claims. This applies to banks that are under the direct supervision of DNB.
Related Link: Press Release
Keywords: Europe, Netherlands, Banking, Internal Ratings Based, Standardized Approach, Expected Loss, CRR, NHG-Backed Loans, Capital Requirements, NHG, Credit Risk, Basel III, DNB
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