2015 Bank Capital Report: Belgium

Author: | Published: 27 Mar 2015
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1. Bank supervision


The Belgian National Bank (NBB/BNB) and the Financial Services and Markets Authority (FSMA) supervise Belgium's credit institutions. The BNB is responsible for the microprudential and macroprudential supervision. The FSMA supervises financial markets and consumer protection. On November 4 2014, the European Central Bank (ECB) in collaboration with the BNB, took over direct supervision of leading Belgian credit institutions in line with the Single Supervisory Mechanism (SSM).

The Banking Recovery and Resolution Directive (BRRD) came into force on January 1 2015. As part of the implementation of the Belgian BRRD, a resolution committee will be established within the BNB.

2. Bank recovery/bail-in


The BRRD and related articles have already been implemented in Belgian Law. A new Royal Decree came into force on March 3 2015. The articles relating to the BRRD are now in force. A draft Royal Decree regarding the resolution committee has been initiated and was submitted to the ECB, which in turn issued its advice on January 21 2015. The Royal Decree is expected to come into force very soon.

Under the Belgian BRRD implementation, the resolution committee will be competent to apply the BNB resolution tools and exercise the powers of resolution.

Belgian law provides for a bail-in tool. A Royal Decree can be adopted to allow the resolution committee to decide a depreciation of all or part of the eligible liabilities of a credit institution or the conversion of its debts into shares or other equity securities. To this end, this Royal Decree may require that a credit institution maintains a minimum requirement for own funds and eligible liabilities to ensure feasibility of a bail-in. This Royal Decree can be adopted only until December 31 2015 and can enter into force only from January 1 2016.

3. Buffers


The BNB is the supervision authority with regard to the rules on the various capital buffers.

Capital conservation buffer

The capital conservation buffer has been implemented in accordance with the CRD IV framework.

Phase-in begins
May 17 2014 to December 31 2015 – 0%
January 1 2016 – 0.625%
January 1 2017 – 1.25%
January 1 2018 – 1.875%
January 1 2019 – 2.5%

Countercyclical buffer

The countercyclical buffer has been implemented in accordance with the CRD IV framework.

The BNB publishes the rate used to calculate the countercyclical buffer on a quarterly basis on its website. The BNB has not yet published the countercyclical buffer rate.

G-SII buffer

The G-SII buffer has been implemented in accordance with the CRD IV framework. This rule will come into force on January 1 2016.

The buffer will be set between 1% and 3.5% on an individual basis.

The BNB has not yet published which banks have been identified as G-SIIs.

O-SII buffer

The O-SII buffer has been implemented in accordance with the CRD IV framework.

The buffer is capped at 2% and will be set on an individual, consolidated or sub-consolidated basis.

The O-SII buffer applies from January 1 2016.

The BNB has not yet published which banks have been identified as OSIIs.

Systemic risk buffer

The systemic risk buffer has been implemented in accordance with the CRD IV framework. The BNB may require a buffer of at least 1%. The buffer will be reviewed every two years.

The BNB has not yet published the systemic risk buffer.

The buffer is not capped, although the EU must be involved in the decision-making process if the BNB intends to raise the buffer above 3%.

4. Call options


Belgium has not issued any additional national rules with regard to regulatory or tax calls in addition to Article 78 of the CRR.

5. Coupon payment


The rules on the maximum distributable amount (MDA) calculation in the case of buffer breaches follows CRD IV and the rules are implemented in the act of April 25 2014 regarding the status and control of credit institutions.

A credit institution may not make a distribution in cases of buffer breaches. Furthermore, the rule prohibits distribution to any institution that meets the combined buffer requirement through making a distribution in connection with Common Equity Tier 1 (CET1) capital to an extent that its CET1 capital would decrease to a level where the combined buffer requirement was no longer met.

