In an “extremely pessimistic scenario,” loss ratios on Dutch residential mortgages would increase to 33.5 basis points of outstanding debt in 2017 from 11.3 basis points in 2013, the Amsterdam-based central bank said in a report yesterday. A basis point is a hundredth of a percentage point. That equals a maximum loss of about 2 billion euros a year, more than 20 percent of the capital buffers and bad loan provisions set aside for the loans, it said.
“That would enable banks to absorb such high loss ratios for several years,” the central bank said, adding the models didn’t take into account “second-round effects” such as the impact of dropping house prices on economic growth.
Dutch residential debt, among the world’s highest at 108 percent of gross domestic product, has become a focus as a house price drop of more than 21 percent since 2008 has left almost a third of homeowners with debt exceeding the value of their property. Banks including Rabobank Groep, ING Groep NV (INGA) and ABN Amro Group NV have made the largest portion of those loans, which will be reviewed by the European Central Bank as it prepares to assume supervision in November.
While the number of mortgages in arrears has remained limited to 1.3 percent, it’s set to increase as rising unemployment takes its toll. Joblessness in the Netherlands, the euro-area’s fifth largest economy, more than doubled to 8.8 percent in February from 2008, and may remain at 8.75 percent this year, according to a Dutch government central planning agency forecast.
The central bank’s stress scenario took into account a GDP decrease of a cumulative 2.5 percent in 2014 and 2015 and slow growth to 1.5 percent a year by 2020, a 2016 peak in unemployment of 9.5 percent and a further house price slump of 27 percent until 2017.
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