is a credit crunch threatening the financing of the economy (bff 12 june 2012)

Is a credit crunch threatening the financing of the economy?

Brussels, 12 June 2012, Auditorium of the National Bank of Belgium

2Belgian Financial Forum | 12 June 2012

Introductory Speech

Jan SmetsChairman, Belgian Financial Forum Board Director, National Bank of Belgium

“The development of credit allocation in the Eurozone and in Belgium”


Overview Programme

• Introductory speech “The development of credit allocation in the Eurozone and in Belgium” by Jan Smets

• Speech “The impact of the new regulatory framework on the allocation of credit” by Freddy Van den Spiegel

• Coffee break• “The expectations of the borrowers”

– Introduction by Françoise Sweerts– Panel discussion

• “The answer from the financial sector”– Introduction by Filip Dierckx– Panel discussion

• End of colloquium

Recent credit developments in the euro area and in Belgium

Jan Smets

Belgian Financial Forum, 12 June 2012

DS.12.05.198

5

1. Developments

2. Determinants

2.1 Demand

2.2 Supply

3. Liquidity provision

4. Conclusions

Recent credit developments in the euro area and Belgium

6

Growth projections: Renewed weakness and heterogeneity in Europe

Real GDP(percentage change compared to the previous year)

2012 2013

Spring 2012

Difference from Autumn 2011

Spring 2012Difference from Autumn 2011

World 3.3 -0.2 3.7 0.1 China 8.4 -0.2 8.2 0.0United States 2.0 0.5 2.1 0.8Japan 1.9 0.1 1.7 0.7 Euro area1 -0.3 -0.4 1.0 -0.3Belgium2 0.6 0.1 1.4 n.a.Germany 0.7 -0.1 1.7 0.2France 0.5 -0.1 1.3 -0.1Netherlands -0.9 -1.4 0.7 -0.6Italy -1.4 -1.5 0.4 -0.3Ireland 0.5 -0.6 1.9 -0.4Greece -4.7 -1.9 0.0 -0.7Spain -1.8 -2.5 -0.3 -1.7Portugal -3.3 -0.3 -0.3 -0.8

Sources: EC (European Commission Forecast Spring 2012) and ECB /NBB (June 2012 Forecast) for the euro area and Belgium.1 ECB forecast June 2012, midpoint of projection range.2 NBB forecast June 2012.

Annual growth of MFI loans1 to non-financial corporations

7

Belgium (left-hand scale)

Euro area (left-hand scale)

(Jan. 2001 - Apr. 2012, annual percentage change, unless otherwise stated)

Sources: NBB, ECB.1 Resident MFIs to residents. Data including securitised loans. For Belgium over the entire period, for euro area from January 2010 onwards.

Monthly loan flow, in € billion (right-hand scale)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-10

-5

0

5

10

15

20

-4

-2

0

2

4

6

8

Annual growth of MFI loans1 to households

8

Sources: NBB, ECB.1 Resident MFIs to residents. Data including securitised loans. For Belgium over the entire period, for euro area from January 2010 onwards.

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-10

-5

0

5

10

15

20

-4

-2

0

2

4

6

8

Belgium (left-hand scale)

Euro area (left-hand scale)

(Jan. 2001 - Apr. 2012, annual percentage change, unless otherwise stated)

Monthly loan flow, in € billion (right-hand scale)

9

1999 2001 2003 2005 2007 2009 20110

1000

2000

3000

4000

5000

6000

1999 2001 2003 2005 2007 2009 20110

20

40

60

80

100

120

140

160

180

200

Outstanding amounts of MFI loans1

Households

Belgium(Jan. 1999 - Apr. 2012, € billions)

Sources: ECB, NBB.1 Resident MFIs to resident counterparties. Data for Belgium include securitised loans.

For the euro area, data on the outstanding amounts of securitised loans are not published.

Non-financial corporations

Euro area(Jan. 1999 - Apr. 2012, € billions)

Non-financial corporations: sources and cost of funding

10

Funding sources(cumulative net flows over four quarters)

Sources: ECB, NBB.1 Weighted average interest rate on new loans to NFCs granted by Belgian banks.2 Yield of an index of euro-denominated bonds issued by NFCs in the euro area.

