Banks in Belgium have changed

Since the crisis, the sector has considerably reduced its risk profile. Since 2007, the Belgian financial sector has changed more than any other financial sector in Europe. Between the end of September 2007 and the end of September 2012:

  • the balance sheet of Belgian banking has shrunk by 27.1%
  • Core Tier-1 capital or hard core capital rose by 16.6%
  • leverage (relationship between equity and the balance sheet total) fell by 38.7%
  • wholesale funding (financing via financial markets) declined by more than 30%

These changes benefit both the solvency and the liquidity position of the sector. Financial institutions now have a greater buffer in the form of increased own equity to call on should a stress situation arise. They are also financing their balance sheets more with a stable deposit base than with financing from the financial markets, making them more liquid.

Scaling down riskiest activities

In addition, the Belgian financial institutions have dramatically scaled down their riskiest activities. An internal study of various Belgian financial institutions shows that income from trading (the buying and selling of financial products) has fallen from 20% of total income to 9%.

The lion’s share of these trading activities can be attributed to activities that are directly linked to the real economy: they are, for example, aimed at seeking capital for large projects and companies, or at hedging (export-oriented) companies against interest rate risks or fluctuations in raw materials prices.

The share of trading income that can be attributed to proprietary trading (trading for one’s own account, an activity by which Belgian financial institutions mainly hedge themselves against price fluctuations on the financial markets) even fell from 13% to 2%.

Focus on internal market

In addition, the financial sector is focusing much more on the domestic market for its credit volumes. As a result, foreign risk exposure has been significantly reduced and the sector is less subject to possible financial imbalances abroad. In September 2012, the financial sector had reduced its foreign assets (loans and other assets) by 46% compared with 5 years earlier while domestic assets had risen by 18.7% over the same period. The same is true of liabilities (deposits and other financing): foreign liabilities were reduced by 49.9% over the same period, while domestic liabilities rose by 13%. This made the institutions more stable and solid, although there is also a downside to a sharp reduction in foreign exposure. 

Risk spreading

The fact is that the sensitivity to risk of a financial institution is not determined by its business model, but by its portfolio management. Institutions that spread their risks in a well-considered fashion seem the most robust. Various studies, including by the European Central Bank (ECB), show that a universal bank in a diversified landscape active on both the capital and retail markets is better described as stable rather than vulnerable. This is because in such banks possible losses in one activity can be offset by revenue in another.

Risk spreading, including geographically, is also part of healthy risk management. If the financial sector in Belgium were further encouraged to limit its exposure to the domestic market, this could induce concentration risks. An over-dependence on the local real property market, for example, makes the national financial sector highly vulnerable to possible shocks on this market. This was demonstrated abroad by, among other things, the Spanish cajas.

The cajas were Spanish savings banks (which, by the way, were often controlled by the public authorities). They focused mainly on raising savings and providing mortgages. However, when the Spanish property market collapsed, the cajas proved to be overly exposed to their own Spanish property market. The government then had to intervene to rescue these banks. Now it must be said that Belgian banks normally have no need to fear such a scenario. It must also be said, however, that the Belgian banking sector has maintained excellent control in recent years. The ratios of the banks in mortgages have, for example, always been healthy. According to the National Bank of Belgium, the average loan-to-value ratio (the relationship between the credit amount and the value of the property to which a mortgage relates) is at a very acceptable level. At the end of 2011 this ratio was between 60% and 65%.


Indebtedness among both businesses and individuals is also well below the European average. In 2011, household debt amounted to 55.3% of the gross domestic product (GDP). At the time, the European average was 87.1%. The financial sector also wants to maintain this course in the future, but realises that it is just one of many players that have an influence in this regard. Other factors, over which financial institutions have no influence, could also determine the evolution of the degree of indebtedness.