The Netherlands is preparing to set up a government-backed mortgage bond institution to remove some home loans from lenders’ balance sheets and help end a five-year housing slump.
The government and pension funds will allow banks to sell low-risk mortgages to the new institution, according to three people with knowledge of the talks. The fund would offer state-guaranteed bonds to institutional investors, said the people, who asked not to be identified as the talks are private.
Dutch banks are reliant on capital-market funding to fill a gap of about 450 billion euros ($599 billion) between deposits and loans. The shortage is inflated by the nation’s mortgage debt, among the highest in the world at 108 percent of gross domestic product. Banks are unable to match that by local savings, as these are predominantly held in the country’s pension funds, which invest more than 85 percent of their 960 billion euros outside the Netherlands.
The high mortgage debt has made the banks vulnerable to the housing market, where prices have dropped more than 20 percent from a 2008 peak. Stricter capital requirements and a lack of domestic competition among banks have driven up mortgage rates, authorities have said.
The plan isn’t final and European regulators would have to consider whether it qualifies as state aid, the people said.
“We have been in talks for a while to see if pension funds could invest more in the Netherlands,” Finance Minister Jeroen Dijsselbloem told reporters in The Hague today. “We are going at a speed now in which it can happen soon.”
The plans were reported by Dutch newspaper Het Financieele Dagblad earlier today.
Dutch national mortgage bonds could help cut banks’ balances, reduce financing costs and ensure funding in case of financial market stress, a committee led by Kees van Dijkhuizen, currently chief financial officer of ABN Amro Group NV, said in March. Pension funds and other institutional investors could benefit as the debt would offer better returns than Dutch sovereign bonds, while state-backing reduces risks.