Financial Stability Report 2025
This article summarises the main messages delivered by Mr Tom Dechaene, Executive Director of the National Bank of Belgium (NBB), on 4 June 2025 during a webinar organised on the occasion of the publication of the Financial Stability Report (FSR).
Developments in the operating environment of the Belgian financial sector
The interest rate environment is a major driver of the performance of the financial system and it has become more beneficial for banks in the most recent period with the return of a positive slope for the yield curve (long-term interest rates being higher than short-term interest rates). This is an important change compared to the years when swap rates were negative or close to zero or characterised by an inverse shape of the term structure.
Other notable developments in the operating environment of the Belgian financial sector during the year under review included bouts of (albeit short-lived) market turbulence, against the backdrop of high uncertainties related to US trade policies and other geo-political developments. Yields on German government bonds rose sharply when the German government lifted the public debt brake, while the US Treasury market expericienced stress in the days following the announcement by President Trump of high trade tariffs on imports from other countries in the beginning of April. Stock markets were also characterised by periods of high volatility. At the same time, the valuations of European bank stocks improved strongly thanks to the improved interest rate conditions, bringing the average price-to-book ratio for European banks back to around 1 for the first time since the global financial crisis.
Competition in the market for bank lending to Belgian households and non-financial corporations has remained intense over the past year. This confirms that the slowdown in credit growth after the start of monetary tightening primarily reflected lower demand for credit as opposed to tighter bank lending conditions. Lending to both sectors continued to grow in nominal terms throughout the period of monetary tightening, in contrast to developments in some other euro area countries.
Belgian banking sector
Due to their business model, deposits by and loans to households and non-financial corporations traditionally account for a substantial share of Belgian banks’ assets and liabilities. A notable development on the liabilities side of the Belgian banking sector’s balance sheet in 2023 and 2024 was driven by the issuance of a one-year State note targeted at retail investors in the third quarter of 2023 and the maturity of this note a year later. In 2023, this led to an outflow of household deposits from banks’ balance sheets, equivalent to 6% of the stock of these deposits, mainly from sight and savings accounts. As the State note neared maturity in September 2024, banks made efforts to try to recapture as much of the soon-to-be-released funds as possible. This competition was mainly focused on a number of products and was particularly fierce for customers willing to switch banks. Liquid deposits, such as regulated savings accounts, benefited less from this beefed-up rivalry than products such as term accounts and savings certificates. At the end of 2024, the stock of sight and savings deposits was therefore still below previous levels, while the stock of term deposits remained at a high level.
The profitability and cost efficiency of the large universal banks and savings banks improved in 2023 and 2024, helped by the more beneficial interest rate environment which led to a higher net interest margin. In the case of the savings banks, the net interest margin was also supported by a positive contribution of interest income from payer swaps, which banks had previously contracted in order to hedge the interest rate risk associated with fixed-rate mortgage loans. The profitability and efficiency ratios did not improve as much as in many other European countries, but this is due to a relatively higher share of variable rate loans in these countries which boosted their banks’ net interest income strongly in the period of higher interest rates. With a net profit of € 9 billion and a return on equity of 11.5% for 2024, the Belgian banking sector still reported a very good profitability.
The regulatory liquidity and capital ratios of the Belgian banking sector remained at a strong level. The liquidity coverage ratio (LCR) provides information on a bank’s liquidity position from a short-term perspective and is defined as the ratio between the stock of high-quality liquid (unencumbered) assets and simulated net cash outflows in a hypothetical 30-day stress scenario. The net stable funding ratio (NSFR) takes a longer-term view and provides information on whether banks have sufficient long-term funding to finance their illiquid assets over a one-year horizon. It is the ratio between a bank’s available stable funding sources – for example capital or retail deposits – and the required stable funding for the financing of loans and debt securities, for instance. At the end of 2024, the LCR (155%) and NSFR (129%) were well above the minimum required level of 100% and close to those recorded by the banking sector in neighbouring countries. The Belgian banks’ regulatory capital ratios also remained well above the minimum requirements, with a capital ratio of 15 % and a total capital ratio of 19% at the end of 2024.
