ING Says Real Estate Capital Buffers Suffice Before ECB Test

ING Groep NV, the biggest Dutch financial-services company, said the buffers to absorb losses on its real estate finance loans are sufficient to meet Dutch and European regulators’ scrutiny.

“Our capital and the provisions we hold against our credit portfolio are more than adequate,” Chief Risk Officer Wilfred Nagel of the Amsterdam-based company said in a call with reporters today. “There is no reason in particular at this point to take drastic steps in any direction.”

The Dutch central bank is conducting an asset quality review of the nation’s biggest lenders’ commercial real estate books before the European Central Bank takes over supervision of European banks, including ING, Rabobank Groep and ABN Amro Group NV, next year. The ECB will review loans to small- and medium-sized companies and shipping loans, as well as commercial real estate, Rabobank board member Sipko Schat said in an interview last week. Residential mortgages aren’t included at this point, he said.

That may change as home loans make up a large part of Dutch banks’ books, both Schat and Nagel said.

Prices on the Dutch commercial property market have fallen by an average of 15 percent from a market peak before the financial crisis, the country’s central bank said last month. The six biggest Dutch banks had about 110 billion euros ($149 billion) 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 in July.

Stress Tests

The ECB is running a three-stage probe into the health of the euro-area banking industry as a precondition for taking over supervision. A series of stress tests, which pit the banks’ balance sheets against a range of adverse scenarios, will be conducted with the European Banking Authority as the final step.

The EBA’s definition of bad debt is “substantially less conservative” than ING’s, Nagel also told analysts today. The bank continues to qualify loans as non-performing until they have been back to performing for six months, he said.

Under ING’s definition, 1.8 percent of its Dutch mortgage book is non-performing, while under the EBA definition that would be about 1.1 percent, he said.

“The operational challenge may be the biggest in this review,” Nagel said, referring to the data banks have to submit for the reviews. “We are not so much concerned on the outcome.”

The company’s banking unit already meets stricter Basel III regulatory requirements, according to a presentation today.

Nagel said the bank has assigned tens of people from within the company to the effort, a number that will increase when the ECB actually begins its reviews.

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