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Febelfin 21 May 2013 1
Challenges for a Belgian financial sector at the service of society and the economy
2
Agenda
Febelfin 21 May 2013
18.00 Welcome18.15 Presentation given by Filip Dierckx, Febelfin Chairman, and Michel Vermaerke, Chief Executive Officer of Febelfin18.45 Panel debate19.45 Q & A20.00 Reception
Febelfin 21 May 2013 3
“Challenges for a Belgian financial sector at the service of
society and the economy”
Séance-débat en français à Mons le
5 juin
Debate in English in Brussels on 21 May
Nederlandstalige debatsessie te Gent op 29 mei
Nederlandstalige debatsessie te
Antwerpen op 27 mei
Séance-débat en français à Namur le
29 avril
Welcome !
4
“Challenges for a Belgian financial sector at the service of citizens and the economy”
Febelfin 21 May 2013
Filip Dierckx, Febelfin Chairman
Michel Vermaerke, Chief Executive
Officer of Febelfin
Challenges for a Belgian financial sector at the service of society and the economy
Filip Dierckx, Febelfin ChairmanMichel Vermaerke, Chief Executive Officer of Febelfin
Febelfin 21 May 2013
- Financing of the economy- Sustainable solutions for a different use of deposits in the context of structural banking sector reforms
6
AGENDA
Febelfin 21 May 2013
I. 3 fundamental tasks II. 3 success factorsIII. 4 commitmentsIV. Conclusion
Challenges for a Belgian financial sectorat the service of society and the economy
7
I. 3 fundamental tasks
Febelfin 21 May 2013
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3 fundamental tasks for a financial sector at the service of society
Febelfin 21 May 2013
Financing the economy
A balanced approach to saving and investing
Organising a modern and efficient financial infrastructure
WHICH TASKS?
Within the boundaries of a balanced regulation, efficient supervision and a competitive market
9
II. 3 success factors
Febelfin 21 May 2013
Keywords: realism, cooperation, profitability
What do banks need to fulfilltheir key tasks?
Febelfin 21 May 2013
Execution of our missions goes hand in hand with
Realism
Cooperation and dialogue with authorities
A sufficient level of profitability
10
Febelfin 21 May 2013 11
Realism is needed
Banks cannot take any risks
Banks must provide cheap credit
Banks must shrink their balance sheets and leverage Banks need to supply
more credit
Banks need to attract long term
fundingLT funding will become more
expensive as a result of Basel III and bail-in
Banks shouldn’t be complex
institutions Banks operate in complex globalised
markets
Banks need to boost interest rates
on savings accounts Banks must keep on
providing cheap credit
Febelfin 21 May 2013 12
Cooperation and dialogue with public authorities
A few examples
Basel III (financing of exports, LCR)
Moratorium on complex investment products
Covered Bonds
Supporting project Ford Genk & ArcelorMittal
Banking plan /Roundtable SME financing
Source : Febelfin presentation based on NBB data. Consolidated data, and, since 2006, data based on IAS / IFRS reporting.
4,5
0,7
10,5
-2,6
-36,5
13,2
22,4
18,5
15,8
13,6
11,8
13,7
20,4
-40 -30 -20 -10 0 10 20 30
Jan-Sept 2012
2011
2010
2007
2006
2005
2004
2003
2002
2001
2000
ROE
2008
2009
Febelfin 21 May 2013
A sustainable level of profitability is essential…
13
14
… but profitablilty is under pressure …
PROFITABILITY OF BELGIAN
FINANCIAL SECTOR
Prudential initiatives
Structural measures
Capital requirements
Protection of consumers
Economic environment
Cost of capitalFebelfin 21 May 2013
TaxationPrudential initiatives
Operational measures
… and insufficient profitability can impact banking on different levels
CLIENT
PERSONNEL SHAREHOLDER
SUSTAINABLEFINANCIAL
MODEL
Decrease of equity may harm both liquidity and solvency
Less solid financial system
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Febelfin 21 May 2013 16
The evolution towards a sustainable and vital financial sector goes hand in hand with :
3 FUNDAMENTAL TASKS
3 SUCCESS FACTORS
4 COMMITMENTS
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III. 4 commitments
Febelfin 21 May 2013
Financial sector commitments to society
Febelfin 21 May 2013
Financing the economyKeeping intact a diversified banking landscape with low risk profile
Modernising and innovating infrastructure
Fulfilling its social and economic role in society
The financial sector commits to
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Financial sector commits to financing the economy
1
• Financing the economy today: facts & figures• The financing capacity in the future• Alternative financing methods
Financing the economy today facts & figures
Febelfin 21 May 2013 20
+ 87.6 billionEUR
EXTRA (since 2007)
“One EUR credit for each EUR of savings”(end 2007 – end 2012)
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22
Evolution of credit supply to businesses
Febelfin 21 May 2013
Hoogtepunt
Extract from the 2012 Annual Report of the National Bank of Belgium In Belgium, the credit institutions continued the reorganisation of their balance sheets which they had started as of the outbreak of the financial crisis. In 2012, for instance, they carried out a reduction of their exposures to the peripheral countries of the euro zone. At the same time, they refocused on their intermediation activity in Belgium and on their strategic markets: the deposits collected from their retail customers have increased, and the granting of credit has overall been maintained.