2000 2002 2004 2006 2008 2010 20122

3

4

5

6

7

8

Bank credit1

Corporate bonds2

2000 2002 2004 2006 2008 2010 2012-20

-15

-10

-5

0

5

10

15

20

25

30

35

40

Credit granted by Belgian banks Credit granted by foreign banks

Corporate bonds (< 1 year) Corporate bonds (> 1 year)

Funding cost(in %)

Bank loans to resident companies in Belgium: breakdown by size of enterprises1

(outstanding amounts, € billions)

11

Source: NBB (Central Corporate Credit Register).1 Companies allowed to submit their annual accounts in the abbreviated format are regarded as small enterprises. Companies that have to fill the full format are regarded as large or medium, depending on whether their turnover exceeds or not the level of € 37.2 million in two consecutive years.

Loans : authorised

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0

10

20

30

40

50

60

70

Small Medium Large

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0

10

20

30

40

50

60

70Loans : used

Utilization rate of the loans granted by resident banks(percentages)

12

Breakdown by company size1 Breakdown by branch of activity2

Source: NBB (Central Corporate Credit Register)1 Companies allowed to submit their annual accounts in the abbreviated format are regarded as small enterprises. Companies that have to fill the full format are regarded as large or medium, depending on whether their turnover exceeds or not the level of € 37.2 million in two consecutive years.2 The selection of sectors is not exhaustive.

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

40

50

60

70

80

90

100

Small

Medium

Large

20

06

20

07

20

08

20

09

20

10

20

11

20

12

40

50

60

70

80

90

100

Manufacturated products Construction

Trade Horeca

Real estate services

13

1. Developments

2. Determinants

2.1 Demand

2.2 Supply


4. Conclusions


14

MFI interest rates on long-term loans, government 10-year bond yield and 10-year Euribor swap(percentages)

Source: NBB and Thomson Reuters Datastream.1 MFI interest rates on loans to non-financial corporations, up to an amount of € 1 million, over 5 years initial rate fixation (new business, data up to April 2012).2 MFI interest rates on loans to households, for house purchases, over 10 years initial rate fixation (new business, data up to April 2012).3 Average 10-year reference government bond yield (up to May 2012).4 Average 10-year swap rate on the 6-month Euribor (up to May 2012).

Households (mortgages)2Non-financial corporations1

MFI interest rate on loans to non-financial corporations1

10-year government bond yield3

MFI interest rate on loans for house purchase to households2

10-year government bond yield3

2003 2004 2005 2006 2007 2008 2009 2010 2011 20121

2

3

4

5

6

10-year Euribor swap rate4

2003 2004 2005 2006 2007 2008 2009 2010 2011 20121

2

3

4

5

6

10-year Euribor swap rate4

Determinants of corporate investment in the manufacturing industry

Reduction of production costs

Introduction of new production processes

Introduction of new products

Internal fundsShortage of production capacity

Subsidies and fiscal reasons

Credit costs

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 2011 2012(e)

15

Source: NBB.1 Companies are allowed to indicate more than one determinant.

(percentage of companies1 that indicated the determinant in the yearly investment survey)

Investment, income and confidence of non-financial corporations and households

16

2006 2007 2008 2009 2010 2011 2012e-10

-5

0

5

10

15

Real gross fixed corporate investment (left-hand scale)

Nominal gross operating surplus (left-hand scale)

Non-financial corporations(percentage change compared to the previous year, unless otherwise stated)

Business confidence1 (right-hand scale, in points)

-40

-30

-20

-10

0

10

Sources: NAI, NBB.1 Overall synthetic business survey indicator, seasonally adjusted series.

Households(percentage change compared to the previous year, unless otherwise stated)

2006 2007 2008 2009 2010 2011 2012e-10

-5

0

5

10

15

-40

-30

-20

-10

0

10

Real gross investment of households in housing (left-hand scale)

Real gross disposable income (left-hand scale)

Consumer confidence(right-hand scale, in points)

Bank Lending Survey: loan demand by Belgian non-financial corporations (Q1 2003 - Q1 2012, net percentages)

17

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-140

-120

-100

-80

-60

-40

-20

0

20

40

60

80

Mergers and acquisitions and corporate restructuringFixed investment

Loan demand 1

explanatory factors2:Inventories and working capital

Sources: ECB, NBB.1 Weighted net percentage of banks indicating a lower(-) or higher (+) loan demand of the corporate sector.1 Weighted net percentages of responses by credit institutions questioned about the explanatory factors. A negative (positive) percentage corresponds to a factor which

has contributed to a lower higher) loan demand of the corporate sector.

