Is a credit crunch threatening the financing of the economy (BFF 12 june 2012)

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Is a credit crunch threatening the financing of the economy (BFF 12 june 2012)

  1. 1. Is a credit crunch threatening the financing of the economy?Brussels, 12 June 2012, Auditorium of the National Bank of Belgium
  2. 2. Introductory Speech“The development of credit allocation in the Eurozone and in Belgium” Jan Smets Chairman, Belgian Financial Forum Board Director, National Bank of Belgium Belgian Financial Forum | 12 June 2012 2
  3. 3. 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 Belgian Financial Forum | 12 June 2012 3
  4. 4. Recent credit developments in the euro area and inBelgiumBelgian Financial Forum, 12 June 2012Jan Smets DS.12.05.198
  5. 5. Recent credit developments in the euro area and Belgium1. Developments2. Determinants 2.1 Demand 2.2 Supply3. Liquidity provision4. Conclusions 5
  6. 6. Growth projections: Renewed weakness and heterogeneity in Europe Real GDP (percentage change compared to the previous year) 2012 2013 Difference from Difference from Spring 2012 Spring 2012 Autumn 2011 Autumn 2011 World 3.3 -0.2 3.7 0.1 China 8.4 -0.2 8.2 0.0 United States 2.0 0.5 2.1 0.8 Japan 1.9 0.1 1.7 0.7 Euro area1 -0.3 -0.4 1.0 -0.3 Belgium2 0.6 0.1 1.4 n.a. Germany 0.7 -0.1 1.7 0.2 France 0.5 -0.1 1.3 -0.1 Netherlands -0.9 -1.4 0.7 -0.6 Italy -1.4 -1.5 0.4 -0.3 Ireland 0.5 -0.6 1.9 -0.4 Greece -4.7 -1.9 0.0 -0.7 Spain -1.8 -2.5 -0.3 -1.7 Portugal -3.3 -0.3 -0.3 -0.8Sources: 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 2012.6
  7. 7. Annual growth of MFI loans1 to non-financial corporations (Jan. 2001 - Apr. 2012, annual percentage change, unless otherwise stated)20 815 610 4 5 2 0 0 -5 -2-10 -4 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Belgium (left-hand scale) Monthly loan flow, in € billion (right-hand scale) Euro area (left-hand scale) 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. 7
  8. 8. Annual growth of MFI loans1 to households (Jan. 2001 - Apr. 2012, annual percentage change, unless otherwise stated)20 815 610 4 5 2 0 0 -5 -2-10 -4 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Belgium (left-hand scale) Monthly loan flow, in € billion (right-hand scale) Euro area (left-hand scale) 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. 8
  9. 9. Outstanding amounts of MFI loans1 Euro area Belgium (Jan. 1999 - Apr. 2012, € billions) (Jan. 1999 - Apr. 2012, € billions)6000 200 1805000 160 1404000 1203000 100 802000 60 401000 20 0 0 1999 2001 2003 2005 2007 2009 2011 1999 2001 2003 2005 2007 2009 2011 Households Non-financial corporations 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. 9
  10. 10. Non-financial corporations: sources and cost of funding Funding sources Funding cost (cumulative net flows over four quarters) (in %)40 83530 72520 61510 5 5 0 4 -5-10 3-15-20 2 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Bank credit1 Credit granted by Belgian banks Credit granted by foreign banks Corporate bonds (< 1 year) Corporate bonds (> 1 year) Corporate bonds2Sources: 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. 10
  11. 11. Bank loans to resident companies in Belgium: breakdown by size of enterprises1 (outstanding amounts, € billions) Loans : authorised Loans : used 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 2006 2003 2004 2005 2007 2008 2009 2010 2012 2011 2007 2009 2003 2004 2005 2006 2008 2010 2012 2011 Small Medium LargeSource: 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. 11
  12. 12. Utilization rate of the loans granted by resident banks (percentages) Breakdown by company size1 Breakdown by branch of activity2 100 100 90 90 80 80 70 70 60 60 50 50 40 40 2006 2007 2008 2009 2010 2012 2011 2011 2005 2003 2004 2006 2007 2008 2009 2010 2012 Manufacturated products Small Construction Medium Trade Large Horeca Real estate servicesSource: 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. 12
  13. 13. Recent credit developments in the euro area and Belgium1. Developments2. Determinants 2.1 Demand 2.2 Supply3. Liquidity provision4. Conclusions 13
