The European Banking Authority (EBA) published today an Opinion following the notification by the National Bank of Belgium (NBB) of its intention to modify capital requirements in order to address an increase in macroprudential risk. Based on the evidence submitted by the NBB, the EBA does not object to the adoption of the proposed measure, which is based on Article 458 (2) of the Capital Requirements Regulation (CRR). This new measure aims at enhancing the resilience of Belgian banks to potential severe downward corrections in residential real estate markets.
In particular, the NBB notified the EBA of its intention to introduce a new macroprudential measure based on two components. The first one consists of a flat 5 pp risk weight add-on to the microprudential risk weight for mortgage exposures for IRB banks (identical to the measure that expired in May 2017). The second one is a more targeted component that would further increase risk weights in line with the risk profile of the bank's mortgage portfolio by applying an additional proportional 33% macroprudential risk weight add-on on top of the microprudential risk weight, which is to be applied to each (IRB) bank's (residential) mortgage portfolio.
In its Opinion, addressed to the Council, the European Commission and the NBB, the EBA acknowledges, in line with the ESRB warning on the vulnerabilities of the residential real estate sector, that the combined increase in house prices and debt levels could pose a threat to the financial stability of banks in Belgium in the event of a downturn. In light of this conclusion, the EBA does not object to the deployment, by the NBB, of its proposed macroprudential measure.