However, an institution that fails to meet the combined buffer requirement must calculate the MDA and notify the BNB of that MDA. That institution may not distribute more than the MDA for the following actions: (a) making a distribution in connection with CET1 capital; (b) creating an obligation to pay variable remuneration or discretionary pension benefits or pay variable remuneration if the obligation to pay was created at a time when the institution failed to meet the combined buffer requirements; or, (c) making payments on Additional Tier 1 (AT1) instruments.

This requirements section only applies in so far as a resulting suspension of the payments does not cause conditions for initiating winding-up proceedings in accordance with the act of August 8 1997 on bankruptcy.

The BNB also has intervention powers when it is likely that, within 12 months, a credit institution will no longer be able to fulfil its obligations under the relevant act or other statutory instruments which govern the institution's operations.

6. Credit default swap contracts


Belgium has not issued any additional rules with regard to the use of credit swaps or other tools to mitigate credit risk in addition to CRR regulation.

7. Disclosure


CRR disclosure and reporting rules apply. The credit institutions are required to disclose information on their capital ratio and capital buffers.

The BNB has not yet published the frequency and the form of the disclosure.

8. Leverage ratio and liquidity coverage ratio


The leverage ratio will only be introduced in 2018, depending on a 2016 proposal from the European Commission. Pending a mandatory ratio for leverage effect at European level, the BNB has decided to maintain its solvability ratio requirement. Specific reporting requirements were issued to verify that obligation. Quarterly reporting is to be transmitted on a consolidated basis. The reporting period is set as the first working day of the second civil month, depending on the report date. This reporting will enter into force for accounts settled on December 31 2014.

9. Loss absorption features


Loss absorbency features of AT1 and tier 2 follow the CRR. Only AT1 provides for going-concern loss absorption while tier 2 provides for gone-concern loss absorption.

According to the BRRD implementing regulation, shareholders and other instruments of ownership (including preference shares, which are a national deviation from the BRRD) will bear the first losses and will be the first stakeholders to contribute to the resolution by means of a mandatory write-down/cancellation/conversion of their instruments, taking account of the ranking of these instruments in insolvency proceedings. Creditors will bear losses after the shareholders.

The 'no creditor worse-off than under normal insolvency proceedings' principle will apply.

10. Minimal Capital


Belgium complies with CRR requirements. The levels of CET1 and tier 1 capital ratios are at the highest level within the explicit ranges set out in Article 465(1) CRR. Belgium has chosen to adopt any phase-in regulations regarding own funds requirements.

Min CET1 ratio

January 1 2014 – 4%
January 1 2015 – 4.5%

Min tier 1 ratio

January 1 2014 – 5.5%
January 1 2015 – 6%

Min total capital

Ongoing 8%

11. Pillar 2


The main rules on pillar 2 are set out in Book II of the act of April 25 2014 regarding the status and control of credit institutions.

Belgian law provides for guidance on pillar 2 requirements. It focuses on the joint responsibility of the management board, general risk management requirements, organisational duties, documentation, resources, and outsourcing.

Belgian law also provides for an asset encumbrance ratio, which allows a permanent monitoring of the balance structure. This ratio is laid down for each credit institution in a BNB regulation and will require a bi-annual evaluation that particularly takes into account the evolution of the balance structure of the credit institutions as well as the influence of the ratio on their external funding costs.

Pillar 2 requirements are subject to the disclosure rules on publishing quarterly reports on own funds and the institution's internal capital adequacy assessment.

12. Qualifying capital


The BNB has no authority to issue local rules on what instruments qualify as CET1, AT1 or tier 2. In this respect, standard CRR rules apply.

In Belgium the following are considered as CET1:

  • ordinary shares (ordinary financial instruments representing the share capital of a Belgian company)
  • yield enhanced securities
  • preferential shares with voting rights

Deferred tax assets

Belgium has not issued any rules with regard to the treatment of the deferred tax assets in addition to CRR regulation.

Deferred tax assets that rely on future profitability and existed before January 1 2014 need to be deducted in full from CET1 from January 1 2014.

