Kingdom of the Netherlands-The Netherlands: Financial Sector Assessment Program- Technical Note on Banking Supervision

KINGDOMOFTHENETHERLANDS—THENETHERLANDS IMFCountryReportNo.24/168 June2024 FINANCIALSECTORASSESMENTPROGRAMTECHNICALNOTEONBANKINGSUPERVISION ThispaperontheKingdomoftheNetherlands—TheNetherlandswaspreparedbyastaffteamoftheInternationalMonetaryFundasbackgrounddocumentationfortheperiodicconsultationwiththemembercountry.ItisbasedontheinformationavailableatthetimeitwascompletedonMay18,2024. Copiesofthisreportareavailabletothepublicfrom InternationalMonetaryFundPublicationServicesPOBox92780Washington,D.C.20090Telephone:(202)623-7430Fax:(202)623-7201 E-mail:publications@imf.orgWeb:http://www.imf.org InternationalMonetaryFundWashington,D.C. ©2024InternationalMonetaryFund May18,2024 KINGDOMOFTHENETHERLANDS—THENETHERLANDS FINANCIALSECTORASSESSMENTPROGRAM TECHNICALNOTE BANKINGSUPERVISION ThisTechnicalNotewaspreparedbyIMFstaffinthecontextoftheFinancialSectorAssessmentProgram(FSAP)intheNetherlands.ItcontainstechnicalanalysisanddetailedinformationunderpinningtheFSAP’sfindingsandrecommendations.FurtherinformationontheFSAPcanbefoundathttp://www.imf.org/external/np/fsap/fssa.aspx PreparedBy MonetaryandCapitalMarketsDepartment CONTENTS Glossary3EXECUTIVESUMMARY5SCOPE8 BANKINGSECTORINTHENETHERLANDS9 A.MarketStructure9 B.RisksandChallenges12 BANKINGSUPERVISIONINTHENETHERLANDS15 A.Introduction15 B.RegulatoryandLegislativeFramework18 C.SupervisoryIndependence,Powers,andResources19 D.OrganizationofSupervision20 E.SupervisoryCooperation21 F.SupervisoryProcess22 G.SupervisionofRiskManagementandGovernance25 H.SupervisionofCredit,Market,andOperationalRisk27 I.SupervisionofLiquidityRisk33 J.Enforcement34 BOXES 1.OverviewoftheEBAFrameworkforCreditRisk28 2.OverviewofSystemicMeasuresRelatedtoSustainabilityofInterest-OnlyMortgages30 FIGURES 1.Non-PerformingLoansandCostofRisk10 2.AssetQualityandImpairment10 3.ResidentialMortgagesbySector13 4.HouseholdNetBorrowingbyOriginator14 5.IncorporationofMacroRisksintoMicroPrudentialSupervision17 6.InternalGovernanceandRiskManagementAssessment26 TABLES 1.MainRecommendations6 2.DutchBanksKeyFinancialIndicators9 3.Interest-OnlyandOtherMortgages,(2022Q1)14 APPENDICES I.ActionsTakenbytheAuthoritiestoAddress2017Recommendations35 II.OrganizationalChartofDNBBankingSupervision37 III.StructureoftheDutchBankingSystem38 IV.OverviewofKeyRegulationsAdoptedSince201739 V.OverviewoftheSSMSupervisoryReviewProcess41 VI.OverallLegalEnvironmentforMortgageLending43 2INTERNATIONALMONETARYFUND Glossary AFMAutoriteitFinanciëleMarkten(AuthorityfortheFinancialMarkets)ALMMAdditionalLiquidityMonitoringMetrics AWBAlgemeneWetBestuursrecht(GeneralAdministrativeLawAct)BKWBankwet–BankAct BCBSBaselCommitteeforBankingSupervision BCPBaselCorePrinciplesforEffectiveBankingSupervisionBPRBesluitPrudentiëleRegels(DecreeonPrudentialRules)BROBankbreedRisicoOverleg(BankWideRiskCommittee)CET1CommonEquityTier1 COREPCapitalReportingFrameworkCRDCapitalRequirementsDirective CRRCapitalRequirementsRegulation DNBDeNederlandscheBank–theCentralBankoftheNetherlandsEBAEuropeanBankingAuthority ECBEuropeanCentralBank ECLExpectedcreditlosses ESRBEuropeanSystemicRiskBoard EUEuropeanUnion FINREPFinancialInformationReportingFrameworkFSAPFinancialSystemAssessmentProgram FTEFull-timeequivalent GFCGlobalfinancialcrisis ICAAPInternalCapitalAdequacyAssessmentProcessIFRSInternationalFinancialReportingStandardsILAAPInternalLiquidityAdequacyAssessmentProcessIMASECBInformationManagementSystem IMFInternationalMonetaryFund ICTInformationcommunicationtechnologies ITInformationtechnology JSTJointSupervisoryTeam ITSImplementingtechnicalstandards LGDLossgivendefault LSILessSignificantInstitution MBFMarket-basedfinance INTERNATIONALMONETARYFUND3 MMDMicro-MacroDialogue MOFMinistryofFinanceoftheNetherlandsNCANationalCompetentAuthority NPLNonperformingloan NPENonperformingexposure P2RPillar2requirement P2GPillar2guidance RASRiskAssessmentSystem RTSReportingTechnicalStandards RWARisk-weightedassets SEPSupervisoryEngagementPlan SISignificantInstitution SRBSingleResolutionBoard SREPSupervisoryReviewandEvaluationProcessSSMSingleSupervisoryMechanism WFTWetophetFinancieelToezicht(FinancialSupervisionAct)ZBOZelfstandigbestuursorgaan 4INTERNATIONALMONETARYFUND EXECUTIVESUMMARY1 Supervisionoflesssignificantinstitutions(LSIs)iseffectiveintheNetherlands.TheDeNederlandscheBank’s(DNB)supervisoryapproachtoLSIsupervisionisintrusiveandtransparent.Itbuildsonwell-developedsupervisorytoolswhichsupportstrategicallyfocused,ongoingsupervisorydialoguewithbanks.ThesupervisoryframeworkblendstherobustSSM/EUframeworkwithDutchelements,enrichingthespectrumofsupervisorytechniquesandtools.TheLSIsupervisorycapacityisfoundedinasolidknowledgebaseofabroaderDNBanditisusedtocovercriticaltopics,whichinclude,(i)comprehensiveandthoroughassessmentsofriskmanagements’outcomes,(ii)deepdivesintogovernance,behaviorandcultureand(iii)thedevelopmentofthenatureriskagenda. DNBandtheAutoriteitFinanciëleMarkten(AFM),aconductsupervisor,cooperateverycloselywhilecomplementingprudentialandconductsupervision,totacklecentralissues,incl