18

1. Developments

2. Determinants

2.1 Demand

2.2 Supply


4. Conclusions


2003 2006 2009 2012-75

-50

-25

0

25

19

2003 2006 2009 2012-75

-50

-25

0

25

Bank Lending Survey: change in credit standards1

Loans to non-financial corporations(Q1 2003 - Q2 2012, net percentages)

Sources: NBB, ECB.1 Weighted net percentage of banks indicating a tightening (-) or easing (+) of credit standards over the past three months. Expectations for the next three months.

Mortgage loans to households(Q1 2003 - Q2 2012, net percentages)

Belgium

Euro area

Expectations Q2 2012


Belgium

Euro area



20

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-100

-80

-60

-40

-20

0

20

40

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-100

-80

-60

-40

-20

0

20

40

Bank Lending Survey: contribution of factors to the change in credit standards of non-financial corporations1

Sources: ECB, NBB.1 Weighted net percentages of responses by credit institutions questioned about the explanatory factors. A negative (positive) percentage corresponds to a factor which

has contributed to a tightening (easing) of credit conditions.

Competition Financing costs and balance sheet constraints

Belgium(Q1 2003 - Q1 2012, net percentages)

Risk assessment (mainly business cycle related)

Euro area(Q1 2003 - Q1 2012, net percentages)

21

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-50

-40

-30

-20

-10

0

10

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-100

-80

-60

-40

-20

0

20

Bank Lending Survey: contribution of MFI financing costs and balance sheet constraints to change in credit standards1


Households (mortgages)

Households (loans for consumption)


Households (mortgages)

Belgium(Q1 2003 - Q1 2012, net percentages)

Households (loans for consumption)

Euro area(Q1 2003 - Q1 2012, net percentages)

Sources: NBB, ECB.1 Weighted net percentages of responses by credit institutions questioned about the explanatory factors. A negative (positive) percentage corresponds to a factor which

has contributed to a tightening (easing) of credit conditions.

Assessment of lending conditions by Belgian firms

22

Source: NBB (Quaterly survey of corporate credit conditions).

Net financial wealth1 in the euro area countries: non-financial private sector

LU NL

BE

CY IT DE

FR AT

EL

SK SI

ES

PT IE FI

EE

-150

-100

-50

0

50

100

150

200

23

Sources: EC, NBB.1 Difference between the outstanding amount of financial assets and liabilities.

(percentage of GDP, end 2010)

Balance sheet of the Monetary Financial Institutions (MFIs): assets1

(percentage of GDP)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011200

250

300

350

400

450

Euro area Belgium Germany

France Netherlands

24

Sources: ECB, NBB.1 Territorial non-consolidated data. 2 Loans and securities other than shares to euro area residents.

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011100

120

140

160

180

200

220

240

260Total assets of the monetary financial institutions Total credit to euro area residents2

25

1. Developments

2. Determinants

2.1 Demand

2.2 Supply


4. Conclusion


A central bank's reaction to a liquidity crisis

Commercial bank A

Loans from the central bankLoan from commercial bank BRetail depositsDebt securities issuedOther liabilitiesCapital and reserves

Deposits with the central bank

Loans to the private sectorOther assets

Financial market tensions

Commercial bank B

Loans from the central bankLoans from commercial banksRetail depositsDebt securities issuedOther liabilitiesCapital and reserves

Deposits with the central bankLoan to commercial bank ALoans to the private sectorOther assetsDoubts about the

solvency of bank A

Liquidity is placed with a safe

counterparty (=central bank)

Bank A does no longer have access to the interbank market ...

...and would have to cut back on lending to the private sector

Central bank liquidity provision prevents a liquidity shortage......and helps to sustain

bank A's lending to the private sector

Central bank

Banknotes in circulationDeposits of commercial banks Other liabilities

Loans to commercial banksOther assets

Central bank liquidity provision prevents a liquidity shortage

26

Liquidity is placed with a safe

counterparty (=central bank)

2007 2008 2009 2010 2011 20120

200

400

600

800

1000

1200

1400

1 week 1 month 3 months 6 months 12 months 36 months

Eurosystem refinancing operations(daily data, in € billion)

Source: ECB, calculations NBB.

