Dutch Central Bank Warns Lenders of Increased Cluster Risks

Dutch banks need to widen their country and sector focus in order to avoid cluster risks, the Dutch central bank said.

“The Dutch banking sector is becoming smaller and better capitalized,” the Amsterdam-based central bank led by Klaas Knot said in its semi-annual financial stability report published today. “Risks are more concentrated than in the past. This is inevitably the consequence of an increased focus on the core activities and on the Dutch market.”

Dutch lenders including ABN Amro Group NV and ING Groep have already started to reduce their dependence on their home market. They were forced to slim down their global activities after being hit by the financial crisis.

Rabobank Groep, the country’s biggest mortgage lender, has been whittling down internationally as it seeks to boost its capital buffer. Last year, it agreed to sell its Polish bank to BNP Paribas SA after closing the sale of its asset-management arm Robeco to Orix Corp.

The central bank also highlighted banks’ mortgage risks.

“The Dutch mortgage portfolio looks like a Janus head,” it said. “On the one hand, the arrears and losses on mortgages have been very limited up to now. On the other hand, the large mortgage portfolio remains a vulnerability to the Dutch financial system.”

House Prices

Dutch house prices have dropped more than 21 percent since

2008. As a consequence, almost one third of the mortgages exceed the value of the underlying property, the central bank said. It expects payment arrears to further increase as high unemployment takes its toll.

Joblessness in the Netherlands, the euro area’s fifth-largest economy, more than doubled from less than 4 percent in 2008 to 8.8 percent in February. The country’s central planning agency forecast unemployment of 8.75 percent this year before decreasing to 8.5 percent in 2015.

ABN Amro seeks to lower its reliance on the Netherlands by expanding its international operations to as much as 25 percent of revenue by 2017. The bank, which was formed after the Netherlands took over the Dutch banking and insurance units of failed lender Fortis, also wants to reduce clustering risks as half its current loan book consists of Dutch mortgages.

ING, which has sold assets including its U.S. online bank and insurance operations to meet European Union conditions after receiving a 10 billion-euro ($13.8 billion) capital injection from the Dutch state in 2008, last month said it plans to cut back the share of mortgages in total lending to about 50 percent in 2017 from 56 percent in 2013.

Rabobank’s share in new mortgages sold in 2013 fell to 26 percent from 31 percent a year earlier, a percentage that is closer to what’s “natural” for the lender, Chief Financial Officer Bert Bruggink told reporters in February.