KINGDOM OF THE

NETHERLANDS—

THE NETHERLANDS
FINANCIAL SYSTEM STABILITY ASSESSMENT

KEY ISSUES
Context: The Financial Sector Assessment Program (FSAP) took place against slowing

economic growth amid tighter financial conditions, elevated housing prices, large and

interconnected nonbanks with major pension reforms underway, and increased securities

market trading after Brexit. The Netherlands also faces climate challenges related to sea-

level rise and more frequent extreme rainfall, as well as the need to bring down nitrogen

depositions, which currently exceed critical values, threatening biodiversity loss.
Findings: The systemic risk analysis focused on housing, non-banks, and climate, and found

that financial institutions are broadly resilient to the adverse macrofinancial scenarios

considered in this assessment, though the risks for corporates and some households remain

elevated. The climate physical risk analysis suggests that banks and insurers are largely

resilient to a wide range of flood events. The authorities are leading the efforts to embed

climate risk into financial sector oversight; their supervisory approach is generally sound.

Some gaps since the last FSAP remain, especially in the macroprudential policy framework.
Policy advice: The main recommendations centered on:
•

Macroprudential policies

. Gradually reduce the limit on the loan-to-value ratio and

continue efforts to incentivize borrowers to lower exposures to interest-only mortgages

and phase out mortgage interest deductibility.

•

Supervision and regulation

. Ensure that supervisory approaches and tools are fit for

purpose in a rapidly changing market environment, and supervisory authorities have

sufficient budgetary autonomy, delegated powers, and intervention tools to address

risks promptly and efficiently.

•

Climate risk oversight

. Pursue full-fledged climate supervision, backed by stronger data,

scenario analysis, stress testing, and disclosure.

•

Crisis management and resolution

. Ensure operational readiness for resolution and

develop and regularly test a national financial crisis management plan.

March 20, 2024

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND

Approved By

May Khamis and Mark Horton

Prepared By

Monetary and Capital Markets

Department

This report is based on the assessment work under the

FSAP conducted during June and November 2023. The

findings were discussed with the authorities in November

2023 and February 2024 (the Article IV Consultation).

•

The FSAP team was led by Naomi Nakaguchi Griffin and included Piyabha Kongsamut (deputy),

Romain Bouis, Max-Sebastian Dovì, Nikoletta Kleftouri, Caterina Lepore, Junghwan Mok, David

Rozumek, Wei Sun (all MCM), Adrian Wardzynski (LEG), as well as Timo Broszeit and Jennifer Long

(external experts). Other MCM support was provided by Zoltan Jakab and Javier Uruñuela

(modeling), Knarik Ayvazyan (financial cycle estimation), Hannah Sheldon and Mohamad Nassar

(research), and Vanessa Guerrero and David Ramirez (editorial).

•

The team met with the Ministry of Finance (MoF), De Nederlandsche Bank (DNB), Dutch Authority

for Financial Markets (AFM), Ministry of Agriculture, Nature and Food Quality, Ministry of

Infrastructure and Water Management (MoIWM), Ministry of Social Affairs and Employment

(MoSA), European Central Bank (ECB), European Insurance and Occupational Pensions Authority

(EIOPA), and representatives from industry associations, climate-related institutions, financial

integrity-related institutions, the financial sector, and the auditing, accounting, actuarial, and legal

professions.

•

FSAPs assess the stability of the financial system as a whole and not that of individual institutions.

They are intended to help countries identify key sources of systemic risk in the financial sector and

implement policies to enhance its resilience to shocks and contagion. Certain categories of risk

affecting financial institutions, such as operational or legal risk, or risk related to fraud, are not

covered in FSAPs.

•

The Netherlands is deemed by the Fund to have a systemically important financial sector according

to SM/21/52 (4/16/2021), and the stability assessment under this FSAP is part of bilateral

surveillance under Article IV of the Fund’s Articles of Agreement. The previous FSAP took place in

2017.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

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CONTENTS

Glossary _________________________________________________________________________________________ 5

EXECUTIVE SUMMARY _________________________________________________________________________ 7

BACKGROUND _________________________________________________________________________________ 11
A. Context and Macrofinancial Developments __________________________________________________ 11
B. Financial Sector Landscape ___________________________________________________________________ 14
C. Financial Sector Developments _______________________________________________________________ 20

SYSTEMIC RISK ASSESSMENT _________________________________________________________________ 27
A. Vulnerabilities and Risks _____________________________________________________________________ 27
B. Stress Tests ___________________________________________________________________________________ 28

CLIMATE RISK ASSESSMENT AND OVERSIGHT ______________________________________________ 41
A. Climate Risk Analysis _________________________________________________________________________ 41
B. Climate Risk Oversight _______________________________________________________________________ 45

FINANCIAL SECTOR OVERSIGHT ______________________________________________________________ 46
A. Macroprudential Framework and Policy ______________________________________________________ 46
B. Regulation and Supervision __________________________________________________________________ 48

FINANCIAL SAFETY NET AND CRISIS MANAGEMENT _______________________________________ 53

AUTHORITIES’ VIEWS _________________________________________________________________________ 54

FIGURES

1. Macrofinancial Developments ________________________________________________________________ 12

2. Housing Market and Household Debt ________________________________________________________ 13

3. Nonfinancial Corporate Sector _______________________________________________________________ 14

4. Financial Sector Structure ____________________________________________________________________ 15

5. Interconnectedness __________________________________________________________________________ 17

6. Monetary and Financial Institutions (MFI) ____________________________________________________ 18

7. Cross-Border Claims __________________________________________________________________________ 19

8. Banking System Soundness __________________________________________________________________ 20

9. Financial Soundness Indicators of Selected Banking Systems _________________________________ 21

10. Significant Institutions, Liquid Assets, Sovereign Exposure, and Funding ____________________ 22

11. SI and LSI Financial Soundness Indicators ___________________________________________________ 23

12. Pension Funds, Insurers, and Investment Funds _____________________________________________ 25

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

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13. Characteristics of Mortgages ________________________________________________________________ 26

14. Commercial Real Estate Price at Risk ________________________________________________________ 27

15. Climate Risks: Physical and Nitrogen-related Risks __________________________________________ 29

16. Macrofinancial Scenarios ____________________________________________________________________ 30

17. Solvency Stress Test Results for SIs __________________________________________________________ 32

18. Integrated Stress Tests and Sensitivity Analyses _____________________________________________ 34

19. Insurance Solvency Stress Test Results ______________________________________________________ 36

20. Pension Fund Risk Analysis __________________________________________________________________ 39

21. Vulnerabilities of Corporate and Household Sectors ________________________________________ 40

22. Bank Climate Risk Analysis __________________________________________________________________ 43

23. Insurance Physical Climate Risk Analysis ____________________________________________________ 44

TABLES

1. Key FSAP Recommendations ___________________________________________________________________ 9

2. Selected Economic Indicators, 2019-29 _______________________________________________________ 55

3. Financial Soundness Indicators for SIs and LSIs _______________________________________________ 56

APPENDICES

I. Risk Assessment Matrix _______________________________________________________________________ 57

II. Stress Testing Approach for Banks ___________________________________________________________ 59

III. Stress Testing Approach for Insurers _________________________________________________________ 61

IV. Stress Testing Approach for Pension Funds__________________________________________________ 64

V. Status of Key Recommendations from the 2017 FSAP ________________________________________ 66

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

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Glossary

AFM

Dutch Authority for Financial Markets

AML/CFT

Anti-Money Laundering/Combating the Financing of Terrorism

BTL

Buy to Let

BTWwft

Bureau Toezicht in Tax and Customs Administration supervising

institutions under the Money Laundering and Terrorist Financing

(Prevention) Act (Wwft)

CCyB

Countercyclical Capital Buffer

CET1

Common Equity Tier 1

CIS

Collective Investment Scheme

CRE

Commercial Real Estate

Defined Benefit

Defined Contribution

DGF

Deposit Guarantee Fund

DNB

De Nederlandsche Bank

DSTI

Debt Service To Income

Euro Area

ECB

European Central Bank

EIOPA

European Insurance and Occupational Pensions Authority

ELA

Emergency Liquidity Assistance

European Union

EuroCCP

European Central Counterparty

FATF

Financial Action Task Force

FDI

Foreign Direct Investment

FEC

Financial Expertise Centre

FIU

Financial Intelligence Unit

FMI

Financial Market Infrastructures

FSAP

Financial Sector Assessment Program

FSC

Financial Stability Committee

Foreign Exchange

GDP

Gross Domestic Product

G-SIB

Global Systemically Important Bank

ICR

Interest Coverage Ratio

Interest Only

Information Technology

LCR

Liquidity Coverage Ratio

LIWO

The National Water and Floods Information System

LLD

Loan-Level Data

LSI

Less Significant Institution

LTV

Loan To Value

MFI

Monetary Financial Institution

MID

Mortgage Interest Deductibility

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

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MMF

Money Market Fund

MoF

Ministry of Finance

MoIWM

Ministry of Infrastructure and Water Management

MoSA

Ministry of Social Affairs and Employment

NBFI

Non-Bank Financial Institution

NFC

Non-financial Corporation

NIBUD

National Institute for Family Finance Information

NPL

Nonperforming Loan

NRA

National Risk Assessment

NSFR

Net Stable Funding Ratio

OCR

Overall Capital Requirement

OFI

Other Financial Institution

P&C

Property & Casualty (insurance)

RAM

Risk Assessment Matrix

RIVM

National Institute for Public Health and the Environment

ROW

Rest of the World

RRE

Residential Real Estate

RWA

Risk-Weighted Assets

Supervisory Board

SCR

Solvency Capital Requirement

Significant Institution

SRB

Single Resolution Board

SREP

Supervisory Review and Evaluation Process

SSM

Single Supervisory Mechanism

TRIM

Targeted Review of Internal Models

UFR

Ultimate Forward Rate

Volatility Adjustment

WEO

World Economic Outlook

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

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EXECUTIVE SUMMARY
The Netherlands FSAP focused on three cross-cutting themes—housing, non-banks, and

climate risks—while carrying out a comprehensive review of financial sector oversight. The

FSAP reviewed the resilience of the Dutch financial system against a set of conjunctural and

structural challenges to the economy: the conjunctural challenges included slowing economic

growth amid tighter financial conditions, elevated housing prices, large and interconnected

nonbanks with major pension reforms underway, and the shift in securities markets trading from

London to Amsterdam since Brexit, which raised Amsterdam to systemic importance for the euro

area (EA); and the structural challenges focused on climate issues, including climate physical risks

associated with roughly a quarter of the country being below sea level, and nature-related transition

risks from an uncertain policy path to bring down nitrogen depositions to contain biodiversity loss

and comply with European Union (EU) Directives.

The systemic risk analysis found that financial institutions are generally resilient to the

adverse macrofinancial scenarios considered in the FSAP, though the risks for corporates and

some households remain elevated. Stress tests results revealed the following:

•

Banks. Significant Institutions (SIs) as a group appear resilient to severe macrofinancial shocks,

but some might see capital buffers erode with earnings weakening over time under adverse

conditions. Less Significant Institutions’ (LSIs) corporate borrowers could experience rising

default probabilities under severe global macrofinancial conditions, even surpassing levels

during the global financial crisis. Liquidity buffers appear generally sufficient, though close

monitoring in case of severe runoffs in foreign currencies would be useful. Bank solvency stress

could potentially spread to other financial institutions via fire sales, and LSIs defaults could

generate system-wide losses.

•

Non-bank Financial Institutions (NBFIs). The solvency of the Dutch insurance sector, particularly

the property & casualty (P&C) and health insurers, appears broadly resilient to the adverse

scenario, while vulnerabilities exist for some life insurers. Liquidity risks from margin calls for

insurers appear largely contained. As for pension funds, funding ratios improve further with

higher interest rates under the adverse scenario. Pension funds appear resilient to liquidity risks

from margin calls even when access to the repo market is restricted, though close monitoring

of market conditions remains crucial.

•

Corporates and households. The boom in housing prices has raised vulnerabilities for many

borrowers, and downside risks to commercial real estate (CRE) increased after the pandemic. In

an adverse scenario that includes a sharp correction in housing prices, the youngest and lowest

income household borrowers are the most significantly impacted. The adverse scenario also

results in a marked increase in the share of non-financial corporations (NFCs) facing debt

repayment difficulties or higher borrowing needs.

The climate physical risk analysis suggests that banks and insurers are largely resilient to a

wide range of flood events, though data limitations constrained some analysis. The banking

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND

sector exhibits resilience to flood events, reflecting the Netherlands’ strong existing water

management system, which is expected to further improve. The analysis, however, was constrained

by the lack of access to loan-level data. The insurance sector, which does not underwrite primary

flood risks, is resilient to the flood events considered; net claims of a non-primary regional flood

event—after reinsurance—are limited. While the climate transition risk analysis was complicated by

an uncertain policy path, the FSAP’s analysis found that some banks face high risks from loans to

financially vulnerable firms in high nitrogen-emitting sectors, though overall, the banks’ exposure to

high nitrogen-emitting sectors declined in recent years.

The FSAP’s recommendations aim to support the authorities’ ongoing efforts to strengthen

financial sector oversight (Table 1). Key areas of focus include:
•

Macroprudential policies. The authorities have appropriately strengthened macroprudential

buffers, but further adjustments to borrower-based measures are warranted. The calibration of

borrower-based measures should be focused on minimizing financial stability risks (which can

enhance consumer protection), with access to homeownership being addressed by other

policies. The authorities should gradually reduce the limit on loan-to-value (LTV) ratio and

continue their efforts to incentivize borrowers to lower exposures to interest-only (IO)

mortgages and phase out mortgage interest deductibility (MID). A clear legal basis for access to

granular data for risk monitoring and analysis should be ensured.

•

Supervision and regulation. The authorities have made good progress since the last FSAP, and

their approach has been thoughtful and risk sensitive. The FSAP’s key recommendations include:

adapting supervisory approaches to a rapidly changing market environment; equipping

supervisory authorities with necessary resources, access to technologies, analytical tools, and

granular data; reviewing the legislative framework to ensure that the supervisory authorities

have sufficient budgetary autonomy, delegated powers, and intervention tools to address risks

promptly and efficiently; further clarifying in law the requirement of independent board

members of supervised institutions; monitoring and proactively managing potential risks of the

pension system transition; and ensuring trading venue and equity market resilience.

•

Climate risk oversight. The authorities have been leaders in supervision and quantitative analysis

of climate risks. The FSAP recommends to further integrate climate risk into supervision, backed

by stronger data, scenario analysis, stress testing and disclosure, and using an interagency body

to discuss policy implications of climate-related issues and coordinate national policy actions

that have implications on financial stability. As the transition policy becomes clearer, the

authorities should assess the impact of such policies on the financial sector.

•

Financial integrity. Recognizing good progress already made, the FSAP recommends carrying

out a more comprehensive analysis of risks relating to the misuse of legal entities and conduit

structures and enhancing the availability and accuracy of beneficial ownership information.

•

Crisis management and resolution framework. The authorities should focus on further ensuring

operational readiness by completing resolution handbooks; identifying and operationalizing

national sources for the provision of liquidity in resolution; and developing and regularly testing

a national financial crisis management plan.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 9

Table 1. The Netherlands: Key FSAP Recommendations

Recommendation

Addressee Timing* Priority**

Cross-Cutting

Establish an interagency body – or facilitate this in an existing platform – to

regularly discuss policy implications of climate-related issues, broaden

cooperation including data sharing, and coordinate policy actions with

implications for financial stability (¶46).

MoF, AFM

and other

relevant

ministries

Adapt supervisory approaches to a rapidly changing market environment and

strive for consistent supervisory outcomes across sectors through timely

deployment of technologies and analytical tools (¶55, 66).

DNB, AFM

ST/MT

Review legislative framework to ensure the supervisory authorities have

sufficient budgetary autonomy, delegated powers, and intervention tools to

address risks promptly and efficiently (¶53, 54, 72).

MoF, AFM,

DNB

Ensure that authorities have a clear legal basis to access granular

transaction/loan-level data on a regular basis for risk monitoring and analysis,

including residential and commercial real estate loans (¶48, 59).

MoF, DNB,

AFM

Further clarify the requirement of independent supervisory board members in

law (¶56, 61, 65, 72).

MoF, MoSA

Systemic Risk Analysis

Tap alternative datasets to complete the ongoing efforts to develop market

risk analysis (¶23).

DNB

Develop system-wide stress testing methodologies to assess the contagion

effects across banks and NBFIs (¶32).

DNB

Closely monitor pension funds’ repo transactions, amend supervisory

reporting where necessary, and perform liquidity stress tests which

incorporate a drying-up of repo markets (¶31).

DNB

Climate Risk Oversight and Analysis

Establish a medium-term plan to develop LSI/insurance climate risk

supervision to incorporate climate-related risk perspective across activities of

the supervisory process, including bridging data gaps. (¶44, 45)

DNB

Conduct physical risk analysis using forward-looking medium and long-term

flood scenarios accounting for the impact of climate change (e.g., those

aligned with the Intergovernmental Panel on Climate Change’s Sixth

Assessment Report) (¶38).

DNB,

MoIWM

Develop an approach to assess the impact of policies to reduce nitrogen

depositions on the financial sector once the transition path and its

implications on the economy become clearer (¶39).

DNB

12 Deepen collaboration among DNB supervisors and DNB stress testers to

inform supervisors of climate stress testing insights and vice versa (¶45).

DNB

Macroprudential Framework and Policies

Elevate the Financial Stability Committee (FSC) to a permanent advisory body

and vest it with semi-hard powers, or vest DNB with hard powers over the

calibration of the borrower-based tools. (¶47).