27

28

1. Developments

2. Determinants

2.1 Demand

2.2 Supply


4. Conclusions


Conclusions

Credit growth to NFCs and households stabilized in 2012 in Belgium but remained above the average growth in the euro area

Liquidity provisioning operations by the ECB (3-year LTROs) significantly improved liquidity conditions in the euro area and decreased substantially money market rates and the risk of a potential credit crunch

The low interest rate levels did not (yet) translate into increased credit provision: • Demand factors: financing costs remain subordinated to concerns about the

business cycle• Supply factors: increased perceived economic risks induce banks to keep

credit conditions unchanged

Further monitoring warranted in difficult context

29


Speech

Freddy Van den SpiegelEconomic Advisor, BNP Paribas FortisProfessor, Vrije Universiteit Brussels

“The impact of the new regulatory framework on the allocation of credit”

The new regulatory frameworkfor banks, and its consequences

for credit availability

Financieel Forum12 June 2012

Freddy Van den SpiegelProf VUB and Vlerick Management school

Economic advisor BNP Paribas Fortis

| 12 June 2012 | 32

1. The general message to the banks since the crisis:

- Banks should deleverage

- Banks should be more risk averse

- Banks should have more equity capital

- Banks should have more long term funding

This should have an impact on pricing, availability and practices of lending, but should we call it a “credit crunch” or a “new normal”?

| 12 June 2012 | 33

1. The general message to the banks since the crisis.

2. The regulatory response: Basel III

| 12 June 2012 | 34

The key risks of banks: credit risk and liquidity risk.

• CREDIT RISK.– The nature of credit risk: losses on the assets can lead to bank failures

and losses for deposit holders.– The protection to credit risk: equity capital as a buffer to absorb losses.– The challenge: the level of the buffer, which should be high enough but

not too high as this would hurt the economic function of banks.

Basel III

| 12 June 2012 | 35

bank balance sheet

• Cash

• Investments/loans

• Equity capital

• Deposits

| 12 June 2012 | 36

The key protection against credit risk: capital requirements.

| 12 June 2012 | 37

The key protection against credit risk: capital requirements

EQUITY CAPITAL > RISK WEIGHTED ASSETS X REGULATORY CAPITAL RATIO

| 12 June 2012 | 38

How BaselII/CRD IV is changing the requirements.• Better capital (capital definition and capital structure).


| 12 June 2012 | 39



| 12 June 2012 | 40

How Basel III/CRD IV is changing the requirements.• Better capital (narrow capital definition).

• Focus on Core Equity Tier-1 for “going concern”

• Stricter definition of “Additional” Tier-1• Accepted % reduced• Perpetual in principle, no incentive to redeem• Minimum trigger for automatic loss absorption in going concern.• “innovative hybrid instruments” no longer accepted.• A significant role for “Coco’s” in the future?

• Role of Tier-2 reduced: only for gone concern loss absorption


| 12 June 2012 | 41

• Some banks could lose up to 60% of capital.• On average EU banks will lose 30% of capital.

Impact assessment of BCBS/EBA.

| 12 June 2012 | 42

How Basel III/CRD IV is changing the requirements.• Better capital (narrow capital definition).• Better risk assessment.


| 12 June 2012 | 43



| 12 June 2012 | 44

How Basel III/CRD IV is changing requirements• Better capital (narrow capital definition).• Better risk assessment.

• Risk measurement “through the cycle”.• Risk measurement for trading book.• Risk of “resecuritization”.


| 12 June 2012 | 45

• Requirements for trading book multiplied by 3.• Resecuritisation products at prohibitive level.

Impact of new risk assessment.

| 12 June 2012 | 46

How Basel III/CRD IV is changing the requirements.• Better capital (narrow capital definition).• Better risk assessment.• More capital.

The key formula for credit risk: capital requirements.

| 12 June 2012 | 47



| 12 June 2012 | 48


• Capital conservation buffer.• Counter cyclical capital buffers.• Dynamic provisioning.• Supplementary capital for “systemic” banks (see below).

The key formula for credit risk: capital requirements.

| 12 June 2012 | 49


• Capital conservation buffer.• Counter cyclical capital buffers.• Dynamic provisioning.• Supplementary capital for “systemic” banks.