A phase-out begins on January 1 2015, after which 10% of those deferred tax assets that rely on future profitability need to be deducted. This increases by 10% annually and reaches 90% in 2023.

With regard to deferred tax assets created in 2014 or later, 20% needs to be deducted in 2014, 40% from January 1 2015, 60% in 2016, 80% in 2017, and 100% from January 1 2018.

Available-for-sale

In Articles 18 and 19 of the annex of the Royal Decree of April 10 2014, which relates to the approval of the regulation of the BNB of March 4 2014 on the implementation of Regulation 575/2013, the BNB has issued supplemental rules in line with Article 467(3) CRR.

Article 35 CRR applies from January 1 2014 to December 31 2017.

There is an exception for unrealised losses on fixed interest securities and credits. The percentages of inclusion in original own funds of category 1 year institutions are the following:

January 1 2014 – 20%
January 1 2015 – 40%
January 1 2016 – 60%
January 1 2017 – 80%

The BNB has accepted that banks can include a filter on unrealised gains and losses relating to exposure to central governments, and this will continue until the European fair value accounting rule IAS 39 has been replaced.

This special rule does not apply for the part of the total amount of net losses relating to exposure on central administrations classified in the category available-for-sale that exceeds 5% of the account value of the relevant portfolio. The part exceeding 5% is treated as set out in Article 35 CRR.

Grandfathering

Article 34 of the Royal Decree of April 25 2014 deals with supplemental rules as required under Article 486(6) CRR on grandfathering and phase-in provisions in relation to CRR rules on own funds requirements.

The following percentages have been determined:

January 1 2014 – 80%
January 1 2015 – 70%
January 1 2016 – 60%
January 1 2017 – 50%
January 1 2018 – 40%
January 1 2019 – 30%
January 1 2020 – 20%
January 1 2021 – 10%
January 1 2022 – 0%

13. Regulatory intervention


Regulatory intervention powers were introduced in 2008 under the Belgian act relating to the measures aimed at promoting financial stability, and in particular establishing a public guarantee. The public guarantee represents a protection reserve of the deposits and of the financial instruments for investors in case of failure of a bank. The intervention tools under this act are fairly limited.

In October 2011, the Belgian government nationalised Dexia Banque Belgique (now Belfius). Dexia was almost on the brink of bankruptcy after the aggravation of the crisis due to European sovereign debts.

14. Stress tests


The five Belgian banks are participating in the 2014 EBA stress test. Dexia and Axa Bank Europe did not pass the European stress test.

The BNB also executes annual national stress tests of the major banks within the framework of its supervisory measures. The results of these stress tests are normally published on the website of the BNB.

15. Sifis


The BNB has not yet taken a position on the implementation of the buffer for global systemically important institutions (G-SIIs). However, the BNB will decide which firms will be required to hold a capital buffer for G-SIIs or other systemically important institutions (O-SIIs) respectively before the provisions on those buffers come into effect on January 1 2016. No other additional rules in relation to sifis have been issued.

About the author
 

Benoît Feron
Partner, Laga

Brussels, Belgium
T: + 32 2 800 71 66
E: bferon@laga.be
W: http://laga.be

Benoît is a partner of Laga, working in the business law department. He focuses on M&A, corporate law and capital markets, including financial regulatory and litigation work. He was previously a partner at NautaDutilh in Brussels and has been a member of the Brussels Bar since 1987. He graduated from the universities of Louvain, Ghent Brussels (Belgium) and Duke University (US). He has been extensively published and has lectured on his specialist subjects mentioned above.


About the author
 

Morgane Collignon
Associate, Laga

Brussels, Belgium
T: +32 2 800 71 65
E: mocollignon@laga.be
W: http://laga.be

Morgane joined the business law department at Laga in 2014. Her areas of practice include M&A, corporate law and capital markets. Morgane holds law degrees from the University of Louvain and the Facultés Universitaires Saint Louis, Brussels.


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