MoF, DNB

14 Gradually reduce the maximum limit of the LTV ratio to 90 percent by one

percentage point per year (¶50).

MoF, DNB,

FSC

Keep monitoring and addressing fragilities from IO mortgages, including by

increasing incentives for borrowers to lower their exposure to these

mortgages (¶17).

AFM, DNB,

NIBUD, MoF

16 Gradually remove the mortgage interest deductibility (¶51).

MoF

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

10 INTERNATIONAL MONETARY FUND

Table 1. The Netherlands: Key FSAP Recommendations (Concluded)

Regulation and Supervision of Banks, Insurers, and Pension Funds

Introduce a requirement for all mortgage credit providers and their mortgage

clients to periodically update information on the clients’ financial situation

(¶60).

DNB, AFM,

MoF

18 Expand the number of on-site inspections for insurers in the lowest impact

class, as a backstop to the risk-based approach (¶63).

DNB

19 Closely monitor and proactively manage potential risks of the pension system

transition for the authorities related to resources and legal risks (¶67).

MoSA, DNB,

AFM

Securities Market Regulation and Supervision

Continue risk-based use of thematic and firm-specific supervisory tools to

ensure that key trading venues have robust arrangements in place to prevent

and manage operational outages including where the market is unable to

open or close (¶69, 70).

AFM

Continue to monitor liquidity mismatch in real estate and corporate bond

funds, including risks arising from fund credit lines, and availability/use of

appropriate liquidity management tools (¶73).

AFM, DNB

Financial Integrity

Produce a comprehensive risk assessment on the cross-border financial crime

risks and misuse of legal vehicles, covering the risks stemming from conduit

companies and foreign entities with complex legal structures and sufficient

links to the Netherlands (¶74).

MoF, FIU, FEC

Ensure completeness of the beneficial ownership registries, including

resolving the legacy issues with pre-existing legal persons and liaising closely

with the tax authorities concerning legal arrangements such as foreign trusts

(¶74).

MoF, Chamber

of Commerce

Ensure that the intensity, depth, and scope of the risk-based AML/CFT

supervision is informed by the lessons learnt from the remediation cases of

the three largest banks, and that the risk-based procedures are aligned with

the main risks, including tax risks to financial integrity relevant primarily in the

context of the large number of conduit structures, and continue taking action

to tackle the issue of illegal trust offices and underground banking (¶74).

DNB

Financial Safety Nets and Crisis Management

Operationalize the preferred and fallback resolution strategies for SIs and LSIs,

by finalizing the authorities’ relevant handbooks, sharing more non-

confidential detail on DNB’s resolution plans with LSIs and regularly testing

DNB’s resolution capabilities (¶75, 78, 79).

DNB, MoF,

AFM, Deposit

Guarantee

Fund (DGF)

Identify and operationalize national sources for the provision of liquidity in

resolution, such as by relying on the existing Emergency Liquidity Assistance

(ELA) framework and setting up and testing cross-border cooperation

arrangements (¶76).

DNB

Develop and regularly test a comprehensive financial crisis management plan

that sets out authorities’ roles and responsibilities and establishes an inter-

authority decision-making body (¶81).

DNB, DGF

* Timing: C = Continuous; I = Immediate (within one year); ST = Short Term (within 1-3 years); MT = Medium Term

(within 3-5 years).
** Priority: H = High; M = Medium; L = Low.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 11

BACKGROUND
A. Context and Macrofinancial Developments
1. The Dutch economy was resilient through a succession of global shocks, but growth

slowed in 2023 while core inflation remained elevated. GDP growth held up well to effects of the

war in Ukraine, following the post-pandemic recovery, but turned negative in mid-2023 with

external demand and consumption growth waning (Table 2). Inflation has fallen from double digit

levels as energy price shocks subsided, with headline inflation approaching target. However,

elevated core inflation has persisted amid a still-tight labor market.

2. The financial cycle has turned, with lending growth stalling as financial conditions

tightened (Figure 1). The ECB’s monetary policy tightening has contributed to a reduction in bank

lending growth. Meanwhile, DNB has increased the Countercyclical Capital Buffer (CCyB) to

2 percent (effective May 2024), a level it considers neutral.

3. The housing market cooled on tighter financial conditions but seems to be recovering.

House prices almost doubled between 2013 and 2022, peaking in July 2022. They subsequently fell

by 6 percent through mid-2023, before recovering lately. Mortgage rates have risen, and home sales

have been stable recently. DNB imposed a macroprudential floor on risk weights on Dutch

mortgages in 2022.

4. Households’ debt burden has been declining since 2010, with deleveraging

accelerating since 2022 on the back of strong nominal disposable income growth (Figure 2).

This decline partly reflects: (i) higher voluntary debt repayments thanks to a decline in IO loans and

to the tax exemption for gifts used for housing, and (ii) strong nominal income growth.

Notwithstanding, house price valuations and household debt are high relative to peers.

5. NFCs’ debt has fallen relative to GDP, but their ability to repay may be challenged if

tight financial conditions persist (Figure 3). Bankruptcies have increased and are approaching pre-

pandemic levels. The debt-to-surplus ratio is also relatively high compared to peers, and a

significant share of NFCs have interest coverage ratios (ICR) below one, suggesting a need to boost

profitability.

6. Political uncertainty has affected economic and climate-related policies. Negotiations

toward a new coalition government continue, leaving the policy direction on climate and nature-

related risks unclear, especially on the nitrogen deposition levels, which greatly exceed those set out

in EU Directives and present threats to soil and water quality.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

12 INTERNATIONAL MONETARY FUND

Figure 1. The Netherlands: Macrofinancial Developments

Growth has slowed, while inflation has come down and
unemployment remains low.

Lending rates have responded to policy rates hikes, even as
deposit rates have lagged.

Loan growth has reversed itself, and financial conditions are easing somewhat after 1½ years of tightening.

The financial cycle has turned from its peak in early 2022; the recent decline in this indicator can be attributed to a drop in
property prices, a reduction in new loans to both households and corporations, a decrease in household debt, and an
increase in the interest rate spread for corporate loans.

Sources: IMF, Haver analytics, CBS, DNB, ECB, and IMF staff calculations.

1/ See Borraccia et al (2023), “Financial Conditions in Europe: Dynamics, Drivers, and Macroeconomic Implications.”

2/ The Indicator warns of a potential materialization of risks six quarters ahead. Ranging between 0 and 1, it covers demand and

supply factors characterizing the cyclical swings in financial risk (see 2023 Iceland FSSA, Box 1).

-6

-4

-2

GDP

Inflation

Unemployment

Real GDP, Prices, and Unemployment Rate

(percent change y-y, percent unemployment)

-1

-05

n-06

p-0

c-0

-10

n-11

p-1

c-1

-15

n-16

p-1

c-1

-20

n-21

p-2

c-2

Deposits redeemable at notice

Deposits with agreed maturity - new business

Loans for house purchasing - new business

Consumer credit and other loans - new business

NFC loans (0.25-1M) - new business

Interest Rates

(percent)

-15

-11

-7

-3

n-07

n-08

n-09

n-10

n-11

n-12

n-13

n-14

n-15

n-16

n-17

n-18

n-19

n-20

n-21

n-22

n-23

MFI loans to NFCs, contribution to growth
MFI loans to households, contribution to growth
Total MFI loans

Lending by Monetary Financial Institutions (MFIs)

(percent change y-y)

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

-14

p-1

-15

p-1

-16

p-1

-17

p-1

-18

p-1

-19

p-1

-20

p-2

-21

p-2

-22

p-2

-23

p-2

Credit availability and costs

External conditions

Funding constraints

Policy stance

Price of risk

FCI

Changes in Financial Conditions Index 1

(percent contribution to quarter-over-quarter first difference)

Note: 2023Q2 and 2023Q3 are forecasts.

Positive contribution

indicates tightening

-0.45

0.05

0.55

-05

Sep

-0

Jun

-07

-08

Sep

-0

Jun

-10

-11

Sep

-1

Jun

-13

-14

Sep

-1

Jun

-16

-17

Sep

-1

Jun

-19

-20

Sep

-2

Jun

-22

-23

New bank loans: non-financial corporations

New bank loans: households

Property prices

Nonfinancial Corporations Debt /GDP

HH & NPISH Debt /gross disposable income

Credit spread: non-financial corporations

Credit spread: households

Equity prices

Current account balance/GDP

Contributions from the correlations

Financial Cyclical Indicator

Financial Cyclical Indicator 2

Higher risk

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 13

Figure 2. The Netherlands: Housing Market and Household Debt

House price growth has been recovering recently, with
home sales stable.

Household debt has declined after a peak in 2010 despite
a concurrent house price boom.

Dutch housing prices are quite elevated compared to peers, and households have high debt relative to disposable income …

… though debt service ratios have come down since 2017, and households have large holdings of pension assets.

Sources: BIS, CBS (Statistics Netherlands), European Banking Authority (EBA), ECB, Eurostat, IFS, OECD, and IMF staff calculations.

NPISH: Non-profit Institutions Serving Households

-3

-2

-1

ct-

Jul

-1

Apr-

ct-

Jul

-1

Apr-

ct-

Jul

-2

Apr-

ct-

Home sales (RHS)
House prices (LHS)

House Price Momentum and Home Sales

(LHS: percent, 3m-over-3m growth rate; RHS: thousands)

100

120

140

160

180

200

140

160

180

200

220

240

260

-0

Sep

-0

-1

Sep

-1

Sep

-1

-2

Household and NPISH debt

House price index, NSA, RHS

House Prices and Household Debt

(percent of gross disposable income, RHS: index 2015=100)

110

130

150

170

190

PT CZ LU NL AT CH ES GR EE DE HU IE SI NO GB SK LV FR DK L

T BE SE PL

Price-to-income
Price-to-rent

Housing Valuations, June 2023

(ratios)

100

150

200

250

Household Debt to Gross Disposable Income

(percent, 2017 (grey squares) and 2022 (blue bars))

AU NO CA KR SE NL DK GB FI JP PT BE FR DE ES IT

Household Debt Service Ratio

(percent of income, 2017Q4 (grey squares) and 2023Q2 (blue bars))

500

1000

1500

2000

2500

3000

3500

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Sep

-2

Assets: other
Assets: insurance and pension funds
Assets: equity and investment funds
Assets: currency and deposits
Debt

Household Debt and Financial Assets

(billions of euro)

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

14 INTERNATIONAL MONETARY FUND

Figure 3. The Netherlands: Nonfinancial Corporate Sector

NFC debt levels fell in the wake of the pandemic and
rebounded quickly. They declined relative to GDP.

Firm bankruptcies have increased and are approaching
pre-pandemic levels.

The share of firms with low interest payment coverage
remains high….

…with debt-to-surplus ratios higher than some EU peers.

Sources: CBS, OECD, Orbis, IMF staff calculations. The Orbis set of firms in panel 3 covers 72 percent of total NFC assets.

B. Financial Sector Landscape
7. The financial sector’s size relative to GDP has shrunk somewhat since the last FSAP,

though it remains large. Total system assets are almost eight times GDP, with banks accounting for

one third of the system as of 2023Q2 (Figure 4). The four largest banks (including one Global-

Systemically Important Bank, G-SIB) account for 84 percent of the banking system. Some

consolidation has taken place, with five banks partly government owned.

8. Dutch LSIs are small and have diverse business models. The 23 LSIs represent about

8 percent of total banking assets. Financial conglomerates and universal banks conduct loan

business domestically and in neighboring countries. Some corporates and emerging market banks

are subsidiaries of foreign banks and serve international clients. Most of the custodian and

specialized banks focus on payment, securities, and fee-based business.

100

110

120

130

140

150

160

170

1,000

1,020

1,040

1,060

1,080

1,100

1,120

1,140

1,160

Sep

-2

Non-Financial Corporate Debt

Corporate Debt (billions of euro)

Debt-to-GDP (percent, RHS)

100

300

500

700

900

1100

1300

1500

1700

-15

Sep

-1

-16

Sep

-1

-17

Sep

-1

-18

Sep

-1

-19

Sep

-1

-20

Sep

-2

-21

Sep

-2

-22

Sep

-2

-23

Sep

-2

Number of Firm Bankruptcies

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022*

*The number of observations drops in 2022 due to reporting lags.

Share of Firms with Interest Coverage Ratio <1

(percent)

LU FR PT NL BE DE SI IT ES FI AT GR IE

Debt-to-Surplus Ratio, 2022

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 15

Figure 4. The Netherlands: Financial Sector Structure

*June 2023 figure for “Other financial institutions (excluding Special Purpose Entities)” is for end 2022.

Sources: DNB, Haver, and IMF staff calculations.

FICO: Financial conglomerate.

(billions of

euro)

(percent of

financial

system)

(percent of

GDP)

(billions of

euro)

(percent of

financial

system)

(percent of

GDP)

(billions of

euro)

(percent of

financial

system)

(percent of

GDP)

Banks

2,421

37.9

341.8

2,397

33.6

294.8

2,608

32.1

252.5

Globally systemic institutions

845

13.2

119.3

892

12.5

109.7

1,029

12.7

99.6

Significant institutions (non-GSIBs)

1,364

21.4

192.5

1,275

17.9

156.8

1,357

16.7

131.4

Less Significant institutions

212

3.3

30.0

230

3.2

28.3

221

2.7

21.4

Memo: Branches of foreign banks

(excluded from above)

112

1.8

15.8

1.2

11.0

134

1.6

12.9

Insurers

181

486

7.6

68.7

150

515

7.2

63.3

134

445

5.5

43.1

Life and funeral insurers

411

6.4

58.1

440

6.2

54.2

369

4.5

35.7

Non-life insurers

132

1.1

9.8

113

1.0

8.5

107

0.9

7.0

Reinsurers

0.1

0.8

0.1

0.6

0.1

0.4

Pension funds

297

1,266

19.8

178.7

220

1,554

21.8

191.2

173

1,469

18.1

142.3

Investment funds

1832

849

13.3

119.8

1761

984

13.8

121.0

1616

838

10.3

81.1

Other financial institutions (excl SPEs)*

…

1,364

21.4

192.6

…

1,687

23.6

207.4

…

2,772

34.1

268.4

Total Financial System (excl branches)

2347

6,386

100

902

2165

7,137

100

878

2015

8,133

100

787

Memo: Financial System (incl branches)

2388

6,498

102

917

2209

7,226

101

889

1994

8,266

102

800

Jun-23

Number

Assets

Number

Assets

Number

Assets

Dec-16

Dec-19

200

400

600

800

1000

Dec-16

Jun-23

Percent of GDP

Banks, 37

Banks, 29

500

1000

1500

2000

2500

Dec-16

Jun-23

Number (excl. OFI)

1500

3000

4500

6000

7500

9000

Dec-16

Jun-23

Billions of Euro

ING Bank, 39%

Rabobank, 24%

ABN AMRO, 15%

BNG Bank, 5%

Nederlandse

Waterschapsbank,

de Volksbank, 3%

Leaseplan, 1%

LSI, 8%

Banking System Concentration

(percent of banking system assets, June 2023)

Corporate Custodian Emerging

Market

FICO

Specialized Universal

Bank Assets of Different Types of LSIs, 2022

(billions of euro, percent of GDP (RHS))

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

16 INTERNATIONAL MONETARY FUND

9. Nonbanks, particularly pension funds, are sizable. Occupational pension funds are

among the largest globally, at 142 percent of GDP. Leverage is considerably lower than among UK

peers. A pension reform was adopted by Parliament in 2023, moving the system from defined

benefit (DB) toward a defined contribution (DC) system, due for completion by 2028. The insurance

sector, particularly life insurance, has been undergoing consolidation, but remains sizeable

(43 percent of GDP). Investment funds are also large, though higher interest rates have reduced

asset valuations to 81 percent of GDP. FSAP coverage of investment funds is focused on liquidity

risks for those investing in real estate (¶72).

10. Other financial institutions (OFIs) have grown significantly, reflecting responses to

Brexit and financial innovation. The OFI sector is diverse and surpasses banks in size, at

268 percent of GDP. Several large trading platforms have established themselves in the Netherlands

since Brexit, increasing Dutch platforms’ share of European trading (including UK) to over 30 percent

from 5-10 percent pre-Brexit, with daily turnover volumes of EU-listed shares exceeding those in

London. Amsterdam now hosts significant fixed income trading venues, including repo trading

venues. Some are of EU-wide significance because of their scale and lack of easy substitutability.

11. The Dutch financial system is deeply interconnected domestically and with the rest of

the world (ROW). Domestic financial sector interlinkages feature large financial flows from the

pension fund sector to investment funds (Figure 5). Financial flows from abroad (ROW) to OFIs are

the largest, partly reflecting flow-through conduit companies. Banks are active internationally, with

their largest counterparties in advanced economies (Figures 6, 7).

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 17

Figure 5. The Netherlands: Interconnectedness

(Percent of respective total, billions of euros, and percent of GDP)

Interconnections within the domestic financial system reflect pension funds’ holdings of assets in investment funds, deposit-
taking corporations’ claims on the central bank, and offsetting positions with OFIs.

Economic sectors show high interconnectedness with the financial system and large interconnections with ROW, especially
deposit taking corporations and other financial institutions (including conduit companies), though these are largely offsetting
claims. Pension funds hold significant assets abroad.

Source: CBS and IMF staff calculations. Non-consolidated who-to-whom financial accounts.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

18 INTERNATIONAL MONETARY FUND

Figure 6. The Netherlands: Monetary and Financial Institutions (MFI)

Loans to EA form the largest part of MFI balance sheets …

… while claims on private EA residents have declined.