• Leverage ratio: ratio of maximum balance sheet total to capital: 33.• New for Europe.


| 12 June 2012 | 50

Banks require more than 1 trillion of equity

or

Have to reduce their balance sheets and risk

AN ECONOMICALLY DANGEROUS DILEMMA

Impact on cost of funding reduces profitability

Will supplementary equity be available?

Impact assessment of new capital rules.

| 12 June 2012 | 51

The key risks of banks: credit risk and liquidity risk.

LIQUIDITY RISK• The nature of liquidity risk: maturity transformation of short-term deposits

to longer term assets.• The solution to liquidity risk: reduce capacity to transform maturity.• The challenge: maturity transformation is a major source of return and is

an economically essential function of banks.

Basel III

| 12 June 2012 | 52

bank balance sheet

• Cash

• Investments/loans

• Long term

• Equity capital

• Deposits

• Short term

| 12 June 2012 | 53

• New concept for Basel/CRD.• Short-term liquidity (Liquidity Coverage ratio).• Long-term liquidity (Net Stable Funding Ratio).

The key protection against liquidity risk: reduce maturity transformation.

| 12 June 2012 | 54

Banks need more than 3 trillion of long-term funding

or

have to reduce long-term lending

A POLITICALLY DANGEROUS DILEMMA

Will long-term funding be available?

Impact on profitability given reduced maturity transformation

Impact assessment of new liquidity rules.

| 12 June 2012 | 55

Capital requirements: gradual increase until 2019.

… But markets lack patience.

The international legislative process: BCBS 12 September 2010 final agreement.

| 12 June 2012 | 56

BCBS 12 September 2010

Capital requirements: gradual increase until 2019

2

3,54

4,5 4,5 4,5 4,5 4,5

2

1

1,5

1,5 1,5 1,5 1,5 1,5

43,5

2,52 2 2 2 2

0,6251,25

1,8752,5

0

1

2

3

4

5

6

7

8

9

10

11

Now 2013 2014 2015 2016 2017 2018 From 2019

Minimum Common equities Tier 1 Other Tier 1 Other capital Capital conservation buffer (also common equities)

| 12 June 2012 | 57

• Capital requirements: gradual increase until 2019.• Capital conservation buffer: up to 2.5%.• Supplementary capital for systemic banks: TO DO, FSB agreement.• Counter cyclical buffer: TO DO.• Leverage ratio: 3%, hard rule from 2018.• Liquidity rules: hard rule from 2018.

• And supervisors can go beyond the requirements in Pillar 1 or Pillar 2

The international legislative process: BCBS 12 September 2010 final agreement.

| 12 June 2012 | 58

• CRD I: 2006 • Implementation of Basel II

• CRD II: 2009• Initial rules on liquidity, securitisation and trading book

• CRD III: 2010• Rules on bonusses, risk taking

• CRD IV – CRR IV: 2012• Implementation of Basel III• EU supervisory arrangements (single rule book)

The EU legislative process

| 12 June 2012 | 59

1. The general message to the banks since the crisis.


3. Regulatory issues beyond Basel III

| 12 June 2012 | 60

• The future of cross-border banking

Issues beyond Basel III

| 12 June 2012 | 61

• Agreement about the need for consolidated supervision.• But requirements also to be fulfilled at subconsolidated and solo level: risk

of inconsistency between solo and consolidated level.• Cooperation between supervisors in colleges, but with which competence?• Specific problem for the EU.

The future of cross-border banking

| 12 June 2012 | 62

• Integrated financial market as a political goal inconsistent with supervision at Member State level.

• Member States focused on “national interest”, given experience with crisis: ring fencing? Goldplating and restrictions on capital movements

Potential impact on cross-border banking in EU and on regional credit availability

Specific EU problem of cross-border banking.

| 12 June 2012 | 63

• The issue of cross-border banking• The issue of systemic banks


| 12 June 2012 | 64

Systemic banks are banks which, if they fail, could bring the whole financial system down.

