National Bank takes steps to avoid economic damage from coronavirus

National Bank takes steps to avoid economic damage from coronavirus
The BNB building in Brussels © Fred Romero/Wikimedia

The National Bank (BNB) has taken measures to help mitigate the possible damage to the economy caused by the coronavirus.

The authorities are worried that the measures taken to prevent the spread of the disease could have a negative effect on the economy. Those include people being unable to work, lower levels of trade and business travel and the cancellation or postponement of cultural and sporting activities.

The BNB in June last year introduced a new buffer to force banks to maintain a higher level of reserves to guard against the possibility of borrowers defaulting on loans. That measure was taken to slow down the granting of credit: now the opposite effect is required.

The bank is therefore suspending the so-called counter-cyclical capital buffer, which amounted to one billion euros, so as to allow banks more leeway to grant credit to businesses that may need more room to get through the negative effects of the outbreak. Imposed in the first place to slow down credit, it will now be freed up to make granting credit more easy.

In effect, the latest decision allows banks access to 0.5% of their assets that the 2019 decision locked out of reach.

The bank expects demand for investment credit to tail off in the coming months, as the uncertainty surrounding the effects of the pandemic continues. However the demand for short-term bridging credit is expected to increase, as businesses struggle simply to keep the wheels of the economy turning.

The decision of the BNB will be turned into a royal decree to empower the finance minister to make the change. It will also be notified to the European Central Bank. The decision has no budgetary implications.

Alan Hope

The Brussels Times

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