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Dutch Lenders Boost Real-Estate Buffers at Central Bank Request

The Dutch central bank imposed additional capital demands on the country’s lenders to protect them against losses from a slump in the commercial real- estate market after conducting an asset-quality review.

The banks now have about 6 billion euros ($7.8 billion) in capital available to absorb losses on the property loans, Jan Sijbrand, a director at the Amsterdam-based supervisor, said in a letter dated June 21, published by the Finance Ministry today. The buffer comes on top of about 3 billion euros in provisions the lenders already set aside, he said.

The central bank last year started an investigation into models and risk-management processes used by Dutch lenders in their commercial real-estate portfolios as prices dropped about 15 percent since 2008 and uncertainty arose on the accuracy of valuation methods used. A worsening real-estate portfolio was the main cause of the downfall of SNS Reaal NV, the fourth-biggest Dutch bank, and led to its nationalization in February.

“Strengthening of banks’ internal models has led to an increase in credit-risk weightings, leading to more capital buffers,” Sijbrand said. In addition, the central bank imposed additional capital requirements as a buffer against additional risks and unexpected losses, he said.

The six biggest Dutch banks had about 110 billion euros in domestic and international property loans, accounting for about 4 percent to 5 percent of their total balance sheet on average, the central bank said. Commercial real-estate prices have dropped since September 2008 while vacancies continue to increase, according to a report in April.

In a second phase of the probe, the central bank will look into actual valuations of individual commercial real-estate loans and the underlying collateral, Sijbrand said. He expects to present results by the end of the year.

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