• Are not allowed to fail, which creates “moral hazard” and competitive distortions

• Or facilitate orderly resolution

The issue of systemic banks

| 12 June 2012 | 65

The issue of systemic banks: the ESB list

| 12 June 2012 | 66

The work of the FSB/BCBS• List of G-SIBs• Supplementary capital requirements to be phased in 2016 - 2019


| 12 June 2012 | 67

The work of the FSB/BCBS• List of G-SIBs• Supplementary capital requirements• Further work on resolvability, domestic SIBs, insurance companies


| 12 June 2012 | 68

• Definition.• The work of the FSB• The broader debate: supplementary measures?

• Too big to fail = too big to exist• Limit interconnectedness internally and externally• Zero risk tolerance, public utility function• Narrow banking: Vickers (ring fence) or Dodd-Franck (prohibition)• Supplementary capital requirements• Resolvability (living wills)• taxation


| 12 June 2012 | 69

• Definition.• The work of the FSB• The broader debate: supplementary measures?• The problem of coordination

• Globally: US (Dodd-Franck) and extra-territoriality• Within EU: isolated initiatives by Member States, what about the internal

market?• Within EU: Liikanen Task Force on “structural reform” and the “universal

banking model”

Could potentially reduce the quality and availability of credit


| 12 June 2012 | 70

• The issue of cross-border banking• The issue of systemic banks• The issue of shadow banking: securitisation

Could be a way forward to reduce the risk of credit crunches, but regulatory reaction is not clear


| 12 June 2012 | 71


2. Regulatory issues beyond Basel III

3. The difficult transition and broader impact

| 12 June 2012 | 72

McKinsey• EU banks need 1,000 bn equity (50%)• EU banks need 3,000 bn long-term funding (50%)• ROE down 4%• Impact depends on business line

• Retail OK• Trading NOK• Trade finance NOK

+ impact of all other measures beyond Basel III

Impact on banks

| 12 June 2012 | 73

IIF study• Cost of lending: +1%• Capital requirements (core Tier 1): + 1,000 bn• GDP: - 4.4%• Employment: - 5 million

BIS study• Direct impact on GDP negligible.• Overall impact positive because of more stability.

The difficulty to take into account the vulnerable environment.

Impact on the economy

| 12 June 2012 | 74

Sovereign Net Financing Needs (in billion USD)EIU Figures

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2005 2006 2007 2008 2009 2010 2011 2012

United States

Euro Zone

| 12 June 2012 | 75

Banks’ exposure to non-domestic Eurozone periphery (Greece, Spain, Portugal, Italy), sovereign and private sector debt, as a % of

GDP

Banking contagion channel: exposure to sovereign and private sector debt

| 12 June 2012 | 76

Bank Credit Spreads (senior 5-year CDS)

0

100

200

300

400

500

600

700

jan/08 jan/09 jan/10 jan/11 jan/12

US Europe

Asia UK

| 12 June 2012 | 77

DJ EURO STOXX 50(24/05/2012)

0

10

20

30

40

50

60

70

80

90

100

110

120

jan/07 jul/07 jan/08 jul/08 jan/09 jul/09 jan/10 jul/10 jan/11 jul/11 jan/12

0

10

20

30

40

50

60

70

80

90

100

110

120

DJ EURO STOXX 50

DJ EURO STOXX FINANCIALS

Source: Datastream

| 12 June 2012 | 78

YIELD ON EMU GOVERNMENT BONDS 10YSpread with German Bund 10y in bp

24/05/2012

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

1300

1400

1500

jan/07 jul/07 jan/08 jul/08 jan/09 jul/09 jan/10 jul/10 jan/11 jul/11 jan/12

Belgium

Spain

Italy

Portugal

Ireland

France

| 12 June 2012 | 79

The difficult transition to “normal”• Exit of government support• Exit of central bank support• Find new equity• Find liquidity• Comply with new rules• CHANGE OR GET SQUEEZED

• While markets remain vulnerable (sovereign risk)

Banks management in the new environment

| 12 June 2012 | 80

• The difficult transition to “the new normal”• The difficulty of defining a strategy, given uncertainty about potential new

rules, for example the future of the “universal banking model” or the discussion about SIFIs.

• The new mathematics of sustainability• ROE: 8 – 10%?• Growth potential: 4%• Asset growth 4%• Annual equity need 4%• Dividend max 4%• As a consequence, price book value to stick at 1

HOW TO GET OUT OF THIS UNATTRACTIVE COMBINATION?


| 12 June 2012 | 81

• The difficult transition to “the new normal”• The difficulty of defining a strategy given uncertainty about potential new

rules.• The new mathematics of sustainability.• The inconsistency of expectations regarding banks

• Banks should deleverage, but should continue to give easy loans to SMEs and private households.

