AMSTERDAM (Reuters) - The Dutch central bank said on Tuesday it would require banks to retain 3 billion euros ($3.31 billion) in additional capital to compensate for risks posed by mortgage portfolios.
In its autumn report on financial stability, De Nederlandsche Bank said the measure would better prepare the banks to weather a downturn in house prices. It said it would increase the average risk weighting for mortgages to 14%-15% from the current 11%.
In the report, the bank also warned that continuing low interest rates pose a challenge to stability, as they undermine banks’ profitability and hurt solvency at pension funds and insurance companies.
The three big Dutch banks all have significant exposure to mortgages.
Rabobank is the largest Dutch mortgage lender with a 189 billion euro portfolio, originating around 21% of all Dutch mortgages.
ABN Amro (ABNd.AS) has 148 billion euros in Dutch residential mortgages, but it has the largest exposure as a percentage of total customer loans, with mortgages making up a little more than half of its total loan book. ING is third, with 112 billion euros in Dutch mortgages.
“Because of low losses in the past, banks estimate the risks of their mortgage loans too lightly,” said the DNB in a statement.
“The risk weighting for Dutch mortgage loans are currently among the lowest in the European Union.”
It said it was following the advice of the European Committee for Systematic Risk published on Sept. 23 in the move, which will come into effect in the autumn of 2020.
The DNB also said that high household debt levels make the Dutch housing market susceptible to corrections. Dutch housing is currently in a boom, with prices almost 40% higher than in 2014.
“That’s partly attributable to a lack of supply and low interest rates, but there are also signals of overvaluation,” the bank said.
Reporting by Toby Sterling; Editing by Muralikumar Anantharaman and Louise Heavens