Today, the International Monetary Fund (IMF) published the results of the analysis it conducted this year of Belgium’s financial sector and regulatory framework. The Financial Sector Assessment Program (FSAP) is carried out every five years in countries with a systemically important financial sector, such as Belgium. The last FSAP for Belgium was in 2018. The FSAP is independent of the IMF’s annual Article IV consultations, in which it reviews the economic and financial policies of member countries. The 2023 Article IV report for Belgium is also being published today. In the context of the FSAP, the IMF led three missions, two of which were conducted on-site in Belgium and one in Frankfurt. During these missions, the FSAP team held in-depth technical discussions with the National Bank and the European Central Bank (ECB). The FSAP team also met with representatives from the Financial Services and Markets Authority (FSMA), the Ministry of Finance, the cabinet of the finance minister, and many financial institutions and industry federations.

In the FSAP report for Belgium published by the IMF’s Executive Board today, the IMF emphasises that the Belgian financial sector has proved resilient in recent years to a series of shocks, such as the pandemic and the war in Ukraine, and remains well capitalised and profitable. The solvency and liquidity stress tests carried out by the IMF, in close cooperation with the National Bank, the FSMA and the ECB, show that Belgian banks, insurance companies and investment funds are capable of absorbing the risks induced by the simulation of a sharp deterioration in macrofinancial conditions. As far as the banking sector is concerned, the results confirm those of an analysis carried out earlier this year by the European Banking Authority.

Challenges and recommendations

Alongside this generally positive assessment of the health of the Belgian financial sector, the IMF draws attention to a number of challenges.

Firstly, the IMF points to cyclical vulnerabilities linked to the current inflationary environment and the tightening of credit conditions, which have curbed economic activity. In keeping with recommendations made back in 2018, the IMF calls for greater alignment of the Bank’s powers to set macroprudential policy with its financial stability mandate.

While the IMF highlights the effectiveness of financial sector supervision and financial crisis management in Belgium by the authorities concerned, it nonetheless encourages new measures in this area. In particular, it suggests continuing efforts to strengthen the rules governing institutions falling under the supervision of the National Bank. With regard to the insurance sector, the FSAP report recommends that the Bank assess the impact that regulatory developments, the difficult macroeconomic environment and emerging risks have on its current supervisory framework. Collaboration between the National Bank and the FSMA, while already considered strong by the IMF, could be further strengthened when it comes to the exchange of information and data. Greater resources should be devoted to the fight against money laundering and terrorist financing, and implementation of the sanctions framework should be strengthened. Furthermore, the IMF considers the supervision by the National Bank and the FSMA of Euroclear Bank to be effective, but that this provider of financial market infrastructure services should nonetheless strengthen certain aspects of its information security and IT risk management.

As in 2018, this year’s FSAP report also looks at the development of the banking union. According to the IMF, the growing emphasis on capital and liquidity requirements for banking groups at euro area level could be accompanied by a decline in requirements at the level of systemically important subsidiaries of these groups. In the case of Belgium, this is an important point as a number of subsidiaries of foreign banking groups occupy an important position in the financial sector. To this end, the IMF reiterates that during the transition period prior to completion of the banking union, it is essential to maintain sufficient capital and liquidity buffers at the level of these subsidiaries.

Lastly, the banking turmoil seen at the start of the year demonstrates, according to the FSAP report, the need to focus on the implementation of resolution plans, the development of resolution tools that do not form part of preferred resolution strategies, and the reinforcement of the emergency liquidity framework. 

Further information on the IMF’s recommendations can be found in its Financial System Stability Assessment and in the related five technical notes and the detailed assessment report on Euroclear Bank. The technical notes deal with: (1) the regulation and supervision of less significant credit institutions, (2) the regulation and supervision of insurance companies, (3) financial crisis management, (4) systemic risks and stress testing and (5) the macroprudential policy framework and tools.

The National Bank welcomes the findings of the assessment and the recommendations set out in the FSAP report. In consultation with the other Belgian authorities concerned, the Bank will start to implement, in the course of 2024, the recommendations addressed to it.