Debt issuance and funding from outside the EA fell, while
derivative positions increased.

The composition of deposits of EA residents is broadly
unchanged.

Loans to EA residents outside the Netherlands have risen.

The largest share of loans to Dutch NFCs go to the real
estate sector, representing mostly loans to housing
associations, which build and manage social housing in
the Netherlands.

Sources: Haver, DNB.

20%

40%

60%

80%

100%

Dec-17

Dec-19

Dec-23

MFI Assets by Instrument

Loans EA

Securities ex shares

Shares and MMF

External

Derivatives

Other

20%

40%

60%

80%

100%

Dec-17

Dec-19

Dec-23

MFI Assets by Sector

MFIs EA

Gen Govt EA

Private EA

External

Derivatives

Other

20%

40%

60%

80%

100%

Dec-17

Dec-19

Dec-23

MFI Liabilities

Deposits EA

Debt securities issued

Capital and reserves

External

Derivatives

Other

20%

40%

60%

80%

100%

Dec-17

Dec-19

Dec-23

MFI Deposits of EA residents

MFIs

Central govt

Oth govt/priv (OGP) O/N

OGP agreed maturity

OGP redeem at notice

OGP repo

500

1000

1500

2000

2500

3000

3500

Dec-17

Dec-19

Dec-23

MFI Loans to the Netherlands and EA

(billions of euro)

Dutch households

Dutch NFCs

EA households

EA NFCs

20%

40%

60%

80%

100%

Dec-17

Dec-19

Jun-23

MFIs Loans to Dutch NFCs

Agric, mining

Manufacturing

Utilities

Construction

Transport, accom, trade

Real estate

Other services

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 19

Figure 7. The Netherlands: Cross-Border Claims

Dutch banks hold higher claims abroad than foreign banks’ claims on residents of the Netherlands, while assets invested in
foreign investment funds are held in countries with large investment fund sectors.

Dutch Banks’ Claims Abroad vs Foreign Banks’ Claims on

Netherlands

(billions of Euro and percent of GDP, consolidated data, guarantor

basis)

Dutch Invested Assets in Foreign Investment Funds

(billions of euro)

Most of the top ten largest counterparties for cross-border claims in either direction are the same countries.

Cross-Border Claims of Dutch Banks

(billions of euro, consolidated, ultimate debtor)

Cross-Border Bank Claims of Dutch Residents

(billions of euro, consolidated, guarantor basis)

Pension funds have diversified geographically, while insurers have retrenched from external markets.

Pension Fund Assets, by Location

(billions of euro)

Insurers Assets, by Location

(billions of euro)

Sources: BIS, DNB, Haver, IMF staff calculations.

100

150

200

250

300

200

400

600

800

1000

1200

1400

1600

1800

2000

Total Dutch banks' claims abroad
Foreign banks' claims on Dutch residents
percent of GDP, RHS
percent of GDP, RHS

100

120

Sep-23

Dec-17

(

)

100

150

200

250

300

Sep-23

Dec-17

100

120

Sep. 23

Dec. 17

500

1,000

1,500

2,000

Dec-17

Dec-19

Dec-23

Netherlands

Other EA

Outside EA

100

200

300

400

500

600

Dec-17

Dec-19

Dec-23

Netherlands

Other EA

Outside EA

Unallocated

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

20 INTERNATIONAL MONETARY FUND

C. Financial Sector Developments
12. The banking system has remained stable through a succession of shocks. Bank

capitalization has improved since 2017, with the Common Equity Tier 1 (CET1) ratio at 16.5 percent

in 2023Q3 (Figure 8). The systemwide nonperforming loans ratio (NPLs) stayed low and liquidity

levels appear adequate compared to peers (Figure 9). Profitability in 2023 was boosted by a slower

increase in deposit rates compared to lending rates.

Figure 8. The Netherlands: Banking System Soundness

Asset Quality and Profitability

(Percent, Significant Institutions under the Single Supervisory Mechanism (SSM))

Sources: IMF, ECB.

Financial Soundness Indicators of the Banking System

(Percent, unless otherwise indicated)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

EU (SSM)

Nonperforming Loans to Gross Loans

EU (SSM)

Return on Equity

2017

2018

2019

2020

2021

2022 2023Q3

Core FSIs

Regulatory Capital to Risk-Weighted Assets

22.0

22.3

22.9

22.8

22.4

21.0

21.2

Regulatory Tier 1 Capital to Risk-Weighted Assets

18.4

18.8

18.9

19.3

18.0

18.5

Common Equity Tier 1 Capital to Risk-Weighted Assets

…

16.8

17.4

16.1

16.5

Nonperforming loans net of provisions to capital

…

14.3

14.5

10.9

9.8

10.5

Nonperforming loans to total gross loans

2.3

2.0

1.8

1.9

1.7

1.6

Return on Assets

0.7

0.6

0.3

0.7

0.6

1.1

Return on Equity

12.8

11.7

7.6

3.3

8.8

8.0

12.8

Interest Margin to Gross Income

73.5

54.8

54.9

54.1

47.7

49.6

55.6

Non-interest Expenses to Gross Income

71.7

72.2

68.5

71.6

70.5

69.4

60.1

Liquidity Coverage Ratio

…

… 138.6 169.1 163.3 153.6

159.9

Net Stable Funding Ratio

…

… 168.6 150.2 135.6 133.6

135.7

Additional FSIs

Large exposures to capital

…

14.6

18.8

20.6

21.7

23.5

Gross asset position in financial derivatives to capital

54.2

43.6

42.0

50.7

35.6

48.9

47.5

Gross liability position in financial derivatives to capital

67.3

53.7

55.4

67.0

43.5

42.7

39.7

Spread between reference lending and deposit rates (base points)

…

8.3

38.4 103.5

91.2

3.7

Customer deposits to total (non interbank) loans

…

62.3

62.2

74.0

75.6

75.3

Residential real estate loans to total gross loans

27.3

24.4

37.5

35.8

43.2

44.1

43.3

Commercial real estate loans to total gross loans

…

8.1

8.0

9.0

10.1

9.9

Source: IMF.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 21

Figure 9. The Netherlands: Financial Soundness Indicators of Selected Banking Systems

(Percent, September 2023 or latest available as bars, and end 2017 as squares)

Capital ratios in Dutch banks are in the mid-to-high range relative to peers

Asset quality and liquidity are in comfortable ranges ….

… while profitability is also in the mid-to-high range relative to peers.

Source: IMF.

NO DK SE LU NL GB

FI BE FR AT IT DE PT CA ES KR US

Regulatory Capital to Risk-weighted Assets

IE LU NO SE DK NL BE FI GB AT FR DE IT PT CA KR US ES

Tier 1 Capital to Risk-weighted Assets

PT ES IT FR AT BE LU NL IE FI DE DK GB US NO CA SE KR

Nonperforming Loans to Total Gross Loans

AT SE LU KR US IE GB PT NL FI BE ES DE IT FR DK CA NO

Liquid Assets to Total Assets

-4

FI AT US NL SE ES DK BE CA GB NO LU IE PT KR FR IT DE

Return on Equity (ROE)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

US AT FI IE NO E

S LU NL BE PT DK GB CA SE KR IT FR DE

Return on Assets (ROA)

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

22 INTERNATIONAL MONETARY FUND

13. System-wide liquidity conditions have been mostly stable but subject to occasional

turbulence. Dutch banks rely mostly on customer deposits for funding (Figure 10). The authorities

saw a bigger impact on liquidity conditions during the March 2020 turbulence than the October

2022 turmoil from margin calls on UK pension funds pursuing a liability-driven investment strategy.

14. LSIs have performed stably over time but could be vulnerable to macrofinancial

shocks. Their diverse business models are reflected in a wider dispersion in capital, asset quality,

liquidity, and profitability metrics than for SIs (Figure 11, Table 3). LSIs with large lending portfolios

could be more susceptible to credit risk, while those holding large securities portfolios could be

substantially affected by market downturns. Banks that rely significantly on foreign or wholesale

funding could be subject to liquidity strains from funding market shocks.

Figure 10. The Netherlands: Significant Institutions, Liquid Assets, Sovereign Exposure, and

Funding, September 2023

Dutch SIs hold a high (weighted) share of cash. Sovereign securities account for around 10 percent of financial assets.

Household deposits account for the largest share of liabilities, as also reflected in Available Stable Funding.

Legend shows liquid assets by descending quality, from cash (highest quality), central government securities (CG), Level 1

securities (L1 sec), and Level 2 securities (L2A & L2B, lower quality), subject to limits on their inclusion in the Liquidity Coverage

Ratio (LCR), and to which haircuts are applied. Weights used are intended to reflect the reduction in the value of the liquid assets

after applying the appropriate haircuts.

Source: EBA.

100

IE DE NL FR SE FI LU BE IT AT PT DK ES

Volume and Composition of Liquid Assets1

(after weighting, percent of total liquid assets)

Cash

L1 sec

Ex HQ covered bonds

L2A & L2B

100

SE DK FI PT IE FR ES DE LU AT IT NL BE

0-3 m

3m - 1y

1-5 y

5-10 y

10+ y

Sovereign Exposure

(gross carrying amount by maturity, percent of total exposure)

100

DK SE

FI NL FR DE ES AT BE

PT LU

Composition of Liabilities

(percent of total liabilities)

Debt

Finl dep

HH dep

NFC dep

Oth cust dep

Oth liab

100

IE DK LU DE FR IT AT ES FI BE NL SE PT

Capital

Retail dep

Oper dep

Oth non finl

Finl & CB

Undeterm

Intragrp

Composition of Available Stable Funding

(after weighting, percent of total available stable funding)

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 23

Figure 11. The Netherlands: SI and LSI Financial Soundness Indicators

(Percent)

LSIs’ financial soundness indicators exhibit wider dispersion than SIs’.

Source: Fitch.

SIs

LSIs

SIs

LSIs

SIs

LSIs

SIs

LSIs

SIs

LSIs

SIs

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

24 INTERNATIONAL MONETARY FUND

15. Higher interest rates have improved occupational pension funds’ funding ratios, and

insurers solvency ratios have been stable (Figure 12). Since 2021, rising interest rates have eased

pressures on pension funds’ funding ratios as liability values declined. The DC regime improves

long-term sustainability, shifting investment risks to pension fund members and beneficiaries.

16. Banks’ exposures to real estate are high relative to peers and exposures of NBFIs have

increased (Figure 13). Mortgages, mostly fixed-rate and a substantial portion IO, constitute around

30 percent of the system’s assets. Insurers are also active in mortgage lending, with mortgages

accounting for 15 percent of their assets. Banks’ commercial real estate loans make up 7 percent of

assets, while investments in CRE account for 7 percent and 8 percent of the balance sheets of

pension funds and insurers, respectively.

17. The house price boom has raised vulnerabilities for the most recent borrowers. Higher

house prices have led to a decrease in average LTV ratios, though they also increased the proportion

of households borrowing at their debt service-to-income (DSTI) limits, leading to an increase in

debt-to-income ratios of new mortgages, especially among younger borrowers

(Figure 13). The stock of IO mortgages has declined but remains high. A large volume of IO

mortgages will mature between 2034 and 2039, though the authorities’ analysis finds no systemic

threat.

18. Downside risks to CRE prices remain heightened. CRE prices doubled between 2015Q1

and 2022Q2, with significant declines thereafter, and price growth seesawed (Figure 14). The

consistently high valuation of CRE pre-pandemic exposed the sector to adverse shocks, including

higher interest rates. A CRE price-at-risk analysis estimates the distribution of future CRE price

growth at different points in time. During the pandemic, the distributions shifted leftward. While

these leftward shifts have reversed somewhat as price declines have moderated, the 2023Q1

distribution indicates that downside risks remain elevated.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 25

Figure 12. The Netherlands: Pension Funds, Insurers, and Investment Funds

Pension funds’ total assets at end 2023 are somewhat
higher than those at end 2019 …

… while their general reserves have increased, translating
into higher funding ratios …

… leaving only a very small number of pension funds with
a funding ratio below 100 percent.

Insurers’ Solvency Capital Requirement (SCR) has been
stable, but lower than the average for peers in the region.

Non-life insurance reflects mainly health insurance, which
is all provided privately in the Netherlands.

“Other” investment funds have grown significantly; real
estate funds account for 16 percent of total assets under
management.

“Other” includes private equity funds, commodity funds,

infrastructure funds, green ventures, and many others.

Source: DNB.

500

1,000

1,500

2,000

2,500

Dec-17

Dec-19

Dec-23

Assets of Pension Funds

(billions of euro)

Real estate

Loans (incl mortgages)

Securities

Shares/equity

Other

500

1,000

1,500

2,000

2,500

Dec-17

Dec-19

Dec-23

Liabilities of Pension Funds

(billions of euro)

Technical provisions General reserves Other

100

110

120

130

20%

40%

60%

80%

100%

Sep

-2

Pension Funds' Policy Funding Ratios

(percent)

PFR < 100%, LHS

PFR 110-130%, LHS

PFR > 130%, LHS

Policy funding ratio (PFR)

100

150

200

250

300

2016

2017

2018

2019

2020

2021

2022

Insurers' SCR Coverage Ratios

(percent)

NL Life

NL Non-life

EU/EEA Life

EU/EEA Non-life

US DK GB FR NL IT CH DE BE LU

Insurance Penetration

(Gross Premiums to GDP, 2022, percent)

Life

Non-life

200

400

600

800

1000

1200

Dec-17

Dec-19

Dec-23

Investment Funds, by Type

(billions of euro)

Bond

Equity

Hedge

Mixed

Real estate

Other

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

26 INTERNATIONAL MONETARY FUND

Figure 13. Characteristics of Mortgages

Dutch banks are highly exposed to real estate compared to
peers.

NBFIs also hold significant shares of the mortgage market.

Average LTV ratios of mortgages have been falling …

… and fixed rate mortgages are due to reset gradually.

The share of IO mortgages remains quite high …

… and young new borrowers have had to stretch more.

Sources: EBA, DNB, IFS, and IMF staff calculations.

Note: In Panels 3 and 6, data for 2019Q1-2020Q2 are missing due to data quality issues in the transition from RRE to loan-level

data.

100

RRE - (percent of GDP)
CRE - (percent of GDP)
RRE - (percent of assets)
CRE - (percent of assets)

Euro Area Banks: Real Estate Exposure, September 2023

(percent)

Note: CRE = Commercial Real Estate; RRE = Residential Real Estate.

200

400

600

800

1000

Residential Mortgages by Sector

(Billions of euro)

Banks

Insurers

Pension funds

Investment funds

Other financial institutions

100

105

-13

p-1

-14

p-1

-15

p-1

-16

p-1

-17

p-1

-18

p-1

…

Jun

-2

Jun

-2

Average LTV ratio at origination

Average LTV ratio of current mortgages

Average LTV Ratios at Origination and of Current

Mortgages

(percent)

100

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2043

2045

2047

2049

2051

Cumulative Proportion of Mortgage Debt

with Expiring Fixed-interest Period

(percent of total mortgages)

-13

Sep

-1

-14

Sep

-1

-15

Sep

-1

-16

Sep

-1

-17

Sep

-1

-18

Sep

-1

Jun

-20

Jun

-21

Share of Interest-Only Loans

(percent of total mortgages)

-14

p-1

-15

p-1

-16

p-1

-17

p-1

-18

p-1

…

Jun

-2

Households aged<36

Households aged≥36

New Mortgages with a Debt-to-income Ratio over

450 percent

(percent of new mortgages)

link to page 27

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 27

Figure 14. The Netherlands: Commercial Real Estate Price at Risk

CRE prices were significantly impacted by the pandemic… …. and downside risks remain elevated.

Source: MSCI Real Estate, IMF staff calculations.

SYSTEMIC RISK ASSESSMENT
A. Vulnerabilities and Risks
19. The main risks stem from an abrupt slowdown in growth, combined with persistently

high inflation that could lead to further tightening of financial conditions, including through

higher interest rates, and a severe correction in the housing market. Such a scenario could be

accompanied by lower external demand and financial spillovers affecting liquidity and funding

conditions (Risk Assessment Matrix (RAM), Appendix I). Climate risks are also prominent.

•

Housing. Banks are vulnerable to higher interest rates combined with a severe house price
correction, which could create macrofinancial feedback effects. House prices show signs of
overvaluation, with vulnerable borrowers most affected by tightened financial conditions.1
Despite mitigating factors—including a full legal recourse of mortgage lenders and a mortgage
guarantee scheme—and low default rates, an increase in interest rates combined with a severe
drop in house prices and higher unemployment could increase default rates and banks’ loan
losses. Even if direct effects on banks are limited, lower household wealth could negatively affect
consumer spending and growth, with possible second-round effects on banks.

•

NBFIs. Occupational pension funds and life insurers face market and liquidity risk, while P&C
insurers face higher inflation risk. Higher interest rates have exposed vulnerabilities associated
with margin calls on interest-rate derivatives. Together with the pension reform, pension funds
may shift investment strategies, though likely gradually during the transition period. Higher

1 The European Systemic Risk Board’s risk dashboard finds some overvaluation of Dutch house prices, ranging from

about 10 to over 20 percent as of 2023Q2.

-15

-10

-5

100

120

140

160

180

200

220

2015 2016 2017 2018 2019 2020 2021 2022 2023

Price

Growth Rate (rhs)

CRE Prices and Growth Rate

(Index 2015=100, y-y growth rate)

0.00

0.10

0.20

0.30

0.40

-10

-8

-6

-4

-2

CRE price growth distributions

(density, average q-q growth)

2019Q4

2021Q4

2022Q4

2023Q1

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

28 INTERNATIONAL MONETARY FUND

inflation poses a risk for insurers, specifically in the health and non-life sectors. Claims inflation,
related to higher building costs, wages and medical costs, strain insurers’ profitability.

