RegTech is observing differences in the way how national, and foreign financial institutions are applying the RWA calculations for these specific products, which could lead to unfair competition on the Dutch Real Estate Market.

Within the Netherlands the National Competent Authority, that is the Dutch National Bank (DNB), have clarified to Dutch Financial Institutions how to use the so called NHG (guarantee) within the calculation of Risk Weighted Assets with respect to Residential Real Estate Mortgages.

However we have observed that Financial Institutions with their legal seat in another EU country, but with a branch within the Netherlands, have also the ability to supply NHG mortgages if they meet certain criteria.

Our question is mainly related to how these financials institutions, which have a different Competent Authority, should apply their RWA calculation. Our main  focus is on how to avoid any unfair competition with respect to higher or lower RWA calculations for the same product. 

Context: The Netherlands has a large mortgage market with some specific Dutch products, one of them in the form of a guarantee. This guarantee, which has very specific terms and conditions, is to be included in the RWA calculation of the underlying loan in a way described by the national competent authority (NCA). The prescribed treatment means that it should be used to (further) reduce the risk weight of the exposure covered by real estate.

Only when the amount of the guarantee exceeds the value of the real estate can it be used to reduce the risk weight of exposure amount that is not covered by real estate. This means the different types of collateral can NOT be automatically “stacked-up”. 

Since the treatment is described on the NCA’s website, it applies to all banks that submit their CoREP reports to the Dutch Central Bank. This leads to the question of these rules being applicable to banks with activities in the Netherlands who submit their CoRep reports to NCA’s outside The Netherlands.

For example: In case of a German bank that has (significant) operations in the Dutch mortgage market through a branch located in The Netherlands, the supervisory (CoRep) reports are submitted to the Bundesbank. The NGH Mortgage can only be supplied by a financial institution if certain criteria have been met for the Residential Immovable Property, the mortgage, and the initial value of the mortgage. Also the financial instutions needs to have an Guarantee Agreement, and a depositted amount given, both with the NHG Waarborgfonds. 

We are aware that already a number of branch offices in the Netherlands from other EU financial Institutions are supplying NHG mortgages towards the Dutch Real Estate Market.  This leads to the question of to what extent the guidelines of the Dutch NCA are to be followed when calculating the RWA for the exposure of the branch located in The Netherlands as part of the submission of CoRep to the Bundesbank by the German ‘parent’ of the branch.

It is unclear whether a foreign bank, with a Dutch branch, would be exempt from applying the rules from the Dutch NCA for the branch, as this could lead unfair competitive advantage. After all, the submission to the Bundesbank could contain a (much) lower capital requirement for these exposures than when the submission would be done to the Dutch NCA.