The National Bank of Belgium (NBB), the country’s central bank, has called on federal finance minister Alexander De Croo to take measures to force banks to be more prudent on mortgage lending, to avoid a financial crisis.
According to the NBB, while house-buyers borrowed an average of 70,000 euros for a purchase in 2000, that figure has now more than doubled to 160,000 euros. At the end of the year 2000, the outstanding sum of mortgage loans stood at 50 billion euros; at the end of 2018 the sum was four times higher on 200 billion euros.
The NBB is suggesting an increase in banks’ credit buffers of 50 percentage points, which would make them more equipped to cope with losses on loans whilst at the same time forcing them to be less generous when approving mortgages.
Several other EU countries have already taken similar measures, according to De Standaard, which quotes NBB director Jean Hilgers promising the measure is a temporary one. Belgium is late to implement a brake on mortgage lending because of heavy competition in the mortgage market. “Since the financial crisis banks have retreated to their domestic market, and that has increased competition,” explained NBB governor Pierre Wunsch.
Credit growth is not a problem in itself, but it becomes problematic when it outstrips growth in the economy to the present extent: credit growth is 6%, while the economy is growing at only 1.5%. The gap is now greater than the threshold figure set by the European Systemic Risk Board, the regulator of the financial system in the EU, to trigger restrictive measures.
France and Ireland have already introduced measures. Germany and Luxembourg are in the process of doing so, and the Netherlands, with a new government, has begun discussions. The increase on buffers, which the NBB says will not require the banks to increase their capital, but which will force them to keep more of their capital unable to be loaned, will take about a year to come into force.