•

Climate and nature

o Banks, insurers, and pension funds are exposed to climate physical risks, especially from

floods (Figure 15). Insurance penetration is limited, with damages from major flooding
primarily borne by those directly affected and potentially the government. These impacts
could increase over time, as sea levels rise and extreme rainfall becomes more frequent.

o Financial risks from the transition to a greener economy—including from the “nitrogen

crisis”—could also be sizeable. Nitrogen depositions currently exceed critical values and
need to be reduced drastically by 2030. Measures would target specific sectors:
agriculture, transport, and construction, with implications for banks. The measures have
been vocally opposed by farmers, with policy direction uncertain amid ongoing coalition
negotiations (¶6).

B. Stress Tests
20. Staff performed a range of stress tests to assess the resilience of banks and NBFIs.

Bank stress tests assessed solvency and liquidity positions of the system against the main risks. The

solvency analysis compared scenario-conditional capital ratios with minimum and buffer

requirements (Appendix II). Additional analyses focused on corporate and emerging market LSI

banks. The liquidity exercise assessed banks’ resilience against prescribed cash outflows over various

horizons and funding market dislocations. Additional sensitivity analyses integrated solvency and

liquidity tests. For insurers and pension funds, staff conducted solvency stress tests and an analysis

of liquidity risks from margin calls on interest rate swap portfolios. The contagion analysis estimated

the additional losses to the wider financial system triggered by individual losses or failures, covering

selected banks and NBFIs. The interconnectedness analysis examined banks’ cross-border exposures.

Bank Solvency

21. The bank solvency stress test covers six SIs, representing over 90 percent of banking

sector assets. The analysis includes a baseline macrofinancial scenario drawing on the April 2023

World Economic Outlook (WEO) and incorporates an adverse scenario reflecting both global and

country-specific risks in the RAM (Figure 16). The adverse scenario features stagflation due to supply

disruptions, higher energy prices, de-anchored inflation expectations, and further interest rate

increases. The credit spread for NFCs increases, in line with general macroeconomic conditions. A

large housing price correction is prescribed as a country-specific shock. The stress test assumes no

policy reactions.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 29

Figure 15. The Netherlands: Climate Risks: Physical and Nitrogen-related Risks

Most Dutch financial institutions’ domestic real estate exposures are in areas vulnerable to flooding, giving rise to
physical risks.
Flood Risk and Dutch Real Estate

(percent)

Note: The chart reports the percentage of domestic real estate exposures of banks, insurers, and pension funds by

location. Locations that can be affected by flooding include areas which are not protected by flood defense systems

(outside the dikes) and locations in areas protected by primary dams.

Source: DNB. Financial Stability Report (2021).

Risks could arise from exposures to sectors responsible for nitrogen deposition, given current levels of exceedance in the
Netherlands.

When critical values of nitrogen deposition are exceeded, an ecosystem is considered at risk of

eutrophication (a chain reaction, starting with an overabundance of algae and plants in bodies of water).
Exceedance of nitrogen above critical values in 2021

Sources: DNB, European Environment Agency, RIVM (National Institute for Public Health and the Environment)

Agriculture

Transportation

Industry and

buildings

Ammonia from

sea

Abroad

Share of Nitrogen Deposition by Source

(percent)

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

30 INTERNATIONAL MONETARY FUND

Figure 16. The Netherlands: Macrofinancial Scenarios

Source: IMF staff estimates.

4.5

1.0

1.2

1.5

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2022

2023

2024

2025

Baseline

Adverse

Real GDP Growth

(percent)

3.5

3.9

4.2

4.5

4.1

5.7

7.2

0.0

2.0

4.0

6.0

8.0

2022

2023

2024

2025

Baseline

Adverse

Unemployment Rate

(percent)

13.6

-6.0

0.1

13.6

-16.0

-8.5

-4.5

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

2022

2023

2024

2025

Baseline

Adverse

House Price Growth

(percent)

11.6

3.9

4.2

2.1

8.2

6.7

1.7

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2022

2023

2024

2025

Baseline

Adverse

Inflation

(percent)

1.2

2.5

2.8

2.4

5.7

4.7

3.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2022

2023

2024

2025

Baseline

Adverse

Long-term Rate

(percent)

0.0

3.2

3.6

2.9

0.0

6.2

5.5

2.8

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2022

2023

2024

2025

Baseline

Adverse

Short-term Rate

(percent)

1.0

1.8

1.7

1.6

1.0

2.6

2.3

1.9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2022

2023

2024

2025

Baseline

Adverse

Corporate Credit Spread

(percent)

4.9

5.4

3.6

4.9

5.6

5.0

2.3

2.0

3.0

4.0

5.0

6.0

2022

2023

2024

2025

Baseline

Adverse

Nominal Credit Growth

(percent)

link to page 31

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 31

22. The SIs as a group appear resilient to severe macrofinancial shocks, but some might

see their capital buffers erode since earnings weaken over time in the adverse scenario

(Figure 17). Rising interest rates support net interest income, which is offset by higher credit

impairment and house price declines affecting

risk-weighted assets. Market shocks do not

significantly impact the system, but raise

concerning results for some banks, which could

be due to data reporting issues.2 Aside from

these cases, all banks meet the minimum capital

requirements comprising Pillar 1 requirement

plus Pillar 2 add-ons. However, one bank would

need additional resources to stay above the

overall capital requirement (OCR), taking into

account the CCyB increase in 2024, as total

comprehensive income weakens in the adverse

scenario.

23. LSIs’ corporate borrowers could experience rising default probabilities under severe

global macrofinancial conditions.

The analysis is aimed at nine banks,

which have about 65 percent of their

corporate exposures outside the EA.

Staff stress-tested the creditworthiness

of these foreign corporate borrowers,

and found a sharp increase in credit

risk, even surpassing that during the

global financial crisis. In particular, the

default probabilities in advanced

markets are more responsive to

interest rate rises, while those in

emerging markets are more sensitive

to economic slowdowns and foreign

exchange (FX) rate fluctuations.

2 Reported data for some policy banks was missing or showed extreme values.

-8

-6

-4

-2

2022 2023 2024 2025

2023 2024 2025

Pre-shock profits

Interest rate shock

Credit shock

Market shock (TI)

Tax and dividend

Market shock (OCI)

Change in RWA

Total capital change

Contribution to CET1 Change, SIs

(percent)

Notes: OCI=other comprehensive income; TI=trading income

Baseline

Adverse

0.2

0.4

0.6

0.8

1.2

1.4

1.6

1.8

-0

Sep

-0

Sep

-1

Sep

-2

History

Baseline

Adverse

Sources: Credit Research Initiative of National University of Singapore and Fund staff estimates.

Probability of Default of Foreign Corporate Exposures

(percent)

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

32 INTERNATIONAL MONETARY FUND

Figure 17. The Netherlands: Solvency Stress Test Results for SIs

Interest income grows with higher interest rates…

…which is partially offset by higher expense on
deposits.

TLTRO: Targeted long-term refinancing operations; BB: Banking Book; TB: Trading Book

Credit impairment increases as the economy slows
down; wage growth does not keep up with inflation…

…and house prices decline.

Higher credit impairment and risk weighted assets
(RWA) contribute to weakening capital positions…

…more so in the adverse scenario in 2023 when
economic growth declines the most. Total losses due to
market risk are generally low.

Sources: DNB and IMF staff calculations.

-50

-25

-100

-50

100

150

2022

2023

2024

2025

BB: Securities income

BB: Loan income

BB: Securities expense

BB: Term deposit expense

BB: Non-maturity deposit expense

BB: Net hedging income

BB: TLTRO expense

TB: NII

Total NII (RHS)

Baseline: Net Interest Income (NII)

(billions of euro)

-50

-25

-100

-50

100

150

2022

2023

2024

2025

BB: Securities income

BB: Loan income

BB: Securities expense

BB: Term deposit expense

BB: Non-maturity deposit expense

BB: Net hedging income

BB: TLTRO expense

TB: NII

Total NII (RHS)

Adverse: Net Interest Income

(billions of euro)

-15

-10

-5

-60

-40

-20

2018 2019 2020 2021 2022 2023 2024 2025

Net interest income

Fees and commissions

Trading income

Other income

Non interest expense

Credit impairment

Tax

Dividend

Other comprehensive income

Profit and loss (RHS)

Baseline: Income Statement

(billions of euro)

-15

-10

-5

-60

-40

-20

2018 2019 2020 2021 2022 2023 2024 2025

Net interest income

Fees and commissions

Trading income

Other income

Non interest expense

Credit impairment

Tax

Dividend

Other comprehensive income

Profit and loss (RHS)

Adverse: Income Statement, SIs

(billions of euro)

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 33

Liquidity

24. Banks’ all-currency LCRs and Net Stable Funding Ratios (NSFRs) are strong. All banks

have regulatory LCRs and NSFRs above the regulatory minimum of 100. These ratios stay above 100

for a wide range of severe but plausible

scenarios. Furthermore, banks appear

resilient to substantial retail deposit

outflows, with all banks having LCRs above

the regulatory minimum of 100 if retail

deposit runoff rates are below 0.2.

25. The cash-flow analysis confirms

the strong liquidity positions of banks

but reveals potential funding gaps when

the stress extends beyond three months.

Banks stay liquid in both the baseline and

the severe scenario up to a horizon of

three months. In the severe scenario, one

bank becomes illiquid at a horizon of three

months or more, and two banks become illiquid at a horizon of nine months or more (chart below).

26. The LCR and cashflow analyses reveal potential vulnerabilities to USD funding

pressures. Some banks have USD LCRs below 100. In the cash-flow analysis, some banks would

need to liquidate parts of their non-USD counterbalancing capacity to meet USD funding gaps at

short horizons. This suggests a need to closely monitor their capacity to handle sudden and severe

USD runoffs.

Liquidity Stress Test Results for SIs (2)

Two banks are unable to close their funding gaps in the severe scenario, and several banks face funding pressure in
USD in both the baseline and the severe scenario. The baseline scenario is calibrated to match the scenario described
by the regulatory LCR. The adverse scenario features more severe run-off rates and drops in asset valuations.
Calibration details are found in the Annex of the Technical Note on Systemic Risk Analysis.
Number of illiquid banks across scenarios

Source: ECB, IMF staff calculations.

Notes: Bucket 1: overnight. Bucket 2: greater than overnight up to 2 days. Bucket 3: Greater than 2 days up to 3 days. Bucket 4: Greater than 3 days up to 4 days. Bucket 5:

Greater than 4 days up to 5 days. Bucket 6: Greater than 5 days up to 6 days. Bucket 7: Greater than 6 days up to 7 days. Bucket 8: Greater than 7 days up to 2 weeks. Bucket

9: Greater than 2 weeks up to 3 weeks. Bucket 10: Greater than 3 weeks up to 30 days. Bucket 11: Greater than 30 days up to 5 weeks. Bucket 12: Greater than 5 weeks up to

2 months. Bucket 13: Greater than 2 months up to 3 months. Bucket 14: Greater than 3 months up to 4 months. Bucket 15: Greater than 4 months up to 5 months. Bucket

16: Greater than 5 months up to 6 months. Bucket 17: Greater than 6 months up to 9 months. Bucket 18: Greater than 9 months up to 12 months.

Scenario

Buc

t 1

Buc

t 2

Buc

t 3

Buc

t 4

Buc

t 5

Buc

t 6

Buc

t 7

Buc

t 8

Buc

t 9

Buc

t 10

Buc

t 11

Buc

t 12

Buc

t 13

Buc

t 14

Buc

t 15

Buc

t 16

Buc

t 17

Buc

t 18

Baseline all currencies

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Baseline euro

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Baseline US dollar

0 0 1 1 2 2 2 2 2 2 2 1 2 2 3 4 4 4

Severe all currencies

0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 2

Severe euro

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Severe US dollar

0 0 2 2 3 3 3 3 2 2 3 3 4 5 5 5 5 5

Liquidity Stress Test Results for SIs (1)

Banks are robust to substantial retail deposit outflows. All

banks’ LCRs stay above 100 if retail deposit runoff rates are
below 0.2 over a 30-day horizon, and all banks except two will
have an LCR below 100 if retail deposit runoff rates are above
0.28.

Source: ECB, IMF staff calculations.

0.5

1.5

2.5

3.5

100

150

200

250

0.05

0.1

0.15

0.2

0.25

0.3

r o

f b

ank

LCR

Retail runoff rate

Sensitivity to Deposit Run-off Rates

Median

Regulatory requirement

Banks with LCRs below 100 (RHS)

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

34 INTERNATIONAL MONETARY FUND

Integrated Solvency and Liquidity Tests, and Sensitivity Analysis

27. Integrated tests and sensitivity analyses found that more banks would begin to draw

down capital buffers. The team conducted two sensitivity analyses to integrate the liquidity and

solvency considerations (Figure 18). Banks’ capital positions from the adverse scenario were exposed

to additional funding shocks in 2023 from (i) shifts in depositor behavior and (ii) higher funding

needs and costs. These additional losses require more banks to start drawing down their capital

buffers, and in more significant amounts.

Figure 18. The Netherlands: Integrated Stress Tests and Sensitivity Analyses

Sensitivity analyses that further exacerbate the macrofinancial adverse scenario suggest that more banks would need to
draw down their capital buffers to maintain their overall capital requirement.

•

The first sensitivity analysis assumes a shift in depositor behavior motivated by the sight deposit outflow observed

in 2022 – 2023. Term deposit and securities issuance increase to counterbalance outflows of sight deposits.

•

The second sensitivity analysis considers two additional forms of liquidity-solvency interaction. The first assumes

that banks that fail the cash-flow liquidity stress test sell held-to-maturity securities, and realize the associated
loss, resulting in an additional capital drawdown. The second imposes even higher funding rates as banks were left
with a lower capital ratio from the solvency stress test in the adverse scenario.

In the first sensitivity analysis, the interest expense sharply
increases, more so for banks with a large sight deposit
base.

Additional funding cost is observed in the second
sensitivity analysis as the solvency condition worsens.

Sources: DNB and IMF staff estimates.

Insurance Risk Analysis

28. The solvency stress test evidenced a broad resilience of the Dutch insurance sector,

particularly for P&C and health insurers, while vulnerabilities exist for some life insurers.

2022

2023

2024

2025

Baseline
Adverse
Sensitivity 1
Sensitivity 2
Pillar I
SREP
OCR

CET1 Ratio

(percent)

Notes: SREP=supervisory review; OCR=overall capital requirement

-45

-30

-15

-150

-100

-50

100

150

2022

2023

2024

2025

BB: Securities income

BB: Loan income

BB: Securities expense

BB: Term deposit expense

BB: Non-maturity deposit expense

BB: Net derivative income

BB: TLTRO expense

TB: NII

Total NII (RHS)

Sensitivity 1: Net Interest Income

(billions of euro)

-45

-30

-15

-150

-100

-50

100

150

2022

2023

2024

2025

BB: Securities income

BB: Loan income

BB: Securities expense

BB: Term deposit expense

BB: Non-maturity deposit expense

BB: Net derivative income

BB: TLTRO expense

TB: NII

Total NII (RHS)

Sensitivity 2: Net Interest Income

(billions of euro)

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 35

A top-down stress test was conducted for 16 insurers, covering more than 80 percent of the sector’s

assets (Appendix III). The scenario is aligned with the banking sector’s adverse scenario. Interest rate

effects on assets and liabilities are almost balanced, hence other asset-side shocks cause a

significant decline in own funds (Figure 19), with a few life insurers falling slightly below solvency

requirements. The exercise did not incorporate management actions; insurers would have various

options, e.g., changing hedging policies, de-risking their balance sheet, or capital support from the

group parent.

29. Life insurers are broadly resilient to liquidity shocks despite large interest rate swap

positions. The FSAP tested the vulnerability of five large life insurers in a scenario where interest

rates increase by 100 basis points (at t=0), resulting in variation margin calls. While the overall

impact is sizable and 94 percent of the margin calls would need to be met in cash, the sampled

entities apply heterogenous strategies and draw on a variety of sources for their liquidity and would

still have sufficient remaining liquidity after t+1 to meet calls in t+2.

Insurance Liquidity Stress Test Results

Cash collateral calls on Day t+1 could be met, mainly
by uncommitted repos.

On Day t+2, collateral calls are met by remaining
liquidity sourced on Day t+1.

Source: IMF staff calculations based on company submissions.

Collateral call

Liquidity sources

Meeting Collateral Calls - t+1

(billions of euro, cash collateral call only)

Collateral call - t+1

Cash

Deposits

Committed repos

Uncommitted repos

Government bonds

Central bank exposures

Money-market funds

Collateral call

Liquidity sources

Meeting Collateral Calls - t+2

(billions of euro, cash collateral call only)

Government bonds

Deposits

Remaining liquidity from t+1

Collateral call - t+2

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

36 INTERNATIONAL MONETARY FUND

Figure 19. The Netherlands: Insurance Solvency Stress Test Results

Asset values across all sectors decline by more than the
respective liability values, but are most pronounced in
the life insurance sector with longer durations on both
sides of the balance sheet. Health insurers are very
insensitive to market and credit risk shocks.

The life sector is impacted heterogeneously, while P&C
insurers remain largely resilient. The aggregate capital
shortfall for two life insurers falling below the
regulatory threshold of 100 percent amounts to
€2.9 billion, equivalent to about 0.3 percent of GDP.

In the life sector, interest rate effects are almost balanced, but come on top of other asset-side risks.