• Banks should consider the EU as an integrated market, but there is increasing pressure on “national” protection

• Banks should increase equity, but what about the ROE to attract shareholders?

• Banks should find longer term funding but what with the “bail-in” of senior debt?

• Banks should be risk averse but what about their domestic government bonds?


| 12 June 2012 | 82

• The new regulatory framework requires new business models• The transition will be difficult and bumpy if not well coordinated• There is no clear picture about which banking system we want in the

EU, a dangerous experiment

There is an urgent need for certainty about and coherence of the new regulatory environment for banks.

Conclusions

| 12 June 2012 | 83

Thank You


Introduction

Françoise SweertsOmbudsman, Mediation Service Banks – Credit - Investments

“The expectations of the borrowers”

Attentes des emprunteurs et des entreprises

● Attentes des emprunteurs : expérience de l’Ombudsman● Plus de transparence (décomptes, portée des garanties,…)● Plus de souplesse (en cas de difficultés, dans les garanties exigées)● Délai plus court pour prendre décision octroi/non octroi d’un crédit● Information avant la conversion d’un mandat hypothécaire

● Attentes des entreprises● Funding loss (non transparent, trop élevé)● Déblocage des garanties (caution, mainlevée hypothèque)● Plus de souplesse dans les “refinancements”

85

● Constat du Médiateur du crédit● Motiver les refus de crédit (nécessaire pour revoir le dossier)● Délai plus court pour communiquer décision de refus● Banken geven moeizaam de waarborgen vrij

86

Resultaten recente barometers

● Baromètre 15 CeFip sur l’accès des PME au financement bancaire (février 2012) ● Exigences de garanties (trop)● Trop d’informations à fournir

● L’Enquête de l’UNIZO et baromètre du crédit du VOKA (février 2012) ● Strengere voorwaarden● Weigering van kredietaanvraag

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Engagementen platform financiering van ondernemingen

● Motivering van kredietbeslissing● Antwoordtijd voor kredietbeslissing● Funding loss : meer transparantie● Funding loss : redelijk blijven● Ratings : transparantie over criteria en informatie voor ontlener

88

www.financieringvanondernemingen.be

Dank voor uw aandacht!Merci pour votre attention!


Panel discussion

“The expectations of the borrowers”

Renaat BerckmoesCFO, Telenet

Yves CoemansAttaché Study Department, Gezinsbond

Johan BortierDirector Study Department, Unizo

Alexandre De GeestAdministrator, Treasury – FPS Finance

Françoise SweertsOmbudsman, Mediation Service Banks – Credit - Investments


Introduction

Filip DierckxChairman FebelfinVice-President, BNP Paribas Fortis

“The answer from the financial sector”

Belgian Financial Forum ColloquiumIs the financing of the economy being threatened by a credit crunch?

Answer from the financial sector• Filip Dierckx, Febelfin – BNP Paribas Fortis• Denis Claikens - CBC• Marc Lauwers - Belfius• Arnaud Laviolette - ING

Lending during the crisis (end 2007 – end 2011)

Evolution saving deposits and lending as of end 2007(Source: National Bank of Belgium)

End 2007 End 2010 End 2011 March 2012 Growth end 2007 – end 2011

Regulated saving deposits

EUR 148.8b EUR 214.8b EUR 218.7b EUR 224.9b EUR + 76.1b (+ 51.1%)

Lending to corporates EUR 97.1b EUR 112.7b EUR 115.8b EUR 117.2b EUR + 18.7b(+ 19.3%)

Mortgages and consumer lending

EUR 139.3b EUR 165.5b EUR 175.6b EUR 177.6b EUR + 36.3b(+ 26.0%)

Lending to the public sector

EUR 68.8b EUR 77.3b EUR 87.0b EUR 87.4b EUR + 18.6b(+ 27.0%)

During the crisis, banks continued to collect saving deposits and lending continued to grow

Belgian Financial Forum | 12 June 2012 93

Lending over a longer period

Over a longer period, it is even more obvious that the crisis did not lead to a drop in credits towards the private sector (households and corporates)

NBB data

050000

100000150000200000250000300000350000400000450000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

