DNB: use low interest rates to build up buffers – Financieele Dagblad

Companies and households with high debt should seize the historically low interest rates to pay off debts and build up buffers. So says the Dutch Central Bank (DNB) in its bi-annual Financial Stability Review. Deleveraging should take precedence over consumption or postponement of restructuring to reduce operating costs.

“When returns the long term interest rate to more normal levels will lead to higher interest expenses, “DNB said in its report. “Some households and companies can get into trouble.”

Record debts

the debts of Dutch companies and households are among the highest in the world. In Europe alone Cypriot households have higher debt as a percentage of GDP. Dutch households torsen to € 640 billion in mortgages along with it.

Dutch companies have funded with a relatively high loan capital. In total it is a debt of nearly € 800 billion. Even when adjusted for loans between companies within a group is the level of debt above the EU average.

Fewer problem loans

Dutch finance companies compared with Germany traditionally many of their activities with borrowed capital. This provides tax benefits. DNB calls on politicians to deal more directly into a subsequent government debt and equity. Companies are allowed to deduct interest paid on loans of their profits. DNB does not actually from.

Problem loans are mainly for households with interest-only mortgages. When companies are in particular for small and medium enterprises (SMEs). Banks consider according to DNB than 6% of their loans to SMEs as a problem. In addition, the estimated probability of default to 100%. For loans to large companies this is slightly less than 4%. Incidentally is the first time since the crisis began has been a decrease in the number of problem loans to SMEs.

Housing

According to DNB is not a bubble on the Amsterdam housing market. Prices in the capital rose by 20% in one year against an average of 4% in the whole country. “The recent experiences in other countries such as the UK, Norway and Sweden, show that the entire housing under the influence of an improving economy and may become overwrought low interest rates, the risk of bubble formation. There is no evidence that this is currently at issue in the Netherlands.

Banks need DNB therefore no countercyclical buffer to hold. In Norway and Sweden have banks on 1 January or maintain larger buffers so that they will lend less. DNB has decided to set the countercyclical buffer to zero. ” The extra buffer can be imposed for the first time since early this year, according to international capital requirements. DNB is the need for an additional buffer stop light each quarter.

The pro-cyclical buffer, according to DNB’s not necessary because the lending left to companies and households as a percentage of GDP in the long-term trend.

too big to fail

according to DNB capital buffers of Dutch banks are much higher than in many other countries. ABN Amro, ING, Rabobank, SNS Bank and Bank of Dutch Municipalities are seen by DNB as systemically important and have therefore already longer impose an additional buffer.

this buffer system has led also according to DNB that the Dutch bank rates have fallen relatively less hard when bank shares came under pressure earlier this year. “The requirements vary widely, with the Netherlands imposes relatively high system buffers and your subscriber some EU countries very low or even no buffers imposed on systemically important banks.”