Dutch Banks to Play Down Mortgage Risks Amid ECB Review

Dutch banks are seeking to assure the European Central Bank, their future supervisor, that mortgages accounting for about a third of their balance sheets are less risky than they look on paper.

The Dutch Banking Association, or NVB, will travel around Europe to discuss its position, outlined in a report today, with European institutions including the ECB.

The central bank is scrutinizing home loans as part of a review of the region’s banks before it assumes oversight of the industry on Nov. 4.

“It would be a shame if based on wrong risk assumptions, wrong risk weights would be set,” Edward Feitsma, head of supervision and financial markets at NVB in Amsterdam, said in an interview yesterday.

A miscalculation by the ECB could be costly for banks and hurt mortgage lending, as risk weights define the amount of capital they have to set aside for certain loans.

The NVB says the Netherlands presents a paradox: It has some of the highest mortgage debt levels in Europe but some of the lowest defaults and losses.

This is due in part to factors including “good payment behavior,” meaning the Dutch on the whole can be trusted to pay off their debts, the industry group says.

Institutional factors like tax rules, lender protection, government guarantees and social security “also play a role,” the report says.

“Supervision from Frankfurt will become much more data-driven than it is now, which is good in itself,” said Feitsma. “Even when looking at facts and figures, they’ll see there’s something between the loan quotes and the outcomes. Clearly, there are unknown variables in the equation.”

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