The coronavirus crisis could lead to a crisis in the property market in the near future unless banks take steps to increase their lending, according to the National Bank (NBB) in its latest annual Financial Stability Report.
“The COVID-19 pandemic abruptly ended a long period of relative economic and financial stability,” the report says. The exceptional measures taken worldwide – in particular the lockdown – have had a major impact on economic activity and on the financial markets.”
Belgium, the document says, has not been spared.
“The Belgian economy is no exception and is also undergoing this crisis, partly as a result of the necessary restrictive measures, including those related to the lockdown.”
The Bank’s report foresees dark clouds on the horizon, in particular for the property market. The measures taken by government, particularly the recourse to temporary unemployment, helped to get people through the immediate crisis, but there is now a very real likelihood that some of those temporarily unemployed will find themselves unemployed for real.
The danger then is that home-owners will default on their mortgage payments and have to sell up, at a time when demand is likely to be depressed. “However we have at the moment seen absolutely no increase in defaults,” NBB governor Pierre Wunsch said.
However while lenders are not defaulting at present, 7% of mortgage holders have requested a suspension of payments as long as the crisis lasts – a possible sign of problems to come.
Speaking at a press conference to launch the report, Wunsch pointed to the differences between the last financial crisis in 2008-2010 and the one facing Belgium today.
“During the credit crisis, the financial sector itself was the cause. Now it needs to be part of the solution.”
The most important role for the banks to play now is as a source of credit, and to make that possible, the NBB has taken various measures. The main one being a relaxation of the credit buffers which banks are obliged to maintain to prevent over-lending. The less banks have to retain, the more they have to lend.
“Since the financial crisis, the Belgian banking sector has been building up large capital and liquidity buffers, partly as a result of restructuring, prudent crisis management but also stricter regulation and supervision,” the stability report says.
“These buffers can now be used to absorb credit losses while continuing to secure lending to the real economy. In this sense, the Belgian financial sector, and in particular the banking sector, is a crucial lever in facing and resolving the current crisis.”