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DNB: Rise of pension funds and insurers on the Dutch mortgage market

Olaf Sleijpen, Divisiedirecteur

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Mortgage investments by insurers and pension funds have doubled. In its recent report, De Nederlandsche Bank (DNB) observes that outstanding non-securitised Dutch mortgage loans of Dutch insurers and pension funds have doubled since 2010 to EUR 73 billion from EUR 35 billion (see Chart). Investments in Dutch mortgage securitisations fell to EUR 2.5 billion, from an already low level of EUR 4 billion in 2010. Olaf Sleijpen of De Nederlandsche Bank will elaborate further on these topics during the Securitisation event in April 2017.

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Decline in systemic risks

A favourable aspect of a larger role for pension funds and insurers in the mortgage market is that this leads to a reduction in systemic risks. Pension funds and insurers invest premium contributions for their long-term liabilities and they are not dependent on wholesale funding and demand deposits. Compared with banks, they are much less prone to runs. This means that the risks in the financial system as a whole also decline. In addition, a larger role for insurers and pension funds may reduce the procyclical character of mortgage lending and may lead to a diversification of funding sources and more competition on lending markets. The latter in turn may also contribute to greater efficiency and lower cost levels. The increasing role of foreign players in the mortgage lending market also boosts competition and diversification.

New points for attention for DNB

These developments may at the same time carry new risks that require extra attention from DNB. A shift in lending can lead to a concentration of risks at players who are not equipped to manage or fully understand the risks they are exposed to. The growing importance of these new players also has consequences for banks’ business models. The margins on new mortgage loans are under pressure at banks, due to increasing competition. Macroprudential instruments that are purely focused on banking are also less effective if non-banking players play a more important role. We therefore closely monitor shifts in the market, and regularly examine the characteristics of mortgage loan portfolios.

Non-securitised loans versus securitisations

Noteworthy from an international perspective is that Dutch life insurers and pension funds are currently primarily investing in non-securitised mortgages. The regulatory framework for insurers (Solvency II) takes a relatively strict approach to securitisations. This explains that the sharp growth of new investments takes the form of non-securitised mortgage investments, while there is a decline in investments made by institutional investors in mortgage securitisations. Also in the market for corporate lending, the already low investments in Dutch business loans securitisations have dropped further to negligible levels over the last six years. Various initiatives have been launched to try to breathe new life into the securitisation market as part of the European Commission’s action plan for a European capital market union. These proposals are all aimed at simple, transparent and standardised securitisations.

About the author

Olaf Sleijpen, Division Director Supervision Policy of De Nederlandsche Bank (DNB), is speaker at the Securitisation event in April 2017. During this event, hosted in Amsterdam by IIR, all major players of the Dutch securitisation market will come together to discuss new developments: regulation, new entrants and new initiatives.

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