Notes: “EAoL” denotes excess of assets over liabilities.

Source: IMF staff calculations based on DNB data.

-25%

-20%

-15%

-10%

-5%

Lia

bilit

Lia

bilit

Lia

bilit

Life

P&C

Health

Interquartile range

Median

Change in Value of Assets and Liabilities

(percent)

50%

100%

150%

200%

Before After Before After Before After

Life

P&C

Health

SCR Coverage Ratios

(percent)

Interquartile range

Median

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 37

Pension Fund Risk Analysis

30. Pension funds are benefiting from further rising interest rates, after considerable

improvements in their funding ratios over the last two years (Figure 20). The ten largest

pension funds were covered by a top-down analysis, covering 70 percent of the market in assets,

and the adverse scenario followed the one used in the insurance sector (Appendix IV). Higher

interest rates lower the value of pension fund liabilities by 27 percent on average, which

compensates for the decline in asset values. As a result, funding ratios improve for most pension

funds in the sample—for some, the improvements are even greater than 10 percentage points,

especially for those funds with a larger duration gap between assets and liabilities.

31. Bottom-up analysis conducted by DNB and the AFM shows the resilience of pension

funds to liquidity risks from margin calls, even when restricting access to the repo market.

While the shock used for this analysis is lower than in the insurance risk analysis, the additional

inclusion of an FX shock as well as limiting access to repo markets added extra prudence. In the

scenario, the five largest pension funds had to meet a collateral call-in cash of €18.4 billion. Repo

markets remain important sources of liquidity especially for the largest pension funds, so close

monitoring of market conditions and liquidity risk management practices remains crucial. For

smaller pension funds which do not fall under the clearing obligations, many still make use of

bilateral swap transactions which allow for settlement in kind, thereby lowering liquidity risks.

Contagion and Interconnectedness

32. The FSAP’s analysis suggests that fire sales could be an important channel of

contagion across institutions and sectors, and that contagion can be caused by the default of

relatively small institutions. A fire-sale institution-level systemic stress test was conducted to

assess the contagion effects of balance-sheet shocks in banks, insurers, and pension funds. The

team assumed that institutions target a constant leverage ratio by selling marketable securities, and

that the price of a security decreases as the quantity sold of that security increases. Deleveraging by

an institution through the sale of a marketable security would cause balance-sheet losses in other

institutions, with greater contagion if securities holdings are sufficiently similar across institutions.

Two separate balance-sheet shocks were considered: bank solvency stress-test induced solvency

losses, and individual-institution defaults.

•

Losses from the bank solvency stress-test exercise lead to additional losses ranging from 1 to

9 percent of initial equity across institutions, affecting banks first and spreading to other sectors

in later rounds.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

38 INTERNATIONAL MONETARY FUND

•

Individual-institution defaults can cause significant losses, but no institution’s default leads to

defaults of other

institutions. Banks

experience higher losses

relative to initial equity than

insurers and pension funds.

The securities-issuing

institutions causing the five

largest losses are not SIs.

•

The vulnerability of Dutch

financial institutions to

contagion across sectors

highlights the need to

develop further

methodologies to account for additional cross-sectoral contagion channels, such as bilateral

loan exposures.

33. Dutch banks appear broadly resilient to spillovers from cross-border exposures.

Network-based analysis that uses as input BIS consolidated (cross-border) banking statistics seeks to

demonstrate the linkages between the Dutch banking system and ROW by simulating how a failure

of a banking system may spread through credit and funding shocks. Applying the Espinosa-Sole

(2010) methodology, the simulations suggest that the failure of the Dutch banking system does not

cause partner countries’ banking systems to fail, and that the Dutch banking system is susceptible to

U.S. and German banking system failures only under very severe assumptions.

Corporate and Household Sectors

34. An application of the adverse scenario used in the bank solvency stress test to the

corporate and household sectors identified vulnerable groups (Figure 21).

•

For NFCs, the analysis focused on ICR and cash balances, based on publicly available data. The

stressed environment resulted in a marked increase in the proportion of firms facing debt

repayment difficulties (ICR < 1) or borrowing needs (negative cash balance). These results are

primarily driven by the sharp contraction in GDP growth and a substantial increase in firms’ debt

burden.

•

For households, the youngest and lowest-income borrowers are the most significantly impacted.

The proportion of high-risk borrowers, defined as borrowers whose DSTI ratio is above

90 percent of the National Institute for Family Finance Information (NIBUD) DSTI limit, at the

aggregate level increases from 6.6 percent in the baseline scenario to 8.2 percent in the adverse

scenario. These numbers mask significant heterogeneity across households; lower-income and

younger households are most impacted in the adverse scenario.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 39

Figure 20. The Netherlands: Pension Fund Risk Analysis

Asset values decline by 23 percent (€235 billion for the
sample), overcompensated by a decline in liabilities by
€245 billion.

The average funding ratio increases from 115 to
122 percent, with more outliers towards the upper end
of the dispersion.

The effect of the interest rate shock on liability values
compensates for almost all asset-side shock effects,
especially those on stocks and fixed-income assets.

Collateral calls of €25 billion could be met by tapping
different sources, even when assuming limited repo
market access.

IRS: Interest Rate Swap

Source: IMF staff calculations based on DNB data.

-35%

-30%

-25%

-20%

-15%

-10%

-5%

Change in assets

Change in liabilities

Interquartile range Median Weighted average

Change in the Value of Assets and Liabilities

(percent)

50%

100%

150%

Pre-stress

Post-stress

Funding Ratios

(percent)

Interquartile range

Median

Weighted average

t+1

t+2

Sources of Liquidity

(billions of euro)

Cash resources

Deposits

Reverse repos

Short-term HQ bonds

Money-market funds

Uncommitted repos

Margins in kind

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

40 INTERNATIONAL MONETARY FUND

Figure 21. The Netherlands: Vulnerabilities of Corporate and Household Sectors

For setting the maximum allowed DSTI limits each year, the MoF uses input from NIBUD. NIBUD takes a

microprudential perspective primarily based on the available income for individual households. DSTI limits are

increasing with income levels and with interest rates paid. The household stress test analysis defined borrowers at

risk as those whose DSTI ratio increases above 90 percent of this specific DSTI limit defined by NIBUD. In 2023, the

DSTI limit ranged from 19 percent for those earning gross income of €26,000 or less per year to 30 percent at

€106,000 or more, at an interest rate between 4 and 4.5 percent.1

Sources: Orbis, DNB’s Real Estate Vulnerability Assessment Model based on 2022Q1 loan-level database, and Fund

staff calculations.

See the Technical Note on Macroprudential Policy Framework.

2022

2023

2024

2025

Firms Facing Debt Servicing Problems (ICR<1)

(percent of total sample of firms)

Baseline

Adverse

10%

15%

20%

25%

Under 25%

25%-50%

50%-75%

Over 75%

Baseline, end-2025

Adverse, end-2025

Households with a DSTI > 0.9 DSTI Limit, by Income Quartile

(percent of borrowers in each group)

2022

2023

2024

2025

Firms with Borrowing Needs (Cash < 0)

(percent of total sample of firms)

Baseline

Adverse

10%

12%

14%

16%

under 35

35 <= age <=50

50 < age <=65

above 65

Households with a DSTI > 0.9 DSTI Limit, by Age

(percent of borrowers in each group)

Baseline, end-2025

Adverse, end-2025

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 41

CLIMATE RISK ASSESSMENT AND OVERSIGHT
A. Climate Risk Analysis
35. Dutch financial institutions are exposed to climate physical risks from floods, due to

their substantial domestic real estate exposures located in areas vulnerable to flooding. Of the

total €700 billion exposure to real estate in 2020, 52 percent, 66 percent, and 65 percent of bank,

insurer, and pension fund assets, respectively, are located in areas vulnerable to flooding. While

most of these areas are protected by flood defenses, in the event of dike failure, a large portion of

the real estate could be damaged.

Banks

36. To assess physical risks, bank stress tests were conducted against flood events under

scenarios encompassing diverse regions, climate conditions, and flood protection

reinforcement plans with different return periods. The building blocks (flood scenarios, damage

estimates) were carefully designed in collaboration with Dutch climate experts, to leverage the

granular geographical data on flood water depth and the authorities’ methodology for damage

estimation. Flood scenarios focused on flood-prone areas, based on different threats (sea, rivers,

lakes), and susceptibility to the largest damage due to higher population and economic activity. Due

to the lack of access to loan-level data (LLD), the analysis takes a macro approach, using nation-wide

damage rates as input to the IMF’s Global Macro-financial Model for generating corresponding

macro scenarios. Finally, like the bank solvency stress tests, the analysis estimates bank credit losses

from floods over the next three-year horizon. The scope of the transition risk analysis is limited to an

examination of banks’ exposure to nitrogen-emitting sectors, due to data constraints and the lack of

clarity on the transition path.

37. The banking sector is resilient to flood events, with no banks expected to fall below

capital requirements under all flood scenarios considered (Figure 22). The local nature of floods

limits the overall damage to physical capital (e.g., buildings, infrastructure) compared to the

country's total capital stock. However, in the most extreme scenario, a severe flood can still cause a

nonnegligible bank capital ratio reduction in the first year. While the sector remains resilient, the

aggregate result masks heterogeneity across banks and institution-level vulnerabilities. Furthermore,

the macro-level approach potentially underestimates damage to collateral at the localized and firm

levels. Floods along the Rhine and Meuse River area in Germany and Belgium have minimal

spillovers to Dutch banks despite their exposure to those countries, though acquiring more granular

flood and collateral data from those countries could help.

38. Although the impact of floods on the banking sector is limited, climate change can

intensify the losses from floods, putting downward pressure on capital ratios. A comparative

analysis of current and future climate conditions and different failure probabilities suggests that the

Dutch government’s current reinforcement plan, which encompasses measures to strengthen dikes

and enhance flood warning systems, could help mitigate some of the anticipated losses from

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

42 INTERNATIONAL MONETARY FUND

climate change. Flood scenarios designed with detailed flood maps under future climate conditions

would provide a more accurate assessment of both climate change impact and adaptation.

39. The banking sector could face transition risks through the credit channel, especially if

loans are extended to financially vulnerable firms in high nitrogen-emitting sectors.

Constrained to aggregate level analysis, staff estimated bank exposures to nitrogen-emitting sectors

at the highest level of sectoral classification. Banks’ exposure to domestic high nitrogen-emitting

sectors is estimated at €34 billion (6.5 percent of total loans and 1.5 percent of total assets). The

observed decline in nitrogen emission intensity is likely attributable to policy interventions and

economic agents’ efforts to reduce nitrogen. Firms in high nitrogen-emitting sectors often exhibit

higher leverage and financial constraints than those in other sectors, making them more susceptible

to nitrogen reduction policies. However, the broad sectoral classifications do not capture variations

in the level of firms’ emissions within a sector. For banks to mitigate potential losses, analysis of

granular data and clarity on the policy path to reducing nitrogen depositions are essential.

Insurers

40. The insurance sector is exposed to weather-related disaster risks—some of which are

expected to become more frequent and/or severe with climate change. Flood risks in the

Netherlands are differentiated: while primary flood defenses are not insured by private insurers,

non-primary defenses, especially along rivers, and of regional water systems, are insurable. Dutch

primary insurers retain limited exposure to events with lower occurrence probabilities and are

covered by reinsurance. Besides floods, hailstorms are also relevant and are expected to occur more

often but are difficult to model given their very local nature.

41. The net claims effect—after reinsurance—of a non-primary regional flood event on

Dutch insurers is limited (Figure 23). The impact of historic and hypothetical flood events was

tested for five large P&C insurers. While the impact on the median insurer is low, their modeling

approaches vary markedly, including on the likelihood of such a hypothetical event. The FSAP

recommends intensification of discussions with P&C insurers on their flood risk modeling

approaches and relating insights to planned dashboards and climate risk supervision.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

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Figure 22. The Netherlands: Bank Climate Risk Analysis

Floods generate additional capital losses in banks
compared to the baseline scenario, and losses increase
under future climate conditions.

Under the most extreme scenarios, the bank capital
ratio drops by 0.3 – 0.6 percentage points in the first
year but remains above the capital requirement.

Additional impacts of floods in Germany and Belgium
are not large enough to transmit additional credit risks
to Dutch banks.

While climate change has negative impacts on bank
capital, the government’s current reinforcement plan
can absorb the capital losses from climate change.

Bank loan exposure to high nitrogen emitting sectors
has decreased.

The nitrogen reduction has been driven by both policy
impacts and the shift of banks portfolio toward less
nitrogen-emitting sectors.

Sources: DNB, ECB, HKV, LIWO, RIVM, Emissieregistratie, CBS, and IMF staff calculations.

-16

-14

-12

-10

-8

-6

-4

-2

2023

2024

2025

Capital Loss Deviation from the Baseline

(percent)

Current

2050

2100

-0.70

-0.60

-0.50

-0.40

-0.30

-0.20

-0.10

0.00

Southwest and

Central Coast

Wadden Sea Coast Rhine and Meuse

Rivers

Lower River

Courses

Impact of Extreme Scenarios on CET1 Ratio

(percentage point deviation from the baseline)

2023

2024

2025

-0.08

-0.06

-0.04

-0.02

0.00

0.02

0.04

0.06

0.08

2023

2024

2025

Additional Impact of Floods in DEU and BEL on Bank Capital

(percentage point deviation from NLD-only Flood)

-18.95

-18.42

-0.28

-19.5

-19.0

-18.5

-18.0

-17.5

-17.0

-16.5

-16.0

Current

Condition

Climate Change

Effect

Adaptation

Condition in

2050

Climate Change and Adaptation on Bank Capital

(percent deviation from the baseline, in 2023)

+0.8

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2.0

100

150

200

250

300

2018

2023

High

Mid

Low

Loans to High-emitting Sectors (RHS)

Loans to Nitrogen Emitting Sectors by Emission Rate

(billions of euro, percent of total assets)

200

400

600

800

1,000

1,200

1,400

I. 2018Q1

II. 2021Q4

(with 2018Q1 exposure)

III. 2021Q4

Nitrogen Emission Intensity

(in kg per euro)

NH3

NOx

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44 INTERNATIONAL MONETARY FUND

Figure 23. The Netherlands: Insurance Climate Physical Risk Analysis

Non-primary flood coverage (‘Type C’) would cause the
highest losses, which increase substantially for lower
occurrence probabilities …

… but the use of reinsurance limits the net claims for
the Dutch primary insurers significantly.

A repetition of the 2021 Limburg flood with 25 percent
higher maximum precipitation would cause net claims
of around €190m for insurers in the sample …

… resulting in a rather minor reduction of the SCR ratio
of less than 5 percentage points for the median insurer.

Notes: ‘Type A’ floods refer to inundation outside dike areas; ‘Type B’ is a breakthrough of primary flood defenses; ‘Type C’ is a

breakthrough of non-primary flood defenses; and ‘Type D’ describes inundation from regional water system.

The ‘scaled-up’ events refer to the Limburg flood of July 2021 and the cloudburst of July 28, 2014, respectively, in each case

assuming a maximum precipitation 25 percent higher than historically observed.

AEP: Aggregate Exceedance Probability.

Sources: IMF staff calculations based on company submissions.

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Type A Type B Type C Type D

Expected Gross Claims

(millions of euro)

Expected claims 2023

1-in-100y AEP

1-in-200y AEP

1-in-500y AEP

1-in-1,000y AEP

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Type A Type B Type C Type D

Expected Net Claims

(millions of euro)

Expected claims 2023

1-in-100y AEP

1-in-200y AEP

1-in-500y AEP

1-in-1,000y AEP

100

150

200

250

Limburg

scaled-up

Cloudburst Cloudburst

scaled-up

Gross and Net Claims

(millions of euro)

Gross

Net

140%

145%

150%

155%

160%

165%

Limburg Cloudburst

Pre-stress (scaled-up) (scaled-up)

SCR Coverage Ratios

(percent)

Interquartile range

Median

link to page 45

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B. Climate Risk Oversight3
42. DNB has laid down strong foundations of LSI climate risk supervision to allow

incorporation of the climate risk perspective across the supervisory process. Since 2021, DNB

has reviewed annually banks’ approaches to materiality assessments and topics related to the ECB

Guide’s expectations. The ECB Guide on climate-related and environmental risks represents a strong

framework which can be proportionately applied to LSIs, if safeguards of consistency are

transparently defined.

43. Similarly, DNB has set out its expectations for insurers, providing a robust basis for

climate risk supervision. The first pilot self-assessment on climate risk was launched in Spring

2023, covering strategy and business model, governance, risk management, disclosure, and

investments. Insurance supervisors can already build on some insights from reviews of insurers’ Own

Risk and Solvency Assessments which must reflect on climate risks, and on-site inspections focused

on climate risks have been initiated. In addition, a dashboard for the carbon intensity of insurers has

been developed. Still, climate risk supervision for insurers is at an early stage and would benefit from

further improvements; for example, future self-assessment rounds should request background

documentation to challenge insurers’ own views.

44. DNB now needs to systematically pursue the vision of rolling out full-fledged

supervision. Periodically conducted self-assessments so far have had only limited connection with

the supervisory process, necessitating further steps. A medium-term plan is needed to incorporate

climate-related risk perspectives across the activities of the supervisory process, which would include

concrete milestones and outline resource demands. The plan would center around milestones

including: (i) elaborating additional areas for the annual review to cover; (ii) sequentially

incorporating the climate perspective into regular supervisory analyses; (iii) developing quantitative

dashboards (e.g., physical risk for insurers; closing data gaps); (iv) enhancing the onsite examination

program by the climate-related risk dimension; (v) reflecting supervisory findings in individual risk

assessments; and (vi) incorporating climate risk supervision across the supervisory process. These

steps might require additional human resources and investments in analytical tools for DNB.

