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The COVID crisis and the sanitary measures it entailed, caused the Belgian GDP to contract by 6.3% in 2020. As a result of the measures taken to combat the spreading of the virus, consumption dropped significantly and also capital expenditures decreased throughout the year. However, the government measures succeeded in shielding households from the negative impact of the pandemic. Disposable income increased slightly and unemployment rose only very moderately from 5.4% to 5.6%. As a result household savings jumped up strongly. With the lifting of the health measures on the back of a speedy vaccination campaign the economy is expected to bounce back strongly. The expectations of the Belgian GDP growth rates range between 4.5% (European Commission (EC)) and 5.5% (Belgian National Bank (BNB)) for 2021 and 3.3% (BNB) and 3.7% (EC) for 2022. The main drivers for this swift recovery are household consumption and corporate and household investments.
The Belgian banking community is characterised by a variety of players who are active in different market segments. BNP Paribas Fortis, KBC, Belfius and ING Belgium are the four leading banks (with a cumulated balance sheet on a non-consolidated basis representing 67% of the sector total at the end of 2020). They offer an extensive range of services in the field of retail banking, private banking, corporate finance and payment services. In addition, a number of smaller institutions is often active in a limited number of market segments.
A number of institutions has specialised in international niche activities, such as Euroclear (one of the world’s biggest players in clearing and settlement services) or The Bank of New York Mellon (custody). Like the Belgian economy, the banking sector is characterised by a high degree of international openness. Of the 82 banks established in Belgium at the end of December 2020, 81.7% are branches or subsidiaries of foreign institutions. Only 18.3% of the institutions has a Belgian majority shareholdership. At the end of 2020, 13 credit institutions under Belgian law had 78 entities in 24 other countries.
At the end of 2020, the number of bank branches in Belgium amounted to 211 per million inhabitants. When adding the number of branches held by independent bank agents, this number reaches 367 per million inhabitants. The number of ATMs amounted to 9,251, including 6,411 cash dispensers. E-banking and mobile banking are on a strong rise: 14.2 million subscriptions for internet banking and 9.1 million subscriptions for mobile banking (Belgian population: 11.5 million). This is why several banks are restructuring their retail distribution network and will continue to do so.
End of 2020, the Belgian banks’ total assets (on a consolidated basis) amounted to €1,132 billion. Loans to households account for almost 1/4th of the total balance sheet, followed by Interbank claims (21%) and investment in debt securities (17%). Corporate lending to non-financial companies take up about 14% of the total assets. 67% of the liabilities of the Belgian banking sector are client deposits (including debt evidenced by securities), mainly consisting of regulated savings deposits, sight deposits and term deposits.
The Belgian banking sector is essential to finance the economy. In recent years, banks have eased their criteria for granting loans to companies. In the fourth trimester of 2018, banks slightly tightened these criteria for the first time since the first trimester of 2013. With the outbreak of the Covid-19 crisis, they also tightened their criteria in the second, third and fourth trimester of 2020. In 2020, demand of companies for mainly short term loans increased strongly in the first trimester of 2020. In the remainder of the year demand for credit decreased again. The demand for long term loans withstood the negative impact of the pandemic reasonably well and kept on increasing albeit at a much more moderate pace. Companies want to make maximum use of and fix the exceptionally low interest rates, driven by the ECB’s extremely accommodating stance. In addition, 3/4th of the loan volume taken out by companies is granted to SMEs (including micro-companies).
Corporate financing in Belgium has become more diversified. Companies also use asset-based financial instruments, such as leasing, from independent leasing companies or leasing subsidiaries from banks. The larger companies also rely directly on the financial markets (e.g. for bond issues), with accompanying services provided by the banks.
A similar diversification of services occurs in the savings and investment segments. Belgian households had gross financial assets of €1,466 billion at the end of 2020. In addition to their large offer of deposit products (Belgian households, non-banking companies and public authorities had around €600 billion in deposit accounts), banks offer a wide range of investment instruments and services. Asset management is an important part of this area, with banks (often through their asset management subsidiary) commercialising many investment funds.
In the years following the 2008 banking crisis, the Belgian banking sector worked on its financial soundness through a phase of balance sheet deleveraging, among other things. The cost-to-income ratio fell from 72.1% in 2012 to 61.2% in 2020, indicating a significant improvement in cost efficiency. The return on equity (ROE) stood at 5.9% in 2020. The Liquidity Coverage Ratio and CET I ratio also remained very robust in 2020, at 182.0% and 17.1% respectively. During the COVID crisis, the NPL ratio slightly increased from 1.9% in March 2020 to 2.0% in December 2020.
Banks in Belgium employ almost 50,000 persons (of which almost 51% women), with 115,300 in the wider financial sector. Since 2019, 44 financial institutions representing over 90% of the financial sector signed the WIF Charter to progress on gender equality. More than 80% of the members did measure their own glass ceiling. The majority of the members also participated in sessions on how to measure and reduce the gender pay gap. The sector invests permanently in staff skills: almost 3% of total annual staff costs is spent on training. The swift digitisation is one of the factors that necessitate a permanent shift in competences.
The sector is aware of the major challenges ahead. The climate of continuing extremely low interest rates increases the banks’ focus on adjusting their business models. At the same time, digital applications are picking up speed, a development that is being met with substantial investments. Emphasis is put on shifting services from the traditional branch network to digital banking via online channels and (smartphone) banking applications. FinTech has become an important factor, and the Belgian financial centre is taking many notable initiatives such as Start It@KBC, ING Fin Tech Valley, Co.Station and The Birdhouse, among others. For the future, and keeping a commitment to climate in mind, financing the energy transition (for families as well as companies and governments) is also a challenge coming to the forefront.
Contributor: Tim de Vos Tim.De.Vos@febelfin.be