Challenges for a belgian financial sector at the service of citizens and the economy final version

Febelfin 21 May 2013 1

Challenges for a Belgian financial sector at the service of society and the economy

http://www.google.be/url?sa=i&rct=j&q=belgian+financial+forum&source=images&cd=&cad=rja&docid=qjzg3sS7Sf7GpM&tbnid=2PbFr_ESFcj4gM:&ved=0CAUQjRw&url=http://www.financialforum.be/&ei=MnSbUey7EoLK0AXotoC4Bg&bvm=bv.46751780,d.d2k&psig=AFQjCNFE9w7r43WtO29smSLwDry6SdVdGg&ust=1369228719508658


http://www.google.be/url?sa=i&rct=j&q=febelfin&source=images&cd=&cad=rja&docid=2RrHlyCTFKUruM&tbnid=ObbTClyCpkQReM:&ved=0CAUQjRw&url=http://www.febelfin.be/en/image-bank/logos-febelfin&ei=qHSbUe2MGOy10QXC6IDoBQ&bvm=bv.46751780,d.d2k&psig=AFQjCNH3Hx0wQfIF0wo7wf__m5qXuxi2fg&ust=1369228837799846

2

Agenda

Febelfin 21 May 2013

18.00 Welcome18.15 Presentation given by Filip Dierckx, Febelfin Chairman, and Michel Vermaerke, Chief Executive Officer of Febelfin18.45 Panel debate19.45 Q & A20.00 Reception



“Challenges for a Belgian financial sector at the service of

society and the economy”

Séance-débat en français à Mons le

5 juin

Debate in English in Brussels on 21 May

Nederlandstalige debatsessie te Gent op 29 mei

Nederlandstalige debatsessie te

Antwerpen op 27 mei

Séance-débat en français à Namur le

29 avril

Welcome !


4

“Challenges for a Belgian financial sector at the service of citizens and the economy”


Filip Dierckx, Febelfin Chairman

Michel Vermaerke, Chief Executive

Officer of Febelfin


Challenges for a Belgian financial sector at the service of society and the economy

Filip Dierckx, Febelfin ChairmanMichel Vermaerke, Chief Executive Officer of Febelfin


- Financing of the economy- Sustainable solutions for a different use of deposits in the context of structural banking sector reforms


6

AGENDA


I. 3 fundamental tasks II. 3 success factorsIII. 4 commitmentsIV. Conclusion

Challenges for a Belgian financial sectorat the service of society and the economy


7

I. 3 fundamental tasks



8

3 fundamental tasks for a financial sector at the service of society


Financing the economy

A balanced approach to saving and investing

Organising a modern and efficient financial infrastructure

WHICH TASKS?

Within the boundaries of a balanced regulation, efficient supervision and a competitive market


9

II. 3 success factors


Keywords: realism, cooperation, profitability


What do banks need to fulfilltheir key tasks?


Execution of our missions goes hand in hand with

Realism

Cooperation and dialogue with authorities

A sufficient level of profitability

10



Realism is needed

Banks cannot take any risks

Banks must provide cheap credit

Banks must shrink their balance sheets and leverage Banks need to supply

more credit

Banks need to attract long term

fundingLT funding will become more

expensive as a result of Basel III and bail-in

Banks shouldn’t be complex

institutions Banks operate in complex globalised

markets

Banks need to boost interest rates

on savings accounts Banks must keep on

providing cheap credit



Cooperation and dialogue with public authorities

A few examples

Basel III (financing of exports, LCR)

Moratorium on complex investment products

Covered Bonds

Supporting project Ford Genk & ArcelorMittal

Banking plan /Roundtable SME financing


Source : Febelfin presentation based on NBB data. Consolidated data, and, since 2006, data based on IAS / IFRS reporting.

4,5

0,7

10,5

-2,6

-36,5

13,2

22,4

18,5

15,8

13,6

11,8

13,7

20,4

-40 -30 -20 -10 0 10 20 30

Jan-Sept 2012

2011

2010

2007

2006

2005

2004

2003

2002

2001

2000

ROE

2008

2009


A sustainable level of profitability is essential…

13


14

… but profitablilty is under pressure …

PROFITABILITY OF BELGIAN

FINANCIAL SECTOR

Prudential initiatives

Structural measures

Capital requirements

Protection of consumers

Economic environment

Cost of capitalFebelfin 21 May 2013

TaxationPrudential initiatives

Operational measures


… and insufficient profitability can impact banking on different levels

CLIENT

PERSONNEL SHAREHOLDER

SUSTAINABLEFINANCIAL

MODEL

Decrease of equity may harm both liquidity and solvency

Less solid financial system

15Febelfin 21 May 2013



The evolution towards a sustainable and vital financial sector goes hand in hand with :

3 FUNDAMENTAL TASKS

3 SUCCESS FACTORS

4 COMMITMENTS


17

III. 4 commitments



Financial sector commitments to society


Financing the economyKeeping intact a diversified banking landscape with low risk profile