45. Quantitative frameworks warrant further attention by Dutch supervisors and financial

institutions alike, including ensuring high-quality data. Available quantitative approaches,

including scenario analysis, need to be further intertwined through supervisory tools and

approaches, with knowledge transfers across DNB’s functional departments and extending to the

industry, while allowing for constructive feedback. This calls for a deeper collaboration among DNB

supervisors and DNB climate risk stress testers to gain from each other's insights, as is the practice

in other risk areas. Gaps in available climate data sets should be mapped and initiatives to

strengthen datasets explored, recognizing their criticality for risk management, disclosure by

financial institutions, and supervisory analysis. Financial institutions should also be requested to

collect their clients’ climate data. Finally, first disclosures should be evaluated, lessons learned

3 The review was guided by Basel Committee on Banking Supervision’s June 2022 Principles for banks, and the IAIS’

Application Paper on the Supervision of Climate-related Risks for insurers.

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46 INTERNATIONAL MONETARY FUND

discussed with financial institutions and auditors, with the urgency of improvements to the climate

information architecture underscored, subject to the standard confidentiality protections.

46. Climate-related risks imply pressures on financial stability, with cross-cutting impacts

and feedback loops, requiring coordinated policy actions across a wide spectrum of

authorities. Financial stability issues and related policies are discussed by authorities with relevant

mandates: DNB, the AFM and the MoF. Climate risks’ unique nature necessitates deeper

understanding of their drivers, impacts, and associated feedback loops. For instance, climate-related

measures taken to address nitrogen deposition, or sea level rise, could affect various industries (e.g.,

agriculture, construction, transport), with financial stability implications. To execute their mandates

to safeguard financial stability, supervisory authorities need to consider scenarios capturing cross-

cutting, complex, and far-reaching system dynamics going beyond traditional channels, which may

need to involve a broader set of experts. To establish preconditions for informed and holistic policy

making, additional actors need to be involved.4 To this end, an interagency body which regularly

discusses policy implications of climate-related issues, facilitates the exchange of data, and

coordinates policy actions with implications for financial stability, while maintaining the

independence of involved supervisory authorities, is warranted. The body’s composition should

reflect the need to influence the policies of the institutions involved, i.e., it should include both

senior managements and experts.

FINANCIAL SECTOR OVERSIGHT
A. Macroprudential Framework and Policy
47. The current institutional arrangement is broadly in line with IMF guidance for effective

macroprudential policy, though issues surrounding the calibration of the borrower-based

tools remain to be addressed. The FSC’s legal status has been strengthened by establishing it in

primary legislation, and the institutional settings of the AFM and DNB for macroprudential

policymaking contain a clear mandate and well-defined objectives (Appendix V). With respect to the

calibration of the borrower-based tools, DNB, the AFM, and the MoF work together to ensure the

domestic financial system’s stability. In practice, the MoF has refrained from reducing the LTV ratio

limit below 100 percent, considering that any systemic risk mitigation derived from a lower LTV limit

was not proportional to the possible loss of access to the Dutch housing market by first-time buyers.

The FSAP recommends the authorities to either elevate the FSC to a permanent advisory body and

vesting it with semi-hard powers or transfer hard powers over the calibration of borrower-based

tools (LTV and DSTI limits) from the MoF to DNB, which has a clearer mandate over financial

stability. Such hard powers should incorporate guardrails (such as conducting cost-benefit analyses)

to ensure that they are used in a proportionate way.

48. Systemic risk analysis has been strengthened by closing previously identified data

gaps; however, new challenges constraining access to LLD have arisen. DNB has closed data

4 These could include government bodies responsible for ‘economic affairs and climate policy’, ‘infrastructure and

water management’, and ‘agriculture, nature and food quality’.

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gaps for CRE and NFCs. However, DNB faces new challenges to collect granular information on loans

collateralized by residential real estate (RRE); such data collection has been put on hold since mid-

2022, due to issues surrounding legal powers and privacy concerns. The lack of continued access to

granular data severely hampers systemic risk analysis, as well as supervision (¶59). Efforts to resolve

this issue while addressing privacy concerns appear to be progressing, but the process may involve

legal amendments and will take time.

49. DNB has been actively and appropriately using macroprudential tools to improve the

resilience of the banking system. The authorities have set the capital conservation buffer at

2.5 percent and the leverage ratio at 3 percent (with a surcharge for the GSIB). The CCyB framework

was revised during the pandemic, with the current setting at a positive neutral rate of 2 percent. The

floor for the risk weighting of Dutch residential mortgage loans was introduced in response to the

decline in the risk weights applied by banks using internal risk models due to the house price boom.

50. The LTV limit was tightened but remains too high. The LTV limit was set at 106 percent in

2012 and was reduced gradually to 100 percent by 2018. In 2015, the FSC recommended to

continue tightening the limit gradually after 2018 to reach 90 percent, but this was not

implemented. At 100 percent, the LTV limit is ineffective in containing the procyclical effect of

greater borrowing capacities during a booming market, nor does it provide borrower protection in

case of a price correction. On the other hand, the authorities have been actively and carefully

calibrating the DSTI limits to address vulnerabilities from the financial and economic cycles. Staff

recommend gradually reducing the LTV limit to 90 percent.

51. The MoF has progressively reduced MID, but the tax treatment of owner-occupied

housing remains favorable. The maximum rate of the MID has been gradually reduced, from

52 percent in 2013 to 36.93 percent in 2023. Nevertheless, the current rate remains too high, and

the tax treatment of owner-occupied housing remains favorable compared to other forms of

investment. The MoF should therefore gradually remove the MID.

52. The MoF introduced a differentiation of the transfer tax which could become part of

the macroprudential toolkit, if carefully calibrated. To improve the position of owner-occupiers

relative to that of buy-to-let (BTL) investors, a tax rate of 10.4 percent has been introduced on real

estate acquisition not used as a principal residence from 2023. The FSAP analysis finds that

transactions by BTL investors have contributed to higher house price growth at the regional level.

BTL investors could also raise the instability of the housing market and fuel house price fluctuations,

for example, by leaving the market for higher returns on other investments if interest rates rise. The

transfer tax differentiation could be integrated into the macroprudential toolkit, should BTL

investors’ activity reach systemic levels, but needs to be carefully calibrated so as not to unduly

deter investment in rental housing. In this context, housing affordability concerns call for increases

in supply, including through greater efficiency and speed in permitting and investment support for

the building process.

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B. Regulation and Supervision
Cross-cutting Issues

53. The budgetary process relies on close cooperation between supervisory authorities

and ministries and contains limited legally defined safeguards for supervision to secure its

budgetary independence. The current practice of budgeting is framed by multi-year limits

anchored by mid-term objectives and strategies which are regularly assessed against pre-defined

key performance indicators. In practice, the annual budget process is a largely cooperative exercise

where supervisory authorities communicate their proposals to ministries which are usually receptive

if the proposals meet formal requirements. While the current practice has proved to be operational

under normal circumstances, it does not provide sufficient safeguards in case of a disagreement,

and it does not provide a sufficient shield against political interventions.

54. While DNB and the AFM seem to be adequately resourced for their current tasks, they

must ensure adequate resources for emerging agendas and their long-term competitiveness

in the labor market. DNB and the AFM derive their salary levels from the midpoint of the whole

economy. While this practice can be relevant for some jobs, it may be a disadvantage in hiring

experts with skill sets deemed essential for supervision. Since financial institutions are major

competitors to supervisory agencies in the labor market, only the positions requiring the same level

of expertise as financial sector supervisors should be selected to inform the salary levels.

55. Going forward, supervision must adapt to a changing market landscape, the speed of

adoption of new technologies, and the growing systemic importance of climate risk.

Supervision should make progress in the following areas:
•

Enhancing reported/collected data sets to advance possibilities of offsite supervision to run a

thorough analysis.

•

Upgrading its analytical toolbox to allow processing of large datasets across different sub-sectors

and allow examiners to offload routine analytical work and focus on complex issues and/or root

causes of identified issues.

•

Promoting a level playing field across sectors by leveling supervisory outcomes. For example, RRE

exposures across banks, insurers, investment funds, and other financial institutions pose a

challenge for supervisors. While unifying microprudential frameworks across the bank and

nonbank sectors is challenging, collecting comparable data, aligning analytical tools and

approaches, and connecting information across sectors—as highlighted above—can help in

achieving comparable supervisory outcomes.

56. The authorities’ strong practices in requiring independent supervisory board (SB)

members could be further enhanced by clarifying this requirement in law. (¶61, 65, 72).

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Banking

57. Since the 2017 FSAP, DNB has further developed already good practice in supervision

of LSIs. First, DNB has unleashed the full potential of the SSM Supervisory Review Process by

developing a thorough risk-by-risk approach, which helps in challenging banks’ Internal

Capital/Liquidity Adequacy Assessment Process used to set capital and liquidity requirements.

Second, DNB has broadened the scope of LSI supervision to climate risk, and its supervision of

governance, behavior, and culture is particularly noteworthy. DNB considers the bank Board's

decision-making, leadership, and communication activities. It investigates whether these activities

contribute to the bank’s objectives and risk culture while considering group dynamics, behavioral

patterns, and mindsets. Third, DNB has continued intensive supervision of mortgages.

58. LSI supervision is effective in the Netherlands. The supervisory approach is intrusive and

transparent. It builds on well-developed supervisory tools which support strategically focused,

ongoing supervisory dialogue with banks. The supervisory framework blends the robust SSM/EU

framework with Dutch elements, enriching the spectrum of supervisory techniques and tools. DNB

and the AFM cooperate very closely in complementing prudential and conduct supervision.

59. The efficiency of supervision could be further supported by restored access to

regularly reported granular data (transaction or LLD). The COVID-19 experience demonstrates

the advantages of regular analyses of granular data. Going forward, this practice could also help in

developing tools mapping microprudential treatment of the same risk exposures across the system

and designing measures to maintain a level playing field. Regular analyses of granular data would

enhance efficiency and effectiveness of supervision (across sectors) while avoiding significant

burdens on banks (financial institutions). Ensuring a clear legal basis that mandates supervisory

authorities to collect necessary data is crucial.

60. The legal/regulatory framework also needs to enable the regular collection of high-

quality primary data by credit providers, including the creditworthiness of borrowers and the

value of collateral. The current voluntary nature of updating the data on creditworthiness poses a

challenge to obtain accurate financial information from borrowers. An appropriate legal

underpinning would strengthen credit providers’ risk management practices and enhance consumer

protection. Regarding collateral valuation, DNB has developed strong analytical tools and

established a solid practice in this area. DNB could consider converting related supervisory

expectations into regulatory requirements or guidance.

61. DNB demonstrated the importance of independent SB members in banks. According to

law, the SB of a bank must be constituted and consist of at least three SB members. DNB supervision

has established supervisory dialogue with bank SBs, leveraging their role to oversee the

implementation of proper governance by Boards. The dialogue also facilitated conveying important

messages and receiving feedback on strategic developments. The role of independent members was

especially invaluable in crisis situations. While the current practice of appointing independent SB

members is already quite well established, further legal clarification would ensure consistency across

institutions and over time.

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Pensions and Insurance

62. Significant changes have occurred in the pension fund and insurance sectors since the

2017 FSAP. DNB oversaw the full implementation of Solvency II for insurance, and the AFM and

DNB have also been gearing up to implement the ongoing major pension reforms through the

transition period.

63. Supervision of insurers and pension funds is effective in the Netherlands. DNB’s

prudential supervisory approach is risk-based, intrusive and transparent. It builds on well-

developed supervisory tools which support strategically focused, ongoing supervisory dialogue with

insurers and pension funds. The FSAP encourages the authorities to maintain their robust approach,

and to refine certain aspects of it. For example, the risk-based supervision methodology should be

regularly reviewed, and further backstops added, including a few regular on-site inspections even

for the smallest insurers.

64. DNB is collaborating effectively with foreign supervisory authorities in insurance

group supervision and on cross-border business. For one Internationally Active Insurance Group,

however, a gap still exists in setting up Crisis Management Groups which should not be delayed

until the implementation of the Insurance Recovery and Resolution Directive. Together with EIOPA,

DNB should explore ways to further strengthen supervision of cross-border insurance business,

striving for greater supervisory convergence in the EU.

65. The approach towards governance, behavior and culture frameworks is a particular

strength, but could further benefit from more data-driven analysis, particularly from a

conduct perspective. The supervisory approach delivers concrete findings and recommendations

that have been enforced and followed up. In this regard, as with banks, DNB has also leveraged the

roles of institutions’ SBs, including their independent members, to channel messages to insurers’

and pension funds’ management. Also, the AFM has upgraded its supervisory approach by better

leveraging data and aiming for a more forward-looking perspective. A monitoring dashboard for the

non-life sector has been developed, and the FSAP recommends expediting the work on a similar

dashboard for life insurance.

66. Going forward, supervision must reflect a changing risk environment, basing decisions

on robust and high-quality data. The vulnerabilities of some life insurers in an environment of

rising interest rates as well as pension funds’ dependence on repo markets call for close monitoring

and further engagement with financial institutions. DNB and the AFM should further intensify their

collaboration on data sharing. It is critical to have the ability to collect granular data necessary for

supervision—including on conduct—and to apply advanced technologies connecting data from

different sources for the analysis. A data quality assurance process should prioritize data items

needed for systemic risk analysis.

67. Regarding the pension transition, it will be essential to closely monitor and proactively

manage potential risks for the authorities related to resources and legal risks. DNB and the

AFM have prepared intensely for the transition, and a monitoring framework has been set up by the

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MoSA. Public communication by DNB and the AFM would need to be fully aligned during the

transition phase, to reduce uncertainties and to minimize legal risk. Emphasizing the important role

of pension funds’ internal control functions will be key, as well as utilizing high-quality data by the

social partners to make transition decisions.

Securities Market

68. The AFM’s approach to and resources for authorization and supervision have adapted

to deal with an enlarged and more diverse population of firms since the implementation of

the Markets in Financial Instruments Directive II and Brexit. Team resources have been bolstered

and expertise built in fixed-income markets and their distinctive trading functionalities, and in how

regulation applies in that context. Specialist expertise has been deployed effectively in the EU and

internationally, in areas ranging from the trading venue perimeter to gas futures trading in the light

of shocks to energy markets.

69. Supervision of trading venues has been thoughtful and risk-sensitive, though the

approach needs to evolve to keep pace with the market. Trading venues established post-Brexit

were initially ‘mirror images’ of their London operations, but Dutch and UK operations are starting

to diverge, and some innovations may come directly to the Netherlands, requiring the Dutch

authorities to be the first to determine a response in Europe. New entrants are arriving without the

same track-record as regulated entities and with business models that combine risks and activities in

ways that the EU regulatory framework was not designed to address. Accordingly, waiting for EU

rules to determine a response will not be an option.

70. Reinforced supervisory focus is needed on trading venue resilience and equity market

closing auctions, informed by better and more timely data analytics. Given the shift of trading

to the Netherlands and the changed equity market microstructure (with increased on-venue

trading), the AFM needs to work with counterpart European agencies to ensure that focused

supervisory attention is placed on the ability of primary listing venues, such as Euronext, to

demonstrate that they can recover promptly from outages including through the timely use of

failovers. This includes access to appropriate data and analysis. This is important because trading on

secondary venues in the EU is effectively halted by an outage on the main market. The AFM’s

internal governance and prioritization of data analytics will need to change to achieve this.

71. A reset of supervisory strategy for trading venues is needed to deal with the increasing

challenges ahead. The AFM should capture and use the learning from the venues about new

markets and business models to drive supervisory strategy, through an overall assessment of the

effectiveness of corporate governance and risk management as well as inherent risk. Consideration

should be given to the strength of intra-group outsourcing arrangements. In some cases, a greater

emphasis on the ability to use more intrusive powers may be warranted. The authorities should

consider the triggers that would make the use of such intrusive powers appropriate, the

organizational capacity to do so, and explore closer relationships with relevant home supervisors.

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52 INTERNATIONAL MONETARY FUND

72. Legislative change is needed to ensure the AFM can respond effectively to emerging

risks linked to trading venue supervision, and appropriately manage, alongside DNB, the

associated financial stability and reputational risks to the Netherlands. The EU-wide significance

and international mobility of capital markets means that the Dutch authorities will be subject to

increased international scrutiny of the effectiveness of supervisory arrangements. The AFM needs a

broader range of supervisory tools—underpinned by a firm legal base—to respond to innovation

proportionately but effectively. These include an autonomous ability to further specify binding

requirements keeping pace with market developments, a clear basis for requiring the appointment

of independent non-executive directors, and enhanced powers to deploy external specialist

expertise and recoup the costs of doing so.

73. The FSAP recommends continued focus on the extent of liquidity mismatch in

Collective Investment Schemes (CIS) and availability of tools to manage it. The authorities’

analysis found that the liquidity mismatch in real estate funds is currently less than it would initially

seem: (i) many are closed-ended rather than open-ended; (ii) invest in equities in the real-estate

sector rather than directly in physical real estate, and/or (iii) have restrictive conditions about the

size, frequency and notice periods for redemptions. In addition, investors are primarily pension

funds, indicating less likelihood of a sudden pressure to redeem the assets, reducing the run risk.

The authorities should continue to monitor risks in both real estate and corporate bond investments

through CIS and continue their current focus on ensuring that appropriate liquidity management

tools are available and used where necessary.