  14. 14. MFI interest rates on long-term loans, government 10-year bond yield and 10-year Euribor swap (percentages) Non-financial corporations1 Households (mortgages)26 65 54 43 32 21 1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 MFI interest rate on loans to non-financial corporations1 MFI interest rate on loans for house purchase to households2 10-year government bond yield3 10-year government bond yield3 10-year Euribor swap rate4 10-year Euribor swap rate4Source: 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). 14
  15. 15. Determinants of corporate investment in the manufacturingindustry(percentage of companies1 that indicated the determinant in the yearly investment survey)100 90 80 70 60 50 40 30 20 10 0 2007 2008 2009 2010 2011 2012(e) Source: NBB. 1 Companies are allowed to indicate more than one determinant. 15
  16. 16. Investment, income and confidence of non-financial corporations and households Non-financial corporations Households (percentage change compared to the previous year, unless (percentage change compared to the previous year, unless otherwise stated) otherwise stated)15 10 15 1010 0 10 0 5 -10 5 -10 0 -20 0 -20 -5 -30 -5 -30-10 -40 -10 -40 2006 2007 2008 2009 2010 2011 2012e 2006 2007 2008 2009 2010 2011 2012e Real gross investment of households in housing Real gross fixed corporate investment (left-hand scale) (left-hand scale) Nominal gross operating surplus (left-hand scale) Real gross disposable income (left-hand scale) Business confidence1 (right-hand scale, in points) Consumer confidence(right-hand scale, in points) Sources: NAI, NBB. 1 Overall synthetic business survey indicator, seasonally adjusted series. 16
  17. 17. Bank Lending Survey: loan demand by Belgian non-financial corporations (Q1 2003 - Q1 2012, net percentages) 80 60 40 20 0 -20 -40 -60 -80 -100 -120 -140 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Loan demand 1 explanatory factors2: Inventories and working capital Mergers and acquisitions and corporate restructuring Fixed investmentSources: 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. 17
  18. 18. Recent credit developments in the euro area and Belgium1. Developments2. Determinants 2.1 Demand 2.2 Supply3. Liquidity provision4. Conclusions 18
  19. 19. Bank Lending Survey: change in credit standards1 Loans to non-financial corporations Mortgage loans to households (Q1 2003 - Q2 2012, net percentages) (Q1 2003 - Q2 2012, net percentages) 25 25 0 0 -25 -25 -50 -50 -75 -75 2003 2006 2009 2012 2003 2006 2009 2012 Belgium Expectations Q2 2012 Belgium Expectations Q2 2012 Euro area Expectations Q2 2012 Euro area Expectations Q2 2012Sources: 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. 19
  20. 20. Bank Lending Survey: contribution of factors to the change in credit standards of non-financial corporations1 Belgium Euro area (Q1 2003 - Q1 2012, net percentages) (Q1 2003 - Q1 2012, net percentages) 40 40 20 20 0 0 -20 -20 -40 -40 -60 -60 -80 -80-100 -100 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Competition Risk assessment (mainly business cycle related) Financing costs and balance sheet constraintsSources: 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. 20
  21. 21. Bank Lending Survey: contribution of MFI financing costs and balance sheet constraints to change in credit standards1 Belgium Euro area (Q1 2003 - Q1 2012, net percentages) (Q1 2003 - Q1 2012, net percentages) 20 10 0 0 -20 -10 -40 -20 -60 -30 -80 -40-100 -50 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Non-financial corporations Non-financial corporations Households (mortgages) Households (mortgages) Households (loans for consumption) Households (loans for consumption) 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. 21
  22. 22. Assessment of lending conditions by Belgian firmsSource: NBB (Quaterly survey of corporate credit conditions).22
  23. 23. Net financial wealth1 in the euro area countries: non-financial private sector(percentage of GDP, end 2010) 200 150 100 50 0 -50 -100 -150 IE LU NL CY DE IT FR SI BE SK ES EE EL PT FI AT Sources: EC, NBB. 1 Difference between the outstanding amount of financial assets and liabilities.23
