1. Is a credit crunch threatening
the financing of the economy?
Brussels, 12 June 2012, Auditorium of the National Bank of Belgium

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. 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. Recent credit developments in the euro area and in
Belgium
Belgian Financial Forum, 12 June 2012
Jan Smets
DS.12.05.198

5. Recent credit developments in the euro area and Belgium
1. Developments
2. Determinants
2.1 Demand
2.2 Supply
3. Liquidity provision
4. Conclusions
5

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 -0.8
Sources: 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. Annual growth of MFI loans1 to non-financial corporations
(Jan. 2001 - Apr. 2012, annual percentage change, unless otherwise stated)
20 8
15 6
10 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. Annual growth of MFI loans1 to households
(Jan. 2001 - Apr. 2012, annual percentage change, unless otherwise stated)
20 8
15 6
10 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. Outstanding amounts of MFI loans1
Euro area Belgium
(Jan. 1999 - Apr. 2012, € billions) (Jan. 1999 - Apr. 2012, € billions)
6000 200
180
5000
160
140
4000
120
3000 100
80
2000
60
40
1000
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. Non-financial corporations: sources and cost of funding
Funding sources Funding cost
(cumulative net flows over four quarters) (in %)
40 8
35
30 7
25
20 6
15
10 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 bonds2
Sources: 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. 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 Large
Source: 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. 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 services
Source: 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. Recent credit developments in the euro area and Belgium
1. Developments
2. Determinants
2.1 Demand
2.2 Supply
3. Liquidity provision
4. Conclusions
13

14. MFI interest rates on long-term loans, government 10-year
bond yield and 10-year Euribor swap
(percentages)
Non-financial corporations1 Households (mortgages)2
6 6
5 5
4 4
3 3
2 2
1 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 rate4
Source: 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. Determinants of corporate investment in the manufacturing
industry
(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. 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 10
10 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. 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 investment
Sources: 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. Recent credit developments in the euro area and Belgium
1. Developments
2. Determinants
2.1 Demand
2.2 Supply
3. Liquidity provision
4. Conclusions
18

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 2012
Sources: 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. 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 constraints
Sources: 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. 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. Assessment of lending conditions by Belgian firms
Source: NBB (Quaterly survey of corporate credit conditions).
22

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. Balance sheet of the Monetary Financial Institutions (MFIs): assets1
(percentage of GDP)
Total assets of the monetary financial institutions Total credit to euro area residents2
450 260
240
400
220
350 200
180
300
160
140
250
120
200 100
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. Recent credit developments in the euro area and Belgium
1. Developments
2. Determinants
2.1 Demand
2.2 Supply
3. Liquidity provision
4. Conclusion
25

26. A central bank's reaction to a liquidity crisis
Financial market tensions
Central bank liquidity provision
...and helps to sustain Commercial bank A prevents a liquidity shortage...
bank A's 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 liabilities
to 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. 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 months
Source: ECB, calculations NBB.
27

28. Recent credit developments in the euro area and Belgium
1. Developments
2. Determinants
2.1 Demand
2.2 Supply
3. Liquidity provision
4. Conclusions
28

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 context
29

30. Speech
“The impact of the new regulatory
framework 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. The new regulatory framework
for 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. 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 funding
This 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. 1. The general message to the banks since the crisis.
2. The regulatory response: Basel III
| 12 June 2012 | 33

34. Basel III
The 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. bank balance sheet
• Cash • Equity capital
• Investments/loans • Deposits
| 12 June 2012 | 35

36. The key protection against credit risk: capital requirements.
| 12 June 2012 | 36

37. The key protection against credit risk: capital requirements
EQUITY CAPITAL > RISK WEIGHTED ASSETS X REGULATORY CAPITAL RATIO
| 12 June 2012 | 37

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. The key protection against credit risk: capital requirements
EQUITY CAPITAL > RISK WEIGHTED ASSETS X REGULATORY CAPITAL RATIO
| 12 June 2012 | 39

40. The key protection against credit risk: capital
requirements.
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. 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. The key protection against credit risk: capital
requirements.
How Basel III/CRD IV is changing the requirements.
• Better capital (narrow capital definition).
• Better risk assessment.
| 12 June 2012 | 42

43. The key protection against credit risk: capital requirements
EQUITY CAPITAL > RISK WEIGHTED ASSETS X REGULATORY CAPITAL RATIO
| 12 June 2012 | 43

44. The key protection against credit risk: capital
requirements.
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. Impact of new risk assessment.
• Requirements for trading book multiplied by 3.
• Resecuritisation products at prohibitive level.
| 12 June 2012 | 45

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. The key protection against credit risk: capital
requirements
EQUITY CAPITAL > RISK WEIGHTED ASSETS X REGULATORY
CAPITAL RATIO
| 12 June 2012 | 47

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. The key protection against 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.
• Leverage ratio: ratio of maximum balance sheet total to capital: 33.
• New for Europe.
| 12 June 2012 | 49