Financial Integrity

74. The FSAP builds on the recently completed Financial Action Task Force (FATF) 2022

Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Mutual Evaluation

Report. Key recommendations include:

•

Improving national understanding on the misuse of legal vehicles and cross border financial

flows risk resulting from proceeds of crimes in light of the Netherlands’ exposure to complex

international structures, conduit companies, and huge volumes of transnational flows.5 The

current National Risk Assessment (NRA) should be deepened, including through a more

comprehensive analysis of risks relating to the misuse of legal entities and conduit structures,

factoring in relevant information available to tax authorities. The authorities should further

ensure that they share a common and sufficiently broad understanding of the concept of a

conduit company, drawing on its functional characteristics, in order to adequately analyze the

risks and design a meaningful policy action plan.

•

Improving the completeness and accuracy of beneficial ownership information at the

Commercial Register. A legacy issue allows pre-existing legal entities to continue operating and

using their existing bank accounts despite a lack of updated beneficial ownership information.

5 As of 2021, the Netherlands hosts an estimated 8,700 conduit companies, with a balance sheet total of €4.5 trillion

(517 percent of GDP). The number of such entities could be underestimated due to reporting gaps.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 53

The existing enforcement measures should be strengthened, including through potential de-

registration where warranted. To ensure the accuracy of the information, the Commercial

relevant obliged entities such as trust offices to ensure comprehensive coverage of legal

arrangements, including foreign trusts.

•

Continue the progress in strengthening the already elaborate risk-based supervisory practices of

DNB, including by drawing lessons from the systemic deficiencies unveiled in the ongoing

remediation cases of the three largest banks relating to customer due diligence, considering to

elevate tax risks to a dedicated category of risk along with the existing five categories, and

continuing to prioritize close cooperation between the DNB and BTWwft in the supervision of

trust offices and domiciliation providers, along with tackling of the underground banking.

FINANCIAL SAFETY NET AND CRISIS MANAGEMENT
75. The Dutch authorities have made good progress since the previous FSAP; the

authorities should now focus on ensuring the operational readiness of resolution plans. DNB

should complete its resolution handbooks for the application of both the preferred and fallback

resolution strategies, whilst ensuring the overall coherence of these handbooks. Progress on DNB’s

handbooks is essential to also closing any corresponding gaps in banks’ playbooks.

76. Resolution readiness involves ensuring access to liquidity. DNB and the MoF should

identify and operationalize possible national sources for the provision of liquidity in resolution, e.g.,

by relying on the existing ELA framework. In the Banking Union, the Single Resolution Fund,

together with the European Stability Mechanism backstop (once it is in place), can provide support

in resolution up to approximately €146 billion, but access to that funding is not guaranteed ex ante

(as it depends on decisions taken by the Single Resolution Board (SRB) and other requirements, such

as mandatory bail-in and state aid rules) and recent international experiences have highlighted that

an institution in resolution may require more significant liquidity support.

77. Recent international experiences have also underscored the need for agility in

recovery and resolution planning. For example, banks may be non-systemic but turn systemic at

the time of a failure. In this regard, the recovery and resolution plans of state-owned banks and

financial market infrastructures (FMIs) with banking licenses present distinct challenges. Resolution

of state-owned banks entails trade-offs between imposing losses on shareholders and creditors,

with possible loss of confidence effects, incurring potentially larger fiscal costs if such loss allocation

is not deemed credible. For those FMIs that hold a banking license, DNB should carefully assess the

approach to the identification of critical functions, the availability of the resolution tools, and the

treatment of banking versus non-banking services.

78. DNB should systematically and holistically test its resolution capabilities. DNB should

develop a multi-year program that involves periodic internal and external—with other national

authorities—testing and covers all types of institutions subject to the resolution regime. Testing

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

54 INTERNATIONAL MONETARY FUND

should become deeper and broader as cycles progress, e.g., starting from recovery and moving to

resolution, testing end-to-end resolution capabilities, and using realistic underlying scenarios.

79. More aspects of the resolution regime could be publicly disclosed. DNB should continue

to enhance the transparency of the Dutch resolution framework, by publicly disclosing its policy

documents (beyond bail-in execution) as well as the non-confidential parts of LSIs’ resolution plans.

Dutch LSIs currently only receive a high-level summary of their resolution plans, which is

counterintuitive to producing complete and practicable resolution playbooks.

80. DNB should ensure repayment of covered depositors within seven working days of a

bank’s failure. As evidenced in the Amsterdam Trade Bank failure, where it was not feasible to pay

out certain covered depositors within 7 days, DNB should continue to work on further developing

the payout system by providing alternative options for non-resident depositors, automating the

handling of processes for complex cases, developing and testing home-host cooperation for

branches, and monitoring and improving the Single Customer View files and systems.

81. On financial crisis management, a national plan is needed. As part of this plan, the crisis

preparedness and management functions should be assigned to an inter-authority committee and

regular intra- and inter-authority financial crisis simulation exercises should be conducted to test

and enhance operational preparedness.

AUTHORITIES’ VIEWS
82. The authorities welcomed most of the FSAP recommendations, while highlighting

potential difficulties that might emerge in the implementation of others. They appreciated the

recognition of their leading supervisory practices, including on climate, and agreed that climate risk

now needs to be further integrated into day-to-day supervision. The authorities also believe that

nature risk is essential and further work is needed internationally to explore its financial stability

consequences. Regarding macroprudential policy, they considered that the current institutional

settings for the calibration of borrower-based tools were adequate, and highlighted the different

objectives that are considered in the calibration—consumer protection and financial stability—while

also taking into account access to homeownership. On the recommendation for greater AFM powers

to address emerging issues relating to securities markets, the authorities appreciated the FSAP’s

recognition of the changed landscape post-Brexit and called for consideration on how best to

balance authority vesting between the national and EU levels. For financial integrity, they are

working to implement many of the recommendations, also following the recent FATF review. The

authorities noted that a new NRA, to be published soon, may address issues raised by the FSAP, and

hoped that some of the recommendations could be incorporated in the European Supra National

Risk Assessment. On the financial safety net and crisis management framework, the authorities

noted that the directly applicable Single Resolution Mechanism Regulation does not provide for the

sharing of more non-confidential details on resolution plans with LSIs. They also underlined that it

would be more appropriate to focus on the provision of liquidity after resolution.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 55

Table 2. The Netherlands: Selected Economic Indicators, 2019-29

(percent change, unless otherwise indicated)

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

Est.

Proj.

National Accounts

Real GDP

2.0

-3.9

6.2

4.3

0.1

0.6

1.3

1.9

1.8

1.6

Domestic demand

3.0

-4.2

4.6

3.7

0.8

1.2

1.7

2.0

1.9

1.8

Private consumption

0.9

-6.4

4.3

6.5

0.4

0.5

1.3

2.3

2.2

1.9

Public Consumption

2.8

1.6

5.0

1.6

3.1

2.8

2.0

1.6

1.5

1.6

1.5

Gross fixed investment (total)

6.2

-2.6

2.9

1.8

1.5

-1.1

1.5

1.8

Public

1.9

4.6

-1.1

-4.7

1.2

2.7

2.0

1.0

Private

7.0

-4.0

3.7

3.1

1.5

-1.9

1.4

1.8

2.0

Residential

3.4

-0.7

5.7

1.1

-1.4

-2.0

0.7

1.8

2.0

Business

8.5

-5.3

3.0

3.8

2.7

-1.8

1.7

1.8

1.9

Stocks (contribution to GDP growth)

0.4

-0.8

0.3

-0.2

-0.6

0.4

0.1

0.0

Exports goods and services

2.0

-4.3

8.1

4.5

-1.3

0.2

2.3

3.4

3.2

Imports goods and services

3.3

-4.7

6.4

3.8

-0.8

0.8

3.0

3.7

3.6

Domestic demand (contribution to GDP growth)

2.7

-3.8

4.1

3.3

0.7

1.1

1.5

1.8

1.7

1.6

External demand (contribution to GDP growth)

-0.8

-0.1

2.1

1.0

-0.6

-0.5

-0.2

0.1

0.2

0.0

Output gap

1.5

-4.2

-0.2

2.0

0.4

-0.4

-0.6

-0.2

0.1

0.0

Potential output growth

1.8

2.0

1.7

1.5

1.6

1.8

1.6

Gross investment (percent of GDP)

22.1

21.8

21.5

21.2

20.1

20.2

20.1

Gross national saving (percent of GDP) 1/

29.0

26.9

33.6

30.5

30.2

29.2

29.0

28.9

28.7

Prices and Employment

Consumer price index (headline, period avg.)

2.7

1.1

2.8

11.6

4.1

2.7

2.1

2.0

Consumer price index (headline, eop.)

2.7

0.9

6.4

11.0

1.0

2.5

2.0

Consumer price index (core, period avg.)

2.2

2.1

1.6

5.5

7.3

3.3

2.6

2.0

Consumer price index (core, eop.)

2.3

2.0

2.4

8.5

3.8

3.1

2.0

GDP deflator

3.0

1.9

2.9

5.5

7.7

1.9

2.2

2.0

2.1

Employment

2.0

0.0

1.5

3.2

2.0

-0.1

-0.2

-0.3

-0.4

Unemployment rate (percent) 2/

4.4

4.9

4.2

3.5

3.6

3.9

4.2

4.5

4.7

4.8

5.0

External

Current account balance (percent of GDP)

6.9

5.1

12.1

9.3

10.2

9.1

8.8

8.7

Public Sector Accounts (Percent of GDP)

Revenue

43.9

44.1

43.8

43.4

43.0

43.2

43.3

43.4

43.3

43.4

Expenditure

42.1

47.8

46.1

43.5

44.1

45.0

45.3

45.9

46.2

46.6

46.7

General government balance

1.8

-3.7

-2.2

-0.1

-1.1

-2.0

-2.2

-2.7

-2.8

-3.3

Structural balance (percent of potential GDP) 3/

0.6

2.1

1.5

0.6

-0.7

-1.7

-1.8

-2.5

-2.9

-3.3

Cyclically-adjusted balance (percent of potential GDP)

0.6

-1.2

-2.1

-1.3

-1.4

-1.7

-1.8

-2.5

-2.9

-3.3

General government debt

48.5

54.7

51.6

50.1

47.2

47.7

48.2

48.9

49.8

51.1

52.6

Sources: Dutch official publications, International Monetary Fund, International Financial Statistics, and IMF staff calculations.
1/ Value implied by investment and current account data.
2/ ILO definition.
3/ Structural balance excludes one-offs such as pandemic support and the price-cap measures.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

56 INTERNATIONAL MONETARY FUND

Table 3. The Netherlands: Financial Soundness Indicators for SIs and LSIs

(percent)

2018

2019

2020

2021

2022

Return on equity

8.71

7.62

3.27

8.35

8.00

LSI

4.63

9.08

1.97

8.24

5.80

Return on assets

0.52

0.46

0.19

0.49

0.48

LSI

0.54

0.93

0.22

0.92

0.63

Net interest margin

1.44

1.42

1.28

1.23

1.34

LSI

1.26

1.15

1.05

0.96

1.08

Cost-to-income ratio

53.70

50.32

49.39

49.74

49.12

LSI

53.57

49.51

58.03

48.38

52.41

CET1 to RWA

16.45

16.48

17.03

16.97

15.68

LSI

21.36

20.08

25.20

24.99

23.35

Leverage ratio

4.61

4.88

5.23

6.54

5.80

LSI

9.87

8.53

10.25

10.34

9.18

NPL ratio

1.95

1.86

2.24

1.73

1.60

LSI

1.88

1.63

2.29

1.98

1.80

RWA density

30.46

31.19

28.68

29.76

33.23

LSI

48.06

44.30

38.79

38.99

40.16

Loan to deposit ratio

123.45

124.52

106.46

104.01

108.04

LSI

104.27

102.76

97.46

94.09

95.04

Source: DNB.

SIs: Significant Institutions

LSI: Less Significant Institutions.

link to page 57

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 57

Appendix I. Risk Assessment Matrix1

Source of Risks

Likelihood

Realization

in Next

1-3 years

Expected Impact on Financial Stability if

Threat is Realized

Global Conjunctural Risks

Abrupt global slowdown or recession. Global and

idiosyncratic risk factors cause a synchronized sharp

growth slowdown, with recessions in some countries,

adverse spillovers through trade and financial channels,

and market fragmentation causing sudden stops in

Emerging Markets and Developing Economies.

Europe: Intensifying fallout from the war in Ukraine,

supply disruptions, tight financial conditions, and real

estate market corrections exacerbate the downturn.

Medium

A sharp drop in economic activity, as well as domestic

and external demand. Energy dependence on Russia and

direct trade and financial links with Russia and Ukraine are

limited. However, indirect links and spillovers are

important; depressed activity in key trading partners (e.g.,

Germany) would have spillover effects to the Netherlands

and exacerbate credit risks.

Intensification of regional conflict(s). Escalation or

spread of the conflict in Gaza and Israel, Russia’s war in

Ukraine, and/or other regional conflicts or terrorism

disrupt trade (e.g., energy, food, tourism, supply

chains), remittances, foreign direct investment (FDI)

and financial flows, payment systems, and increase

refugee flows.

High

Monetary policy miscalibration. Amid high economic

uncertainty, some major central banks may loosen their

policy stance prematurely, causing abrupt adjustments

in financial markets and potentially weakening the

credibility of central banks.

Medium

Miscalibration may require a reversal, i.e., a resumption in

policy tightening, possibly leading to demand cooling,

house price declines and pressures on borrowers, given

elevated private debt. This would exacerbate credit risks

(see house price risk below). Tightened conditions could

also reduce the value of marked-to-market securities.

Systemic financial instability.

High interest rates and

risk premia and asset repricing amid economic

slowdowns and policy uncertainty trigger market

dislocations, with cross-border spillovers and an

adverse macro-financial feedback loop affecting weak

banks and NBFIs.

Medium

Sharp swings in asset prices and risk premia driven by

global systemic instability could affect capital positions of

institutions holding similar asset classes. Individual

banks/NBFIs may fail as a result. Fire sales may ensue and

worsen the downward price spiral even more.

Structural risks

Deepening geo-economic fragmentation. Broader

conflicts, inward-oriented populist policies, and

weakened international cooperation result in a less

efficient configuration of trade and FDI, supply

disruptions, protectionism, technological and payments

systems fragmentation, rising input costs, financial

instability, a fracturing of international monetary and

financial systems, and lower growth.

High

The Netherlands is vulnerable to supply disruptions and

weaker investor confidence, due to strong cross-border

real and financial linkages and the presence of large

multi-national corporations and financial institutions.

Such disruptions could impact both bank asset quality

and non-bank investment asset valuations.

1 The RAM shows events that could materially alter the baseline path. The relative likelihood is the staff’s subjective assessment of

the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10

and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall

level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly.

The conjunctural shocks and scenarios highlight risks that may materialize over a shorter horizon (between 12 to 18 months) given

the current baseline. Structural risks are those that are likely to remain salient over a longer horizon.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

58 INTERNATIONAL MONETARY FUND

Source of Risks

Likelihood of

Realization of

Threat in the

Next 1-3 years

Expected Impact on Financial Stability if

Threat is Realized

Structural Risks (Continued)

Extreme climate events. Extreme climate events

driven by rising temperatures cause loss of

human lives, severe damage to infrastructure,

supply disruptions, lower growth, and financial

instability.

The Netherlands is vulnerable to sea level rise,

particularly over the longer term.

In addition, efforts to reduce nitrogen depositions

may need to be redoubled, with adverse

macroeconomic effects.

Medium

High

Most physical infrastructure would be at risk from

flooding if sea levels rise or other weather events

overwhelm existing coping mechanisms. Forceful actions

to curtail nitrogen depositions to meet EU commitments

could disrupt economic activity, including in agriculture

and construction. Droughts would also threaten housing

infrastructure.

The Netherlands-Specific Risks

A rapid correction of house prices

Medium

Dutch banks are highly exposed to highly indebted

households, and vulnerable to a downward correction in

the housing market. Continued high inflation and a

cooling economy could impact borrowers’ ability to

repay, worsening asset quality. Second-round effects on

growth through households cutting consumption to

service their debts would be likely.

An adverse change in the direction of

economic and climate policies in the context

of political fragmentation.

Medium

Economic and climate policy uncertainties (including

nitrogen policies) raise the risk of supply disruptions,

stranded assets, affecting investment and growth.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 59

Appendix II. Stress Testing Approach for Banks

Domain

Stress Test Approach

Bank Solvency Stress Test

Institutional perimeter

6 significant institutions—over 90 percent of the banking

system.

Methodology and risk drivers

•

Scenario-conditional simulation of various drivers of
profits and losses were assessed, including credit risk
(through credit impairment), interest rate risk (through
interest income and expense), and market risk (through
mark-to-market revaluation of marketable securities);

•

Credit risk model linking macrofinancial shocks with
default probabilities of loan portfolios by country of
exposure;

•

Interest rate models linking risk free rates to lending and
borrowing rates;

•

Marked to market valuation of banking and trading books
linking sensitivity factors, or “delta”, with shocks to
interest rate, spread, FX rate, equity, and commodity
prices.

Scenarios

•

Baseline scenario aligned with April 2023 IMF WEO;

•

Bespoke adverse scenarios based on RAM (Appendix I)
addressing the most relevant risks confronting the Dutch
financial system.

Sensitivity analysis on alternative

interest rate paths

Simulation exercise on bank capital through interest income

and expense as interest rates follow different paths, assuming

sight deposits move to term accounts and flow out of the

banking system.

Sensitivity analysis on liquidation of

Hold To Maturity securities

Estimation of losses when banks are forced to liquidate held-

to-maturity securities to cover cash shortfalls as funding runs

off under stress scenario.

