EBA欧洲银行-EBA-Opinion-on-measures-in-accordance-with-article-458-28EBA-Op-2017-0429_9页_275kb

Summary of EBA Opinion on Measures under Article 458 of Regulation (EU) No 575/2013

Core Content

The European Banking Authority (EBA) issued an opinion on 14 March 2017 regarding the National Bank of Belgium's (NBB) proposal to apply Article 458(9) of the Capital Requirements Regulation (CRR) to modify capital requirements for mortgage loans in Belgium. The NBB sought to replace an existing macroprudential measure introduced in 2014 with a more targeted one based on indexed loan-to-value (LTV) ratios, aiming to increase capital buffers in response to macroprudential risks in the residential real estate sector.

Main Points and Key Information

Background of the Measure

• The NBB introduced a macroprudential measure in May 2014 to increase risk weights for retail exposures secured by Belgian residential immovable property for Internal Ratings Based (IRB) banks.
• The measure was extended until May 2017 and now proposes a new approach based on two components:
  • A 5% risk weight add-on for all mortgage loans.
  • A targeted increase in LGD floors for mortgage loans with indexed LTV ratios above 80% and 90%, resulting in a 20% and 30% LGD floor respectively.
• The new measure is designed to not affect microprudential capital requirements such as expected loss (EL) calculations or risk exposure amounts for defaulted exposures, but it does impact Pillar 1 capital requirements.

Economic Rationale

• The NBB observed a slowing of the real estate market and overvaluation in the residential sector.
• Household debt levels have increased significantly, reaching 59.1% of GDP in Q3 2016.
• Mortgage lending has continued to grow at around 5.3% in September 2016, despite low interest rates.
• The low risk weights for mortgage loans in Belgium are attributed to historical data and are not seen as reflecting current risks.
• The NBB expects sustained mortgage lending in the future, which may lead to increased risk-taking and the need for additional capital buffers.

Rationale for Not Using Alternative Measures

• The NBB ruled out using Articles 124, 164, 101, 102, 103, 104, 133, and 136 of the CRR and CRD due to:
  • Article 124 being limited to banks using the standardised approach.
  • Article 164 being microprudential in nature and potentially leading to double-counting of risks.
  • Pillar 2 measures being less transparent and not suitable for targeting specific mortgage segments.
  • Systemic risk buffer and countercyclical buffer being broader in scope and not applicable to specific asset classes.

EBA Assessment and Conclusions

• The EBA does not object to the proposed macroprudential measure, acknowledging the ESRB warning on vulnerabilities in the Belgian residential real estate sector.
• It notes that the measure is not expected to have a significant negative impact on the Single Market.
• However, the EBA raises concerns regarding:
  • Complexity and transparency: The use of indexed LTV and LGD floors adds complexity to capital requirement calculations and may reduce transparency for market participants.
  • Inconsistency in Pillar 1 parameters: The proposed measure uses different LGD floors than those used in expected loss calculations, leading to inconsistent inputs in the Pillar 1 framework.
  • Need for model recalibration: The EBA believes that adjusting IRB models could address the underlying issues of low risk weights in the long term.
  • Pillar 2 potential: The EBA suggests that Pillar 2 measures, if clearly communicated and disclosed, could also influence new lending and serve as a signalling mechanism.

Conclusion

The EBA supports the NBB’s use of Article 458 of the CRR to address macroprudential risks in the Belgian residential real estate sector. It acknowledges the economic rationale and the calibration based on stress tests, but highlights the need for transparency, consistency in capital calculation, and the potential for model adjustments to address the issue in the long term. The EBA also stresses the importance of ongoing monitoring of the real estate market and re-evaluation of the measure as conditions evolve.