  24. 24. Balance sheet of the Monetary Financial Institutions (MFIs): assets1 (percentage of GDP) Total assets of the monetary financial institutions Total credit to euro area residents2450 260 240400 220350 200 180300 160 140250 120200 100 1999 2001 2003 2005 2007 2009 2011 1999 2001 2003 2005 2007 2009 2011 Euro area Belgium Germany France Netherlands Sources: ECB, NBB. 1 Territorial non-consolidated data. 2 Loans and securities other than shares to euro area residents. 24
  25. 25. Recent credit developments in the euro area and Belgium1. Developments2. Determinants 2.1 Demand 2.2 Supply3. Liquidity provision4. Conclusion 25
  26. 26. A central banks reaction to a liquidity crisis Financial market tensions Central bank liquidity provision ...and helps to sustain Commercial bank A prevents a liquidity shortage... bank As lending to the private sector Deposits with the central bank Loans from the central bank Loan from commercial bank B Bank A does no longer have Loans to the private sector Retail deposits access to the interbank market ......and would have to Other assets Debt securities issued cut back on lending Other liabilitiesto the private sector Capital and reserves Liquidity is placed Commercial bank B with a safe counterparty Deposits with the central bank Loans from the central bank (=central bank) Loan to commercial bank A Loans from commercial banks Loans to the private sector Retail deposits Doubts about the Other assets Debt securities issued solvency of bank A Other liabilities Capital and reserves Central bank liquidity provision prevents a liquidity shortage Central bank Loans to commercial banks Banknotes in circulation Liquidity is placed Other assets Deposits of commercial banks with a safe Other liabilities counterparty (=central bank) 26
  27. 27. Eurosystem refinancing operations(daily data, in € billion) 1400 1200 1000 800 600 400 200 0 2007 2008 2009 2010 2011 2012 1 week 1 month 3 months 6 months 12 months 36 monthsSource: ECB, calculations NBB. 27
  28. 28. Recent credit developments in the euro area and Belgium1. Developments2. Determinants 2.1 Demand 2.2 Supply3. Liquidity provision4. Conclusions 28
  29. 29. 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 context29
  30. 30. Speech “The impact of the new regulatoryframework on the allocation of credit” Freddy Van den Spiegel Economic Advisor, BNP Paribas Fortis Professor, Vrije Universiteit Brussels Belgian Financial Forum | 12 June 2012 30
  31. 31. The new regulatory frameworkfor banks, and its consequences for credit availability Financieel Forum 12 June 2012 Freddy Van den Spiegel Prof VUB and Vlerick Management school Economic advisor BNP Paribas Fortis
  32. 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 fundingThis 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 | 32
  33. 33. 1. The general message to the banks since the crisis.2. The regulatory response: Basel III | 12 June 2012 | 33
  34. 34. Basel IIIThe 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. | 12 June 2012 | 34
  35. 35. bank balance sheet• Cash • Equity capital• Investments/loans • Deposits | 12 June 2012 | 35
  36. 36. The key protection against credit risk: capital requirements. | 12 June 2012 | 36
  37. 37. The key protection against credit risk: capital requirementsEQUITY CAPITAL > RISK WEIGHTED ASSETS X REGULATORY CAPITAL RATIO | 12 June 2012 | 37
  38. 38. The key protection against credit risk: capital requirements.How BaselII/CRD IV is changing the requirements. • Better capital (capital definition and capital structure). | 12 June 2012 | 38
  39. 39. The key protection against credit risk: capital requirementsEQUITY CAPITAL > RISK WEIGHTED ASSETS X REGULATORY CAPITAL RATIO | 12 June 2012 | 39
  40. 40. The key protection against credit risk: capitalrequirements. 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 | 40
  41. 41. Impact assessment of BCBS/EBA.• Some banks could lose up to 60% of capital.• On average EU banks will lose 30% of capital. | 12 June 2012 | 41
  42. 42. The key protection against credit risk: capitalrequirements. How Basel III/CRD IV is changing the requirements. • Better capital (narrow capital definition). • Better risk assessment. | 12 June 2012 | 42