Modernising and innovating infrastructure

Fulfilling its social and economic role in society

The financial sector commits to

18



Financial sector commits to financing the economy

1

• Financing the economy today: facts & figures• The financing capacity in the future• Alternative financing methods


Financing the economy today facts & figures



+ 87.6 billionEUR

EXTRA (since 2007)

“One EUR credit for each EUR of savings”(end 2007 – end 2012)



22

Evolution of credit supply to businesses


Hoogtepunt

Extract from the 2012 Annual Report of the National Bank of Belgium In Belgium, the credit institutions continued the reorganisation of their balance sheets which they had started as of the outbreak of the financial crisis. In 2012, for instance, they carried out a reduction of their exposures to the peripheral countries of the euro zone. At the same time, they refocused on their intermediation activity in Belgium and on their strategic markets: the deposits collected from their retail customers have increased, and the granting of credit has overall been maintained.

Febelfin data= NBB + self-employed/professions

NBB data= volume of credit taken up by Belgian non-financial companies

95,000,000

100,000,000

105,000,000

110,000,000

115,000,000

120,000,000

125,000,000

130,000,000

135,000,000

112,696,199

111,090,297

114,655,066116,705,003

120,608,260

118,032,762

120,711,581

117,410,686116,985,975118,444,706

120,943,963120,919,704

122,296,092124,157,884

126,903,555

128,753,425129,390,777130,030,964130,780,922

128,828,928

128,243,621

97,070,000

100,335,000

104,350,000104,696,000

106,447,000105,069,000

110,069,000

105,501,000106,354,000

108,531,000110,866,000111,573,000

112.607112,545,000

116,729,000

115,695,000115,805,000

116,982,000

118,387,000

116,244,000116,981,000

117,823,000

Febelfin Observatorium NBB


23

Credit supply to businessesat competitive interest rates


Average weighted interest rate for new loans

Source : NBB figures – Observatory for credit to non-financial companies (current figures)(*) Average for January – March 2013

Yearly average weighted interest rates, in %

2007 2008 2009 2010 2011 2012 2013 (*)

5.03% 5.32% 3.73% 3.20% 3.45% 3.07% 2.96%



Traditional credit supply under pressure…

Credit demand diminishes Credit production diminishes

Difficult economic contextPossible impact on solvency of

SMEs / Possible decline in financial independence of SMEs

Reg

ula

tio

nE

con

om

y

Basel III LT/MT credit supply becomes more difficult


Economic climate: SME equity under pressure

25

The degree of financial independence is the ratio between the stockholders' equity and the total liabilities. When the ratio is high, the company is independent of third-party funds, and this has two positive consequences: on the one hand, the financial charges are weak and thus weigh little on the results; in addition, new debts can, if necessary, be easily contracted and under good conditions. The degree of financial independence can also to be interpreted as a measurement of the financial risk incurred by the company, the third-party remuneration being fixed, unlike the results of the company, which fluctuate in time. (NBB)


SME


The financing capacity in the future?- Belgian savings do not sleep- Not all deposits are the same- Limits to the financing capacity



Belgian savings do not sleep


Financing of the Belgian economy by the credit institutions (million €)

Source: NBB data

Total Belgian deposits Credit to private sector

Credit to public authorities Monetary institutions


28

Belgian savings do not sleep


4127440908

4054340178

3981339447

3908238717

3835237986

3762137256

3689136525

3616035795

35430

-200000

-150000

-100000

-50000

0

50000

100000

Depositosurplus: private sector + overheden Depositosurplus: private sectorDeposit surplus: private sector + government Deposit surplus: private sector

In million EUR. Source: NBB data.

=> More than 100% of Belgian deposits is transferred into credit (private + government)


Not all deposits are the same


Deposits: volumes according to type of deposit (in million EUR)

Since the crisis more insecurity

leads to more short term savings

accounts

Since the crisis more insecurity

leads to less long term deposits

Source: NBB data

Þ Macro economic parameters determine duration of deposits(e.g. GDP growth, interest rates, unemployment, etc…)

Current accounts

Savings deposits

Total deposits (including public authorities, insurers and pension funds)

Time deposit accounts

Total



Limits to the financing capacity

A changing financial and economic environment may cause a standstill in the growth of retail/corporate deposits

Evolution share of savings accounts in the financial assets of households

Source: NBB data

Prudence neededin government policy measures

as financing capacity maydiminish in the future


Alternative financing methods




Financing needs of the economy

LT credit supply

by banks

Investment credit

LT export credit

ST credit supply

by banks

Documentary creditStraight loans

ST export credit

LT debt financing

SME fundProject bondsPeople’s loan

Equity

Vernture capital

Win-winCrowd funding

TRANSFORMATION INTERMEDIATION

Traditional credit supplyby banks

Alternative formsof financing


Dialogue between the sector and the public authorities on alternative financing methods


SME funds Venture capital / win-win loans

‘People’s loans’ Project bonds

Crowd funding Corporate bonds

Euronext

33



CONCLUSION FINANCING OF THE ECONOMY

• Keep on supplying credit (NBB)• Economic context weighs on demand• Initiatives for alternative financing• Specific points of attention