Febelfin data= NBB + self-employed/professions
NBB data= volume of credit taken up by Belgian non-financial companies
95,000,000
100,000,000
105,000,000
110,000,000
115,000,000
120,000,000
125,000,000
130,000,000
135,000,000
112,696,199
111,090,297
114,655,066116,705,003
120,608,260
118,032,762
120,711,581
117,410,686116,985,975118,444,706
120,943,963120,919,704
122,296,092124,157,884
126,903,555
128,753,425129,390,777130,030,964130,780,922
128,828,928
128,243,621
97,070,000
100,335,000
104,350,000104,696,000
106,447,000105,069,000
110,069,000
105,501,000106,354,000
108,531,000110,866,000111,573,000
112.607112,545,000
116,729,000
115,695,000115,805,000
116,982,000
118,387,000
116,244,000116,981,000
117,823,000
Febelfin Observatorium NBB
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Credit supply to businessesat competitive interest rates
Febelfin 21 May 2013
Average weighted interest rate for new loans
Source : NBB figures – Observatory for credit to non-financial companies (current figures)(*) Average for January – March 2013
Yearly average weighted interest rates, in %
2007 2008 2009 2010 2011 2012 2013 (*)
5.03% 5.32% 3.73% 3.20% 3.45% 3.07% 2.96%
Febelfin 21 May 2013 24
Traditional credit supply under pressure…
Credit demand diminishes Credit production diminishes
Difficult economic contextPossible impact on solvency of
SMEs / Possible decline in financial independence of SMEs
Reg
ula
tio
nE
con
om
y
Basel III LT/MT credit supply becomes more difficult
Economic climate: SME equity under pressure
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The degree of financial independence is the ratio between the stockholders' equity and the total liabilities. When the ratio is high, the company is independent of third-party funds, and this has two positive consequences: on the one hand, the financial charges are weak and thus weigh little on the results; in addition, new debts can, if necessary, be easily contracted and under good conditions. The degree of financial independence can also to be interpreted as a measurement of the financial risk incurred by the company, the third-party remuneration being fixed, unlike the results of the company, which fluctuate in time. (NBB)
Febelfin 21 May 2013
SME
The financing capacity in the future?- Belgian savings do not sleep- Not all deposits are the same- Limits to the financing capacity
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Belgian savings do not sleep
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Financing of the Belgian economy by the credit institutions (million €)
Source: NBB data
Total Belgian deposits Credit to private sector
Credit to public authorities Monetary institutions
28
Belgian savings do not sleep
Febelfin 21 May 2013
4127440908
4054340178
3981339447
3908238717
3835237986
3762137256
3689136525
3616035795
35430
-200000
-150000
-100000
-50000
0
50000
100000
Depositosurplus: private sector + overheden Depositosurplus: private sectorDeposit surplus: private sector + government Deposit surplus: private sector
In million EUR. Source: NBB data.
=> More than 100% of Belgian deposits is transferred into credit (private + government)
Not all deposits are the same
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Deposits: volumes according to type of deposit (in million EUR)
Since the crisis more insecurity
leads to more short term savings
accounts
Since the crisis more insecurity
leads to less long term deposits
Source: NBB data
Þ Macro economic parameters determine duration of deposits(e.g. GDP growth, interest rates, unemployment, etc…)
Current accounts
Savings deposits
Total deposits (including public authorities, insurers and pension funds)
Time deposit accounts
Total
Febelfin 21 May 2013 30
Limits to the financing capacity
A changing financial and economic environment may cause a standstill in the growth of retail/corporate deposits
Evolution share of savings accounts in the financial assets of households
Source: NBB data
Prudence neededin government policy measures
as financing capacity maydiminish in the future
Alternative financing methods
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Financing needs of the economy
LT credit supply
by banks
Investment credit
LT export credit
ST credit supply
by banks
Documentary creditStraight loans
ST export credit
LT debt financing
SME fundProject bondsPeople’s loan
Equity
Vernture capital
Win-winCrowd funding
TRANSFORMATION INTERMEDIATION
Traditional credit supplyby banks
Alternative formsof financing
Dialogue between the sector and the public authorities on alternative financing methods
Febelfin 21 May 2013
SME funds Venture capital / win-win loans
‘People’s loans’ Project bonds
Crowd funding Corporate bonds
Euronext
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CONCLUSION FINANCING OF THE ECONOMY
• Keep on supplying credit (NBB)• Economic context weighs on demand• Initiatives for alternative financing• Specific points of attention
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The financial sector undertakes to maintain a diversified low-risk banking landscape
2
35
• 2013 is not the same as 2008• Upcoming challenges
2013 is not the same as 2008Major efforts in the field of solvency, liquidity and balance sheet reduction
Source: Febelfin calculations based on NBB data (consolidated basis)
