The negative outlook for the Dutch banking system reflects the adverse impact the country's recent economic recession is expected to have on Dutch banks,
Following two years of negative growth, Moody's forecast that GDP will rise a modest 0.4% in 2014. The composition of this tepid recovery is mixed: exports have begun to show improvement, while domestic consumption may take more time to rebound. The unemployment rate continues to rise and low domestic consumption and consumer confidence also reflect declining 'wealth effects' stemming from residential real estate price declines, as well as concerns regarding mortgage market and pension reforms.
Moody's notes that Dutch banks' loan books, which make up about three-quarters of system assets, are relatively evenly split between domestic residential mortgages and corporate loans. Problem loan levels are low, at 2.7% as of
The negative outlook is also driven by Dutch banks' still heavily reliance on wholesale funding, a credit negative as this exposes them to changes in investor confidence. Balancing this issue, the Dutch banks have strong liquidity buffers, consisting of cash, central bank deposits, and own-mortgage securitizations. The banks' securitizations are included in liquidity buffers due to their eligibility as central bank financing collateral.
Moody's negative outlook also reflects growing uncertainty over the Dutch state's willingness to extend support to creditors and depositors in the event of market turmoil. This stance is evidenced by comments by public authorities at the time of the rescue of the
However, Moody's notes that relative to European peers, the banking system is in relatively sound financial health overall, with low NPLs, and above-average capital ratios and profitability.
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