LSI Analysis

Credit risk analysis on foreign credit

exposures of corporate and emerging

market banks

Using publicly available default probabilities as proxy to stress

test creditworthiness of foreign corporate exposures against

macrofinancial scenarios of 40 economies.

Bank Liquidity Stress Test

Institutional perimeter

6 significant institutions—over 90 percent of the banking

system.

Methodology

•

Regulatory liquidity stress test. Evaluation of LCRs and
NSFRs;

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

60 INTERNATIONAL MONETARY FUND

Domain

Stress Test Approach

•

Cash-flow-based liquidity stress test. Evaluates the ability
of banks to withstand a sequence of liquidity shocks in
different maturity buckets;

•

Sensitivity analysis. Exploration of the sensitivity of
regulatory and cash-flow-based liquidity stress tests to
model assumptions.

Interconnectedness and Contagion Analysis

Institutional perimeter

14 banks, 27 insurers, 47 pension funds, 3,590 different

marketable securities making up more than 50 percent of

total assets for the median institution.

Methodology

Institution-level contagion analysis based on a fire-sale

channel: the selling of assets by institutions in distress affects

other institutions’ balance sheet through the price channel.

Banking Sector Climate Risk Analysis

Institutional perimeter

The six Dutch banks designated as systemically important.

Methodology and risk drivers

•

Physical risk from floods mapped into economic damage;

•

Flood damages to impact banks’ credit risk (domestic and
international loans);

•

Macro approach mapping climate scenarios into
macrofinancial scenarios. Standard stress testing
methodologies to assess the implications of climate risks
for the banking system’s resiliency.

Scenarios

•

Multiple flood scenarios designed with the consideration
of various regions, different climate conditions under
different return periods,

•

Extreme flood scenarios and floods in both unembanked
and embanked area also considered

•

Macrofinancial scenarios including the impact of floods
on Dutch economy and other neighboring countries
(Belgium and Germany) to which the banking sector is
exposed.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 61

Appendix III. Stress Testing Approach for Insurers

Insurers Solvency Stress Test

Top-down

1. Institutional Perimeter Number of institutions 5 life insurers

5 P&C insurers
6 health insurers

Market Share

Life: 93 percent, based on balance sheet assets
P&C: around 70 percent
Health: around 70 percent

Consolidation level

Unconsolidated

Data

Statutory returns

Reference Date

June 30, 2023

2. Channels of Risk

propagation

Methodology

•

Investment assets: market value changes of
assets after price shocks;

•

Liabilities: valuation change due to interest
rate shock;

•

Impact on available capital (net assets as the
difference between stressed assets and
liabilities);

•

Recalculation of the solvency capital
requirement.

Time horizon

Instantaneous shock

3. Scenario Analysis

Tail shocks

Adverse scenario: aligned with the
macrofinancial scenario, but with more
granularity on market and interest rate risks,
e.g.:

•

Risk-free rate: full Solvency II term structure
incl. extrapolation towards the ultimate
forward rate, EUR +147 bps (1y) and +158
bps (10y); USD +5 bps (1y) and +203 bps
(10y)

•

Equity: -40.7 percent (The Netherlands), -
42.4 percent (Euro Area), -42.1 percent
(United States), -41.2 percent (other
advanced economies)

•

Property: -13.0 percent (domestic RRE), -15.0
percent (domestic CRE), -10.0 percent
(foreign RRE), -12.0 percent (foreign CRE)

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

62 INTERNATIONAL MONETARY FUND

Insurers Solvency Stress Test

•

Sovereign bond spreads: +55 bps (The
Netherlands), +60 bps (Euro Area, United
States)

•

Corporate bond spreads: ranging from +45
bps (AAA, non-financials) and +50 bps (AAA,
financials) to 400 bps (CCC and lower)

•

Mortgage loan spreads: +45 bps

•

Currency: -10.7 percent depreciation of the
EUR external value

4. Sensitivity Analysis

•

Parallel decline of the EUR interest term
structure: -100 bps

•

Appreciation of the EUR external value:
+10 percent

•

Default of largest banking counterparty.

5. Risk factors assessed

•

Market risks (equity, property);

•

Interest rate risks;

•

Credit risks (bond spreads, (mortgage) loan
spreads, default of largest banking
counterparty).

6. Regulatory/accounting

standards

Solvency II, National GAAP

7. Reporting Formats for

results

Output presentation

•

Change in valuation of assets and liabilities

•

Solvency ratios;

•

Aggregated capital shortfall;

•

Dispersion across companies;

•

Contribution of individual shocks.

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

INTERNATIONAL MONETARY FUND 63

INSURERS: LIQUIDITY STRESS TEST

Bottom-up and Top-down

1. Institutional perimeter Number of

institutions

5 life insurers

Market share

Life: 93 percent, based on balance sheet assets

Consolidation
level

Unconsolidated

Data

Company submissions and statutory returns

Reference date

June 30, 2023

2. Channels of risk

propagation

Methodology

Variation margin call on interest rate swap positions
after a sudden increase in interest rate

Time horizon

Two days

3. Scenario analysis

Tail shocks

Increase in short-term EUR interest rates by 100 bps

4. Risk factors assessed

Liquidity risks

5. Regulatory/accounting

standards

Solvency II, National GAAP

6. Reporting formats for

results

Output
presentation

•

Amount of margin call (per day)

•

Share of margin calls which could be met in kind

•

Liquid assets

•

Sources of liquidity to meet margin calls

KINGDOM OF THE NETHERLANDS—THE NETHERLANDS

64 INTERNATIONAL MONETARY FUND

Appendix IV. Stress Testing Approach for Pension Funds

PENSION FUNDS: SOLVENCY STRESS TEST

Top-down

1. Institutional perimeter Number of

institutions

10 occupational pension funds (DB)

Market share

70 percent of assets

Data

Statutory returns

Reference date

June 30, 2023

2. Channels of risk

propagation

Methodology

•

Investment assets: market value changes of assets
after price shocks

•

Liabilities: valuation change due to interest rate
shock

•

Impact on own funds (net assets as the difference
between stressed assets and liabilities)

Time horizon

Instantaneous shock

3. Scenario analysis

Tail shocks

Adverse scenario: aligned with the macrofinancial
scenario, but with more granularity on market and
interest rate risks, e.g.:

•

Risk-free rate: full Solvency II term structure incl.
extrapolation towards the ultimate forward rate,
EUR +147 bps (1y) and +158 bps (10y); USD +5
bps (1y) and +203 bps (10y)

•

Equity: -40.7 percent (The Netherlands), -42.4
percent (EA), -42.1 percent (U.S.), -41.2 percent
(other advanced economies)

•

Property: -13.0 percent (domestic RRE), -15.0
percent (domestic CRE), -10.0 percent (foreign
RRE), -12.0 percent (foreign CRE)

•

Sovereign bond spreads: +55 bps (The
Netherlands), +60 bps (Euro Area, U.S.)

•

Corporate bond spreads: ranging from +45 bps
(AAA, non-financials) and +50 bps (AAA,
financials) to 400 bps (CCC and lower)

•

Mortgage loan spreads: +45 bps

•

Currency: -10.7 percent depreciation of the EUR
external value

Sensitivity analysis • Parallel decline of the EUR interest term structure:

-100 bps

•

Appreciation of the EUR external value:
+10 percent

•

Default of largest banking counterparty

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INTERNATIONAL MONETARY FUND 65

PENSION FUNDS: SOLVENCY STRESS TEST

4. Risk factors assessed

•

Market risks (equity, property)

•

Interest rate risks

•

Credit risks: bond spreads, (mortgage) loan
spreads, default of largest banking counterparty

5. Regulatory/accounting

standards

National GAAP

6. Reporting formats for

results

Output
presentation

•

Change in values of assets and liabilities

•

Funding ratios

•

Dispersion across companies

•

Contribution of individual shocks

PENSION FUNDS: LIQUIDITY RISK

Bottom-up (conducted by DNB)

1. Institutional Perimeter Number of

institutions

5 occupational pension funds (DB)

Market Share

~60 percent of assets

Data

Statutory returns

Reference Date

December 31, 2022

2. Channels of Risk

propagation

Methodology

Combination of interest rate (EA, U.S., UK, JP) and FX
shocks (USD, GBP, JPY) leading to margin calls on
pension funds’ derivative positions

Time horizon

Two days

3. Scenario Analysis

Tail shocks

Four adverse scenarios:
1. Parallel interest rate shock between 17 and 38

bps; EUR appreciation between 2.2 and 3.8
percent

2. As scenario 1, with limited access to the repo

market

3. Parallel interest rate shock between 33 and 77

bps; EUR appreciation between 4.4 and 7.5
percent

4. As scenario 3, with limited access to the repo

market

4. Risk factors assessed

Liquidity risks

5. Regulatory/accounting

standards

National GAAP

6. Reporting Formats for

results

Output
presentation

•

Aggregated margin calls (absolute amount,
relative to liquid assets)

•

Cashflows and liquidity position

•

Dispersion across companies

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66 INTERNATIONAL MONETARY FUND

Appendix V. Status of Key Recommendations from the 2017 FSAP

Recommendations

Status

Financial Risks and Stability Analysis
Enforce an industry-wide approach to
informing IO mortgagors of estimated
repayment shortfalls.

Done. AFM and SSM (DNB/ECB) established an industry-wide
program. The program has concluded.

Continue to build capital buffers to
ensure all banks remain above
minimum leverage ratio thresholds in
the case of severe adverse events.

Done. The Dutch authorities require G-SIBs to hold a leverage ratio
buffer beyond the binding 3 percent. They also remain supportive of
an Other Systemically Important Institution leverage ratio buffer and
note that the Basel 3.5 standards, the activation of a 1 percent CCyB,
now increased to 2 percent by May 2024 and the extension of the
floor on risk weights for Dutch mortgages will also contribute to
higher leverage ratios of certain Dutch Systemically Important
Financial Institutions.

Macroprudential Policy Framework
Strengthen the FSC by establishing it
under primary law and vest it with
“comply-or-explain” powers.

Partially Done. A Bill has been approved by Parliament giving the
FSC a legal basis after an amended legislative proposal was submitted
to Parliament in early summer 2022. The FSC is now legally
embedded in the Bank Act 1998 as of July 1, 2023. As a ‘comply or
explain mechanism’ does not fit in with the Dutch constitutional
system, it was not implemented.

Accelerate the phase-out of MID and
reduce the final tax rate to a neutral
level.

Partially Done. The phasing down of the MID was accelerated from
0.5 to 3 percentage points annually starting in 2020 until the base tax
rate level of 37 percent was reached in 2023. However, the tax
treatment of owner-occupied housing remains favorable compared
to other forms of investment.

Continue gradually reducing maximum
limits on LTV ratio to no more than
90 percent after 2018, and place
prudential ceilings above which DSTI
limits (by income group) cannot be
relaxed.

Not Done. The maximum LTV ratio for new mortgages was reduced
to 100 percent in 2018, as planned at the time the cap was
introduced in 2012, but no further reduction has been undertaken.
No changes have been made in how DSTI limits are set.

Cross-cutting Supervisory Issues
Enhance DNB and AFM
powers to introduce
technical regulations
(consistent with the SSM)
and to conduct examinations
using outside expertise.

Not Done. The powers of DNB and AFM to introduce technical
regulations have not been enhanced. No actions to do so are
currently foreseen. DNB and AFM already have the power to adopt
non-legally binding policy rules and will consider suggested policy
rules when exercising the relevant supervisory powers in future. The
current practice is largely effective; non-legally binding policy rules

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INTERNATIONAL MONETARY FUND 67

Recommendations

Status
are supervised and enforced. DNB and AFM can also involve outside
expertise in conducting their supervisory examinations.

Exclude DNB and AFM from the
proposed salary cap, and provide them
with greater autonomy in
setting their supervisory budgets.

Not Done. The Ministry of Finance has not provided DNB and AFM
with greater autonomy in setting their supervisory budgets. No
actions to do so are foreseen. The recommendation was revisited, and
a new recommendation formulated.

DNB and AFM to undertake a cross-
sectoral review of credit underwriting
standards of mortgages.

Done. Several on-site examinations in financial institutions’ mortgage
portfolios have been carried out in the recent past.

Ensure that reliable and complete data
is available on a timely basis to
support off-site supervision.

Done. DNB and AFM are actively investigating and applying
supervision techniques involving data-driven analytical approaches. In
collaboration with the Ministry of Finance, the AFM is exploring an
additional legal basis for periodic data requests.
Insurers and pension funds: DNB continues to conduct rigorous
checks on the quality, consistency, and plausibility of the data it
receives from insurers and pension funds, also with the help of on-
site examinations. AFM is investigating the possibility of a yearly
inquiry into complaints about pension funds.
Banks: DNB has implemented new and innovative information
products for supervisors, also in collaboration with the ECB. They
include rigorous checks on the consistency and plausibility of data or
a system of standards and norms on the quality of regulatory
reporting (for LSIs), or the ECB’s thematic review on data aggregation,
confirming additional investment needs into information technology
(IT) infrastructure. DNB initiatives for Data Driven Supervision have
been implemented. AFM has developed tools to monitor IO
mortgages with coverage to be expanded to other mortgage
products.
Collective investment schemes: Several actions have been taken by
DNB and AFM to ensure reliable and complete data is available on a
timely basis.

Banking Supervision and Regulation
Further enhance supervisory oversight
of loan classification and strengthen
internal model validation by providing
Joint Supervisory Teams more support
from risk specialist divisions.

Done.
Supervisory oversight of loan classification: Since the last FSAP,
several policy measures have been introduced at the EU/EA level
focusing on adequate provisioning and clarifying classification rules.
In addition, the MoF admits the discussion on binding requirements
on impairment charges. In line with European Commission guidance,
DNB encourages the application of article 104 Credit Requirement
Directive where appropriate, including through supervisory manuals.

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68 INTERNATIONAL MONETARY FUND

Recommendations

Status
Internal model validation: The ECB upgraded processes across Joint
Supervisory Teams on the model validations, including ongoing
model monitoring, requiring substantial support from divisions
specialists. Also, the project of Targeted Review of Internal Models
(TRIM) has been launched, channeling additional expertise into the
internal model validation.

Encourage a more active role of the
Supervisory Board of Dutch banks via
ongoing engagement.

Done. Engaging the Supervisory Board (SB) is part of ongoing
supervision through, e.g., periodic interviews and the annual SB self-
assessment. In 2022 DNB has observed the meetings of the SBs of
several SIs to assess their effectiveness and conducted an on-site
inspection combining a focus on governance with behavioral and
cultural elements. Furthermore, DNB discusses the outcomes of the
annual Supervisory Review and Evaluation Process with the SBs of all
LSIs and intends to communicate the outcomes of the TRIM project.

Insurance and Pension Supervision and Regulation
Monitor closely and take a series of
well-defined actions, under Pillar 2, at
different levels of the Volatility
Adjustment (VA) and impact of the
ultimate forward rate (UFR) on
insurers’ solvency position.

Done. DNB has implemented a new forward-looking approach in late
2021 that takes a step away from the current SCR ratio ex VA and UFR
approach. It analyzes solvency levels and probability distributions
around them to assess the sustainability of the future statutory
solvency and the capacity to compensate for the UFR shortfall. It will
support a dialogue with insurers at risk to take measures to improve
the sustainability of the solvency position.

Harmonize the relevant laws on the
quality of advice and suitability of
products and provide authority for
group supervision in the pension law.

Not Done. No mechanisms have been introduced to ensure pension
participants receive financial advice. A new pension system is being
implemented in 2023-28, yet supervisory powers for group
supervision are not foreseen because of the pension fund structure in
the Netherlands.

Securities Supervision and Regulation
Broaden the supervisory authority of
the AFM with regard to loan-based
crowd-funding platforms.

Done.

Require prompt public disclosure of
auditor changes or resignations.

Not done. Authorities consider this already sufficiently covered by
existing rules and regulations.

Financial Market Infrastructure
Augment the supervisory resources
devoted to the oversight of European
Central Counterparty (EuroCCP).

Done. The staff resources devoted to EuroCCP supervision have been
expanded, including resources for quantitative risk management and
for IT/OPS. The department head of the FMI (Financial Market
Infrastructures) Oversight Department attends the supervisory
meetings with the chairperson of the SB of EuroCCP.

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Recommendations

Status

EuroCCP to strengthen its review of its
stress testing and margin models
methodology and develop a
comprehensive recovery plan.

Done. Reverse stress testing approach broadened, margin models
methodology improved, and sensitivity analyses developed. A
comprehensive recovery plan was developed and updated annually
to bring it in line with the requirements of the EU Recovery and
Resolution Regulation.

Crisis management and bank resolution
Develop adequate arrangements for
systemic crisis management and make
legacy frameworks for managing
failing banks complementary to the
new SRM framework and more
transparent.

Partly done. Domestically, DNB has updated its crisis management
manual, aligning it with the SRB’s. DNB and AFM and other relevant
institutions have defined their roles and responsibilities in resolution
and have also updated the tripartite Memorandum of Understanding
enabling information sharing and delineating responsibilities for crisis
management. At the European level, the role and responsibilities of
SRB, ECB, and Dutch authorities in managing a systemic crisis are
formalized in the SRB and DNB crisis management manuals, the
Cooperation Framework and horizontal policy guidance.

Allow the deposit guarantee scheme to
finance deposit transfers in resolution
and insolvency.

Partly done. Starting in 2017, it is possible to finance the gross
amount of deposits that are transferred in resolution, albeit with a
cap of 50 percent of the size of the deposit guarantee fund.

Document Outline