  43. 43. The key protection against credit risk: capital requirementsEQUITY CAPITAL > RISK WEIGHTED ASSETS X REGULATORY CAPITAL RATIO | 12 June 2012 | 43
  44. 44. The key protection against credit risk: capitalrequirements. 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 | 44
  45. 45. Impact of new risk assessment. • Requirements for trading book multiplied by 3. • Resecuritisation products at prohibitive level. | 12 June 2012 | 45
  46. 46. The key formula for credit risk: capital requirements. How Basel III/CRD IV is changing the requirements. • Better capital (narrow capital definition). • Better risk assessment. • More capital. | 12 June 2012 | 46
  47. 47. The key protection against credit risk: capital requirementsEQUITY CAPITAL > RISK WEIGHTED ASSETS X REGULATORY CAPITAL RATIO | 12 June 2012 | 47
  48. 48. The key formula for credit risk: capital requirements. How Basel III/CRD IV is changing the requirements. • Better capital (narrow capital definition). • Better risk assessment. • More capital. • Capital conservation buffer. • Counter cyclical capital buffers. • Dynamic provisioning. • Supplementary capital for “systemic” banks (see below). | 12 June 2012 | 48
  49. 49. The key protection against credit risk: capitalrequirements. How Basel III/CRD IV is changing the requirements. • Better capital (narrow capital definition). • Better risk assessment. • More capital. • 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 | 49
  50. 50. Impact assessment of new capital rules. 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? | 12 June 2012 | 50
  51. 51. Basel IIIThe 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. | 12 June 2012 | 51
  52. 52. bank balance sheet• Cash • Equity capital• Investments/loans • Deposits• Long term • Short term | 12 June 2012 | 52
  53. 53. The key protection against liquidity risk: reducematurity transformation. • New concept for Basel/CRD. • Short-term liquidity (Liquidity Coverage ratio). • Long-term liquidity (Net Stable Funding Ratio). | 12 June 2012 | 53
  54. 54. Impact assessment of new liquidity rules. 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 | 12 June 2012 | 54
  55. 55. The international legislative process: BCBS 12September 2010 final agreement.Capital requirements: gradual increase until 2019.… But markets lack patience. | 12 June 2012 | 55
  56. 56. BCBS 12 September 2010 Capital requirements: gradual increase until 20191110 2,5 9 1,875 1,25 0,625 8 7 2 2 2 2 2 2,5 3,5 6 4 1,5 1,5 1,5 1,5 1,5 5 1,5 4 1 3 2 4,5 4,5 4,5 4,5 4,5 2 4 3,5 1 2 0 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 | 56
  57. 57. The international legislative process: BCBS 12 September 2010 final agreement.• 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 | 12 June 2012 | 57
  58. 58. The EU legislative process• 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) | 12 June 2012 | 58
  59. 59. 1. The general message to the banks since the crisis.2. The regulatory response: Basel III3. Regulatory issues beyond Basel III | 12 June 2012 | 59
  60. 60. Issues beyond Basel III• The future of cross-border banking | 12 June 2012 | 60
  61. 61. The future of cross-border banking• 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. | 12 June 2012 | 61
  62. 62. Specific EU problem of cross-border banking.• 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 movementsPotential impact on cross-border banking in EU and on regional credit availability | 12 June 2012 | 62
  63. 63. Issues beyond Basel III• The issue of cross-border banking• The issue of systemic banks | 12 June 2012 | 63
  64. 64. The issue of systemic banks 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 | 12 June 2012 | 64
  65. 65. The issue of systemic banks: the ESB list | 12 June 2012 | 65
  66. 66. The issue of systemic banks: the ESB listThe work of the FSB/BCBS• List of G-SIBs• Supplementary capital requirements to be phased in 2016 - 2019 | 12 June 2012 | 66
  67. 67. The issue of systemic banks: the ESB listThe work of the FSB/BCBS• List of G-SIBs• Supplementary capital requirements• Further work on resolvability, domestic SIBs, insurance companies | 12 June 2012 | 67
  68. 68. The issue of systemic banks: the ESB list• 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 | 68