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. Basel III
The 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. bank balance sheet
• Cash • Equity capital
• Investments/loans • Deposits
• Long term • Short term
| 12 June 2012 | 52

53. The key protection against liquidity risk: reduce
maturity transformation.
• New concept for Basel/CRD.
• Short-term liquidity (Liquidity Coverage ratio).
• Long-term liquidity (Net Stable Funding Ratio).
| 12 June 2012 | 53

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. The international legislative process: BCBS 12
September 2010 final agreement.
Capital requirements: gradual increase until 2019.
… But markets lack patience.
| 12 June 2012 | 55

56. BCBS 12 September 2010
Capital requirements: gradual increase until 2019
11
10
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. 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. 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. 1. The general message to the banks since the crisis.
2. The regulatory response: Basel III
3. Regulatory issues beyond Basel III
| 12 June 2012 | 59

60. Issues beyond Basel III
• The future of cross-border banking
| 12 June 2012 | 60

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. 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 movements
Potential impact on cross-border banking in EU and on regional credit
availability
| 12 June 2012 | 62

63. Issues beyond Basel III
• The issue of cross-border banking
• The issue of systemic banks
| 12 June 2012 | 63

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. The issue of systemic banks: the ESB list
| 12 June 2012 | 65

66. The issue of systemic banks: the ESB list
The work of the FSB/BCBS
• List of G-SIBs
• Supplementary capital requirements to be phased in 2016 - 2019
| 12 June 2012 | 66

67. The issue of systemic banks: the ESB list
The 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. 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. 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. Issues beyond Basel III
• The issue of cross-border banking
• The issue of systemic banks
• The issue of shadow banking: securitisation
Could be a way forward to reduce the risk of credit crunches, but regulatory
reaction is not clear
| 12 June 2012 | 70

71. 1. The regulatory response: Basel III
2. Regulatory issues beyond Basel III
3. The difficult transition and broader impact
| 12 June 2012 | 71

72. Impact on banks
McKinsey
• 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. Impact on the economy
IIF study
• Cost of lending: +1%
• Capital requirements (core Tier 1): + 1,000 bn
• GDP: - 4.4%
• Employment: - 5 million
BIS 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. Sovereign Net Financing Needs (in billion USD)
EIU Figures
2000
1800
1600
1400
1200
1000
United States
800
Euro Zone
600
400
| 12 June 2012 | 74
200

75. Banking contagion channel: exposure to sovereign
and 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. Bank Credit Spreads
(senior 5-year CDS)
700
US Europe
600
Asia UK
500
400
300
200
100
0
jan/08 jan/09 jan/10 jan/11 jan/12
| 12 June 2012 | 76

77. DJ EURO STOXX 50
(24/05/2012)
120 120
110 110
100 100
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. YIELD ON EMU GOVERNMENT BONDS 10Y
Spread with German Bund 10y in bp
24/05/2012
1500
1400
Belgium
1300
1200 Spain
1100
Italy
1000
Portugal
900
800 Ireland
700
France
600
500
400
300
200
100
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. Banks management in the new environment
The 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. 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. 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. 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 experiment
There is an urgent need for certainty about and coherence of the new
regulatory environment for banks.
| 12 June 2012 | 82

83. Thank You
| 12 June 2012 | 83

84. Introduction
“The expectations of the borrowers”
Françoise Sweerts
Ombudsman, Mediation Service Banks – Credit -
Investments
Belgian Financial Forum | 12 June 2012 84

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. ● 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 vrij
86

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 kredietaanvraag
87

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.be
88

89. Dank voor uw aandacht!
Merci pour votre attention!

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. Introduction
“The answer from the financial sector”
Filip Dierckx
Chairman Febelfin
Vice-President, BNP Paribas Fortis
Belgian Financial Forum | 12 June 2012 91

92. Belgian Financial Forum
Colloquium
Is the financing of the economy being threatened
by a credit crunch?
Answer from the financial sector
• Filip Dierckx, Febelfin – BNP Paribas Fortis
• Denis Claikens - CBC
• Marc Lauwers - Belfius
• Arnaud Laviolette - ING

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 2011
Regulated saving EUR 148.8b EUR 214.8b EUR 218.7b EUR 224.9b EUR + 76.1b
deposits (+ 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 + 36.3b
consumer lending (+ 26.0%)
Lending to the public EUR 68.8b EUR 77.3b EUR 87.0b EUR 87.4b EUR + 18.6b
sector (+ 27.0%)
During the crisis, banks continued to collect saving deposits and lending
continued to grow
Belgian Financial Forum | 12 June 2012 93

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. 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. 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. Evolution of the requests/refusals in Belgium over a
longer 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. 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. 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. 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. 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. First round table
Reaction
on the past
Belgian Financial Forum | 12 June 2012 102

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. 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. Second round table
Views on the future
Belgian Financial Forum | 12 June 2012 105

106. End of colloquium
Belgian Financial Forum | 12 June 2012 106