03.2

012

Public Institutions

Corporates

Households

Private Sector


International activities and exposure of Belgian financial sector

Financial market funding

Domestic funding (savings)

Domestic lending (mortgagesand corporate lending)

Leverage of the Belgian banks has dropped

The quick reduction of international activities has made continued growth of lending possible in Belgium


Refusal rate within a European context

Lending requests from SMEs (% of total lending requests 2010 – source: Eurostat)

With result

With partial result

Refused

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

26,6% 22,5% 20,8%13,2% 10,7% 8,2% 7,0% 5,7% 4,9%

20,2%16,2% 14,7% 27,8%

20,9%15,9%

9,7% 11,2% 16,7%

53,2%61,3% 64,6%

59,1%68,4%

75,9%83,3% 83,1% 78,4%

Ireland Netherlands R.-U. Spain Lxbg Germany France Belgium Italy

The Belgian refusal rate was one of the lowest in the EU


Evolution of the requests/refusals in Belgium over a longer period

The refusal rate did not change dramatically during the crisis

Index 100 = average for first 8 months of 2008

Refusal rate - index


Recent analysis

• KeFiK-study

- 12.9% of the SME lending requests did not have a positive outcome in 2011

• Unizo-study

• Bank Lending Survey

• KeFiK-barometer- General perception on the ease of access

to credit is decreasing


Change in requirements

• No important changes: financial feasibility of the project is major requirement

• Economic reality weighs on a number of sectors

• Prudency as for• information (more questions) • guarantees (stricter policy but

not the main criterion)

Leads to a more negative perception that needs to be changed:

• more transparency in the process

• quicker process• more transparent judgement on

risk


2010 5 - 2011 4

2010 6 - 2011 5

2010 7 - 2011 6

2010 8 - 2011 7

2010 9 - 2011 8

2010 10 - 2011 9

2010 11 - 2011 10

2010 12 - 2011 11

2011 1 - 2011 12

2011 2 - 2012 1

2011 3 - 2012 2

2011 4 - 2012 3

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

0.8% 1.9% 1.5% 1.6% 1.1% 0.8% 0.5%

-0.2% -0.9% -1.6%-3.2% -4.3%

16.6%

19.9%

13.5%16.4% 16.3%

12.6%11.1%

12.7%

9.5%7.6%

5.3%2.2%

Lending to corporates – lending requestsYear on year evolution compaired with same period

of previous year

Number

Amount

Recent market data

Clear drop in requests

Lending to corporates – lending requestsYear-to-year evolution compared with same period of previous year



Panel discussion

“The answer from the financial sector”

Denis ClaikensDirector Credit Area, CBC Bank

Arnaud LavioletteHead Commercial Banking, ING Belgium

Marc LauwersVice-President, Belfius Bank

Filip DierckxChairman FebelfinVice-President, BNP Paribas Fortis

First round table

Reactionon the past

102Belgian Financial Forum | 12 June 2012 102

Belgian macro-economic outlook

Growth

2011 2012(f) 2013(f)

Belgium 2,0 0,4 1,3

EMU 1,5 -0,1 0,9

Germany 3,1 1,0 1,9

Inflation

Belgium 3,5 2,9 1,9

EMU 2,7 2,4 1,9

Germany 2,5 2,3 2,0

Source: OECD

Unfavourable macro-economic outlook has an impact on the demand for and the quality of credit

-6

-5

-4

-3

-2

-1

0

1

2

3

4

05 06 07 08 09 10 11 12

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

GDP Grow th(%YoY, LHS)GDP grow th(%QoQ, LHS)BusinessConfidence (RHS)


Basel III in 4 key ratios

2017

Potential impact on the offer as a consequence of the changing regulation

Important characteristic Timing

Capital Stronger than under Basel II2013

Leverage Reduce the size of activities 2018

Liquidity Survive for 30 days 2015

Funding Certain funding > 1 year 2018

Volcker – Vickers – Liikanen


Second round table

Views on the future

105Belgian Financial Forum | 12 June 2012 105


End of colloquium

is a credit crunch threatening the financing of the economy (bff 12 june 2012)

Economy & Finance

recent credit developments

credit institutions questioned

monthly loan flow

basel iii crd iv

international legislative process

narrow capital definition

esb listthe work

risk weighted assets