Belgian insurance sector
Belgian life insurance companies have managed the challenges related to contracts with a guaranteed rate of return relatively well in recent years. These challenges were particularly pronounced during the period of low interest rates. With a pre-dominance of fixed-income assets in the investment portfolio (approximately 68% in 2019) and an average duration of assets somewhat lower than that of their (long) contractual obligations to policyholders, significant amounts of earned coupons and matured bonds had to be rolled over or reinvested in bonds with lower yields than those reaching maturity in recent years. While insurance companies lowered re-investment risks by gradually reducing the duration gap, they also succeeded in maintaining a positive spread between the average yield of the investment portfolio and the guaranteed rate of return on the stock of life insurance contracts, by making changes to the product offering on the liabilities side and through strategic asset re‑allocations in the investment portfolio. This search for higher-yielding investments contributed to a shift of investments away from public sector bonds towards riskier and less liquid assets, such as mortgages and commercial real estate.
With a solvency capital requirement (SCR) ratio of 201% at the end of 2024, the Belgian insurance sector continues to dispose of a large capital buffer, well above the regulatory minimum of 100%.
Commercial real estate
The commercial property market remains a point for attention. This is a very heterogenous sector, with different subsegments and related specific challenges, but the sector also faced a common adverse shock in the form of the significant increase in the level of interest rates in recent years.
The distribution of profitability, indebtedness and interest coverage ratios across Belgian firms active in the construction and real estate sector illustrates this heterogeneity. It shows a pronounced difference between the median and worst quartile observations across the population of real estate firms. This also confirms that the sector has a significant sub-segment of weaker firms which are vulnerable to adverse shocks.
As Belgian banks’ commercial real estate loan exposures remain a source of potential unexpected losses, the FSR has looked more closely at the composition of banks’ CRE loans and the related debt and interest coverage ratios of the debtors of these CRE loans. This analysis shows that banks have sizeable exposure to firms with relatively high indebtedness which is, moreover, negatively correlated with the interest coverage ratio. The analysis of the annual accounts of the debtors of the CRE loans also shows that the interest coverage ratios have generally weakened in 2023 and 2024. The asset quality of the CRE loan portfolio of Belgian banks remains nevertheless relatively good, with a share of non-performing (Stage 3) loans of only 3.7% at the end of 2024.
The Belgian insurance sector’s commercial real estate exposure amounts to around 10% of its investment portfolio. This CRE exposure consists of direct investments in property and indirect investments in CRE-related assets, such as financial instruments issued by real estate companies. In 2022, 2023 and 2024, insurance companies booked significant (un)realised value reductions on their physical CRE holdings, with a cumulative value reduction of around 30% over this period. The rental yield on physical CRE remained very stable, though, at around 6% throughout the period 2016 to 2024.
Non-bank financial intermediation (NBFI)
Since 2017, the NBB and the Financial Services Market Authority have regularly published a joint report on non-bank financial intermediation and asset management in Belgium. A new edition was published in January 2025. In line with previous editions, the report did not identify material financial stability risks relating to NBFI and asset management in Belgium.
The Belgian NBFI sector is also regularly analysed by the Financial Stability Board (FSB) in its Global Monitoring Report on Non-Bank Financial Intermediation. Using the FSB’s narrow NBFI measure, the FSR shows that the NBFI sector is significantly smaller in Belgium (29% of GDP) than in other advanced economies (98% of GDP) compared to the size of the economy.
Given the strong growth of non-bank financial intermeidation in recent years, risks of potential contagion between banks and non-banks remain nevertheless high on the agenda of policy-makers.
Macroprudential policy
During the period under review, macroprudential policy continued to focus on ensuring sufficient resilience of financial institutions to unexpected shocks and preventing the build-up of new risks for financial stability, taking into account the developments in the financial, credit and real estate cycles and the high levels of uncertainty stemming from geo-political factors.