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Reduced balance sheet, increased capital, less leverage
Total liabilities of the Belgian
banking sector
(in billion EUR)
Total capital and reserves of the Belgian banking
sector
(in billion EUR)
Leverage
(in units)
End September 2007
1,567.9 50.7 29.9
End September 2012
1,143.0 59.1 18.3
Evolution as a percentage
-27.1% +16.6% -38.7%
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Source:NBB (in billion EUR)
Belgian banks rely more on deposits than on funding provided by the financial markets
2013 is not the same as 2008Major efforts to improve liquidity
* Regulated liquidity ratio: this is the ratio between the net loss of means in a stress scenario (1 month period) and the buffer of liquid assets that are available for countering the loss. The ratio must be 100 % or less (the lower the figure, the stronger the liquidity position). Source NBB
*Retail deposits wholesale financing regulatory liquidity ratio
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Evolution of risk-weighted assets (Source: NBB, in billion EUR)
2007 2008 2009 2010 2011 Sept 2012
Difference (%)
583.5 491.7 407.5 372.5 373.8 368.5 - 36.8%
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Banks take less risks
2013 is not the same as 2008Major effort to improve solvency
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Reduction:• Of international activities and
exposure abroad• Of financing via financial markets
Growth:• Of funding via the national market
(savings deposits)• Of granting of credit to the
national market (mortgages and credit to enterprises)
2013 is not the same as 2008Belgian banking activities have become more Belgian
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09/2007 avant la crise
sep/12 09/2007 avant la crise
sep/12
457.8 543.4 568.3 642.1
1,110.1
599.6
999.6
500.9
National (EUR Bio.)*
International (EUR Bio.)
Assets Liabilities
09/2012
1,567.9 1,567.9
1,143.0 1.143.0
+18.7% +13,0%
-46.0% -49.9%
-27.1% -27.1%
* Consolidated figures, Belgian banks
09/2012
Febelfin 21 May 2013 40
Brussel is not Wall StreetBelgian investment banking essential for open and export based economy
What is investment banking
in Belgium?
Financing of businesses
Specialized financing: Foreign trade highly important for Belgian economy
Hedging currency & interest rate risks
Prop trading highly reduced and low in volume
Stricter regulation and reinforced controlat Belgian, European and international level
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Basel III (i.a. stricter capital,
liquidity and governance requirements)
2010 Banking Act/ Twin Peaks I
(i.a. NBB/ FSMA model, blocking of strategic
decisions)
Twin Peaks II G20/EU
Febelfin 21 May 2013 42
New regulation may pressure profitability
Industrials Pharma Banks0
5
10
15
20
25
30
35
40
31/12/2006
31/12/2006
31/12/2012
Evolution of profitability by sector
Febelfin 21 May 2013 43
Unintended consequences
Regulation
Low profitability
Fragility
of the
banking sector
Febelfin 21 May 2013
DIVERSIFIED BANKING LANDSCAPE CONCLUSION
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• Radically different landscape• Stricter regulation and tightening control at various
levels• Investment banks in Belgium important for an open
economy and for SMEs• Cumulative impact of existing regulations before
undertaking the next reforms
Febelfin 21 May 2013
The financial sector undertakes to modernise the infrastructure and to innovate
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3
The service provided by the Belgian banksis multi-channel and innovative
Febelfin 21 May 2013
Network of branches and independent
agentsSelfbanks Phone banking
Internet banking Mobile banking
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Promotion of payments
“By card, of course” Campaign with Comeos
Introduction of codeless payments
…
Development of new instruments
Several smartphone / mobile banking formulas
Investing in e-commerce
…
Public Authority Involvement
Public authorities’ example function
Tax incentives
Banning cash payments above a certain threshold
Febelfin 21 May 2013
What can the banking sector do?
47
Febelfin 21 May 2013
FINANCIAL INFRASTRUCTURE CONCLUSION
48
• Multi-channel landscape • Broadening of the payments offer through innovation• Security a priority, i.a via prevention campaigns
Febelfin 21 May 2013
The financial sector undertakes to fulfil its role in society
49
4
Banks fulfil their role in society
Febelfin 21 May 2013 50
Febelfin 21 May 2013
SOCIAL ROLE CONCLUSION
51
• Updating the Codes of Conduct• Specific support• Creating a framework for responsible investment,
savings and credit supply • Investing in training• Involvement in social initiatives
V. CONCLUSION
Febelfin 21 May 2013 52
BASIC MISSIONS
SUCCESS FACTORS
COMMITMENTS
3
3
4
54
Alex Puissant
Debate moderated by Alex Puissant
Max Jadot, Chief Executive Officer & Chairman of the Executive Committee BNP Paribas Fortis
Jan de Brabanter, Deputy Secretary-
General BECI
Luc Versele, Chairman of the Executive
Committee Crelan
Rudy Demotte, Minister-President of Wallonia
Olivier Hamoir, Director McKinsey & Company Febelfin 21 May 2013
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Final round-up
Febelfin 21 May 2013
Koen Geens, Minister of Finance