  69. 69. The issue of systemic banks: the ESB list• 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 | 69
  70. 70. Issues beyond Basel III• The issue of cross-border banking• The issue of systemic banks• The issue of shadow banking: securitisationCould be a way forward to reduce the risk of credit crunches, but regulatory reaction is not clear | 12 June 2012 | 70
  71. 71. 1. The regulatory response: Basel III2. Regulatory issues beyond Basel III3. The difficult transition and broader impact | 12 June 2012 | 71
  72. 72. Impact on banksMcKinsey • 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 | 12 June 2012 | 72
  73. 73. Impact on the economyIIF study• Cost of lending: +1%• Capital requirements (core Tier 1): + 1,000 bn• GDP: - 4.4%• Employment: - 5 millionBIS study• Direct impact on GDP negligible.• Overall impact positive because of more stability.The difficulty to take into account the vulnerable environment. | 12 June 2012 | 73
  74. 74. Sovereign Net Financing Needs (in billion USD) EIU Figures200018001600140012001000 United States800 Euro Zone600400 | 12 June 2012 | 74200
  75. 75. Banking contagion channel: exposure to sovereignand private sector debt Banks’ exposure to non-domestic Eurozone periphery (Greece, Spain, Portugal, Italy), sovereign and private sector debt, as a % of GDP | 12 June 2012 | 75
  76. 76. Bank Credit Spreads (senior 5-year CDS)700 US Europe600 Asia UK500400300200100 0 jan/08 jan/09 jan/10 jan/11 jan/12 | 12 June 2012 | 76
  77. 77. DJ EURO STOXX 50 (24/05/2012)120 120110 110100 100 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 DJ EURO STOXX 50 20 10 DJ EURO STOXX FINANCIALS 10 0 0 jan/07 jul/07 jan/08 jul/08 jan/09 jul/09 jan/10 jul/10 jan/11 jul/11 jan/12 Source: Datastream | 12 June 2012 | 77
  78. 78. YIELD ON EMU GOVERNMENT BONDS 10Y Spread with German Bund 10y in bp 24/05/201215001400 Belgium13001200 Spain1100 Italy1000 Portugal900800 Ireland700 France600500400300200100 0 jan/07 jul/07 jan/08 jul/08 jan/09 jul/09 jan/10 jul/10 jan/11 jul/11 jan/12 | 12 June 2012 | 78
  79. 79. Banks management in the new environmentThe 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) | 12 June 2012 | 79
  80. 80. Banks management in the new environment• 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 | 80
  81. 81. Banks management in the new environment• 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 | 81
  82. 82. Conclusions• 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 experimentThere is an urgent need for certainty about and coherence of the new regulatory environment for banks. | 12 June 2012 | 82
  83. 83. Thank You | 12 June 2012 | 83
  84. 84. Introduction“The expectations of the borrowers” Françoise Sweerts Ombudsman, Mediation Service Banks – Credit - Investments Belgian Financial Forum | 12 June 2012 84
  85. 85. 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
  86. 86. ● 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 vrij86
  87. 87. 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 kredietaanvraag87
  88. 88. 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 www.financieringvanondernemingen.be88
  89. 89. Dank voor uw aandacht!Merci pour votre attention!
  90. 90. Panel discussion“The expectations of the borrowers” Françoise Sweerts Ombudsman, Mediation Service Banks – Credit - Investments Renaat Berckmoes Johan Bortier CFO, Telenet Director Study Department, Unizo Yves Coemans Alexandre De Geest Attaché Study Administrator, Treasury – FPS Department, Gezinsbond Finance Belgian Financial Forum | 12 June 2012 90
  91. 91. Introduction“The answer from the financial sector” Filip Dierckx Chairman Febelfin Vice-President, BNP Paribas Fortis Belgian Financial Forum | 12 June 2012 91
  92. 92. Belgian Financial ForumColloquiumIs the financing of the economy being threatenedby a credit crunch?Answer from the financial sector• Filip Dierckx, Febelfin – BNP Paribas Fortis• Denis Claikens - CBC• Marc Lauwers - Belfius• Arnaud Laviolette - ING