Following the rapid and abrupt monetary policy tightening in 2022 and 2023, there was a marked but orderly slowdown in the financial, credit and residential property cycles. The NBB’s Financial Conditions Index (FCI) is a composite indicator of domestic financial conditions which aggregates five dimensions of financial risk: credit developments, the property market, private sector debt, the banking sector and financial market conditions. Recent trends in the FCI show that the financial cycle in Belgium stabilised in 2024, after having slowed from 2021 onwards and especially – albeit in an orderly fashion – since 2022. While the rapid exit from a period of low interest rates in 2022 posed a major challenge, Belgian banks and insurance companies were generally successful in managing the risks associated with this profound change in their operating environment. The Belgian mortgage and residential real estate markets also showed strong resilience. This was less true for the commercial property market and this sector and the Belgian financial institutions’ related exposures remain a significant point for attention.
Geopolitical tensions and economic policies pursued in different parts of the world have become a major source of uncertainty in the current operating environment and could lead to adverse shocks for the financial sector. In this context, the FSR reminds that an important factor for financial stability will be maintaining the sustainability of public debt and, consequently, market confidence in the solvency of governments against a backdrop of new and rapidly evolving financing requirements. The euro area sovereign debt crisis of 2010-2012 demonstrated that stable public finances are the bedrock of national financial stability.
In 2024, the macroprudential policy actions of the NBB mainly consisted in the implementation of the policy measures announced in 2023.
The downward revision of the sectoral systemic risk buffer for Belgian mortgage loans, announced in August 2023, became effective on 1 April 2024.
In August 2023, the NBB also announced the reactivation of the countercyclical capital buffer in order to increase the resilience of the financial sector. In 2024, this led to the effective constitution of an additional buffer of around € 2.5 billion, corresponding to a countercyclical buffer rate of 1%. As is the case with the buffer for risks in the residential mortgage market, the Bank may, if it deems necessary, release the countercyclical capital buffer.
As the Belgian macroprudential authority, the NBB also imposes specific capital requirements on so-called domestic systemically important financial institutions in order to increase their resilience, given the high economic and social costs their failure would entail. Eight banks are included on the list of such institutions, which is published annually. The level of the buffer depends on the size of the bank: it amounts to 0.75% of risk-weighted assets for three banks and 1.5% for the other five. These buffers, which have been introduced gradually since 2016, are relatively large: by the end of 2024, they totalled more than € 6 billion.
The NBB’s prudential expectations for new Belgian mortgage loans, introduced in 2020, have led to an improvement in the average credit quality of new mortgages, mainly by reducing the proportion of loans with a high loan-to-value ratio. These expectations are intended to be flexible and not to limit access to the mortgage market for creditworthy borrowers, particularly young people. This second objective has also been achieved, as there has been no decline in the percentage of young borrowers for recently originated mortgages. It reflects, among other things, the sufficient leeway afforded to lenders, particularly with regard to the granting of loans with a high loan-to-value ratio to first-time homebuyers. The prudential expectations have therefore been maintained.
Simplification and burden reduction
In recent years, a wide range of regulations have been introduced for the financial sector. On the one hand, these have drawn on lessons learned from past crises and strengthened supervision, where necessary, in order to address the weaknesses that contributed to the malfunctioning of the financial system. In particular, this has led to a considerable and welcome increase in the capital and liquidity buffers that financial institutions are required to build up in order to absorb shocks.
While they have greatly improved the resilience of the sector, these essential new regulations have also led to heavier administrative and reporting burdens in the financial sector. After a period of intense regulatory output, these burdens need to be re-examined. However, there are clear red lines that should not be crossed. For the NBB, it is paramount that simplification does not lead to deregulation, i.e. does not lead to a reduction in the financial sector’s level of resilience in terms of both solvency and liquidity.
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