De Nederlandsche Bank (DNB) Adopts Adjusted Capital Policy to Address Expected Losses

De Nederlandsche Bank (DNB) Adopts Adjusted Capital Policy to Address Expected Losses

(IN BRIEF) De Nederlandsche Bank (DNB) has come to an agreement with the Dutch State regarding its anticipated temporary but significant losses in the upcoming years. These losses are a result of increases in key policy rates aimed at combating high inflation, as previously warned by DNB in a letter to the Minister of Finance in September 2022 and detailed in the 2022 Annual Report. A collaborative working group from the Ministry of Finance and DNB has examined how to manage these expected losses and concluded that the existing capital policy, in place since 2019, remains robust, with some technical adjustments. DNB’s current buffers amount to nearly €11 billion, and while they may dip into negative territory for a period, this will not impede DNB’s operational effectiveness. The bank plans to rebuild its buffers with retained earnings and anticipates resuming dividend payments to the Dutch State in the mid-2030s, once all risks are covered. A re-evaluation of the capital policy is scheduled for 2028.

(PRESS RELEASE) AMSTERDAM, 28-Dec-2023 — /EuropaWire/ — DNB warned the Minister of Finance of substantial losses in a letter in September 2022. DNB also explained the expected losses in more detail in its 2022 Annual Report. These losses stem from increases in key policy rates designed to combat high inflation.

This year, a joint working group of the Ministry of Finance and DNB considered how DNB will deal with the expected losses. The working group has concluded that the capital policy, in place since 2019, remains future-proof, subject to a number of technical adjustments. The Minister of Finance and the President of DNB have decided to continue to pursue the current capital policy with these adjustments.

DNB’s buffers currently amount to nearly €11 billion. The size of these buffers will decrease as long as DNB makes losses. It is possible that the buffers will enter negative territory for some years, although this is subject to uncertainty.

Negative buffers will not hinder DNB in its operational effectiveness. There will consequently be no need for a recapitalisation. When DNB returns to profitability down the road, all profits will initially be used to replenish its buffers. DNB will only resume dividend payments to the Dutch State once the bank has covered all its risks, which is expected to be in the mid-2030s. The Ministry of Finance and DNB will re-evaluate the capital policy in 2028.

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SOURCE: De Nederlandsche Bank NV