  93. 93. 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 2011Regulated saving EUR 148.8b EUR 214.8b EUR 218.7b EUR 224.9b EUR + 76.1bdeposits (+ 51.1%)Lending to corporates EUR 97.1b EUR 112.7b EUR 115.8b EUR 117.2b EUR + 18.7b (+ 19.3%)Mortgages and EUR 139.3b EUR 165.5b EUR 175.6b EUR 177.6b EUR + 36.3bconsumer lending (+ 26.0%)Lending to the public EUR 68.8b EUR 77.3b EUR 87.0b EUR 87.4b EUR + 18.6bsector (+ 27.0%) During the crisis, banks continued to collect saving deposits and lending continued to grow Belgian Financial Forum | 12 June 2012 93
  94. 94. Lending over a longer period 450000 400000 350000 300000 Public Institutions 250000 200000 Corporates 150000 100000 Households 50000 0 Private Sector 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 03.2012 NBB data 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) Belgian Financial Forum | 12 June 2012 94
  95. 95. Leverage of the Belgian banks has dropped International activities and exposure of Belgian financial sector Financial market funding Domestic funding (savings) Domestic lending (mortgages and corporate lending) The quick reduction of international activities has made continued growth of lending possible in Belgium Belgian Financial Forum | 12 June 2012 95
  96. 96. Refusal rate within a European context Lending requests from SMEs (% of total lending requests 2010 – source: Eurostat) With result With partial result Refused The Belgian refusal rate was one of the lowest in the EU Belgian Financial Forum | 12 June 2012 96
  97. 97. Evolution of the requests/refusals in Belgium over alonger period Refusal rate - index Index 100 = average for first 8 months of 2008 The refusal rate did not change dramatically during the crisis Belgian Financial Forum | 12 June 2012 97
  98. 98. Recent analysis• KeFiK-study • KeFiK-barometer - General perception on the ease of access to- 12.9% of the SME lending requests did not have a credit is decreasing positive outcome in 2011• Unizo-study• Bank Lending Survey Belgian Financial Forum | 12 June 2012 98
  99. 99. Change in requirements• No important changes: financial feasibility of the project is major requirement• Economic reality weighs on a number of sectors Leads to a more negative perception that needs to be changed:• Prudency as for • information (more questions) • more transparency in the • guarantees (stricter policy but process not the main criterion) • quicker process • more transparent judgement on risk Belgian Financial Forum | 12 June 2012 99
  100. 100. Recent market data Lending to corporates – lending requests to corporates – lending requests Lendingevolution compaired with same period Year on year Year-to-year evolution compared with same period of previous year of previous year 25.00% 19.9% 20.00% 16.6% 16.4% 16.3% 15.00% 13.5% 12.6% 12.7% 11.1% 9.5% 10.00% 7.6% 5.3% 5.00% 2.2% 1.9% 1.5% 1.6% 1.1% 0.8% 0.8% 0.5% Number 0.00% Amount -0.2% -0.9% -1.6% -5.00% -3.2% -4.3% -10.00% Clear drop in requests Belgian Financial Forum | 12 June 2012 100
  101. 101. Panel discussion“The answer from the financial sector” Filip Dierckx Chairman Febelfin Vice-President, BNP Paribas Fortis Denis Claikens Marc Lauwers Director Credit Area, CBC Bank Vice-President, Belfius Bank Arnaud Laviolette Head Commercial Banking, ING Belgium Belgian Financial Forum | 12 June 2012 101
  102. 102. First round table Reaction on the past Belgian Financial Forum | 12 June 2012 102
  103. 103. Belgian macro-economic outlook 4 10 3 5 2 0 1 -5 0 -10-1 -15 GDP Grow th-2 -20 (%YoY, LHS)-3 GDP grow th -25-4 (%QoQ, LHS) -30-5 Business -35 Confidence (RHS)-6 -40 05 06 07 08 09 10 11 12 Unfavourable macro-economic outlook has an impact on the demand for and the quality of credit Belgian Financial Forum | 12 June 2012 103
  104. 104. Basel III in 4 key ratios Important characteristic Timing Capital Stronger than under Basel II 2017 2013 Leverage Reduce the size of activities 2018 Liquidity Survive for 30 days 2015 Funding Certain funding > 1 year 2018 Volcker – Vickers – Liikanen Potential impact on the offer as a consequence of the changing regulation Belgian Financial Forum | 12 June 2012 104
  105. 105. Second round tableViews on the future Belgian Financial Forum | 12 June 2012 105
  106. 106. End of colloquium Belgian Financial Forum | 12 June 2012 106

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