The financial sector undertakes to maintain a diversified low-risk banking landscape

2

35

• 2013 is not the same as 2008• Upcoming challenges


2013 is not the same as 2008Major efforts in the field of solvency, liquidity and balance sheet reduction

Source: Febelfin calculations based on NBB data (consolidated basis)

36Febelfin 21 May 2013 36

Reduced balance sheet, increased capital, less leverage

Total liabilities of the Belgian

banking sector

(in billion EUR)

Total capital and reserves of the Belgian banking

sector

(in billion EUR)

Leverage

(in units)

End September 2007

1,567.9 50.7 29.9

End September 2012

1,143.0 59.1 18.3

Evolution as a percentage

-27.1% +16.6% -38.7%



Source:NBB (in billion EUR)

Belgian banks rely more on deposits than on funding provided by the financial markets

2013 is not the same as 2008Major efforts to improve liquidity

* Regulated liquidity ratio: this is the ratio between the net loss of means in a stress scenario (1 month period) and the buffer of liquid assets that are available for countering the loss. The ratio must be 100 % or less (the lower the figure, the stronger the liquidity position). Source NBB

*Retail deposits wholesale financing regulatory liquidity ratio


38

Evolution of risk-weighted assets (Source: NBB, in billion EUR)

2007 2008 2009 2010 2011 Sept 2012

Difference (%)

583.5 491.7 407.5 372.5 373.8 368.5 - 36.8%


Banks take less risks

2013 is not the same as 2008Major effort to improve solvency



Reduction:• Of international activities and

exposure abroad• Of financing via financial markets

Growth:• Of funding via the national market

(savings deposits)• Of granting of credit to the

national market (mortgages and credit to enterprises)

2013 is not the same as 2008Belgian banking activities have become more Belgian

39

09/2007 avant la crise

sep/12 09/2007 avant la crise

sep/12

457.8 543.4 568.3 642.1

1,110.1

599.6

999.6

500.9

National (EUR Bio.)*

International (EUR Bio.)

Assets Liabilities

09/2012

1,567.9 1,567.9

1,143.0 1.143.0

+18.7% +13,0%

-46.0% -49.9%

-27.1% -27.1%

* Consolidated figures, Belgian banks

09/2012



Brussel is not Wall StreetBelgian investment banking essential for open and export based economy

What is investment banking

in Belgium?

Financing of businesses

Specialized financing: Foreign trade highly important for Belgian economy

Hedging currency & interest rate risks

Prop trading highly reduced and low in volume


Stricter regulation and reinforced controlat Belgian, European and international level


Basel III (i.a. stricter capital,

liquidity and governance requirements)

2010 Banking Act/ Twin Peaks I

(i.a. NBB/ FSMA model, blocking of strategic

decisions)

Twin Peaks II G20/EU



New regulation may pressure profitability

Industrials Pharma Banks0

5

10

15

20

25

30

35

40

31/12/2006

31/12/2006

31/12/2012

Evolution of profitability by sector



Unintended consequences

Regulation

Low profitability

Fragility

of the

banking sector



DIVERSIFIED BANKING LANDSCAPE CONCLUSION

44

• Radically different landscape• Stricter regulation and tightening control at various

levels• Investment banks in Belgium important for an open

economy and for SMEs• Cumulative impact of existing regulations before

undertaking the next reforms



The financial sector undertakes to modernise the infrastructure and to innovate

45

3


The service provided by the Belgian banksis multi-channel and innovative


Network of branches and independent

agentsSelfbanks Phone banking

Internet banking Mobile banking

46


Promotion of payments

“By card, of course” Campaign with Comeos

Introduction of codeless payments

…

Development of new instruments

Several smartphone / mobile banking formulas

Investing in e-commerce

…

Public Authority Involvement

Public authorities’ example function

Tax incentives

Banning cash payments above a certain threshold


What can the banking sector do?

47



FINANCIAL INFRASTRUCTURE CONCLUSION

48

• Multi-channel landscape • Broadening of the payments offer through innovation• Security a priority, i.a via prevention campaigns



The financial sector undertakes to fulfil its role in society

49

4


Banks fulfil their role in society




SOCIAL ROLE CONCLUSION

51

• Updating the Codes of Conduct• Specific support• Creating a framework for responsible investment,

savings and credit supply • Investing in training• Involvement in social initiatives


V. CONCLUSION


BASIC MISSIONS

SUCCESS FACTORS

COMMITMENTS

3

3

4


www.febelfin.be


54

Alex Puissant

Debate moderated by Alex Puissant

Max Jadot, Chief Executive Officer & Chairman of the Executive Committee BNP Paribas Fortis

Jan de Brabanter, Deputy Secretary-

General BECI

Luc Versele, Chairman of the Executive

Committee Crelan

Rudy Demotte, Minister-President of Wallonia

Olivier Hamoir, Director McKinsey & Company Febelfin 21 May 2013


55

Final round-up


Koen Geens, Minister of Finance



Q & A


Documents

Challenges for a belgian financial sector at the service of citizens and the economy final version