The head of Belgium's central bank has claimed that commercial banks "are not in danger" after high demand for special one-year government bonds induced fears of an imminent financial crisis.
In an interview with VRT, National Bank of Belgium (NBB) Governor Pierre Wunsch nevertheless conceded that demand for the so-called Van Peteghem bonds (named after Finance Minister Vincent Van Peteghem) was excessive and admitted that their issuance "is not repeatable".
"The banks are not in danger," Wunsch said, adding: "This state bond is not repeatable... The Treasury does not need so much money."
National Bank of Belgium Governor Pierre Wunsch. Credit: Belga / James Arthur Gekiere
Concerns have been growing about banks' solvency following huge demand for the high-yield bonds, of which €21.896 billion were ultimately purchased.
According to l'Echo, €6.2 billion worth of sales were made with funds deposited at BNP Paribas Fortis while €4 billion was made with savings held at Belfius: Belgium's largest and third-largest banks respectively.
Asked by the newspaper whether such enormous flows of funds from Belgium's commercial banks to the government could negatively impact the health of the country's financial sector, a spokesperson for the NBB admitted that "some banks are being affected more than others."
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"It depends on their business model," the spokesperson noted. "A savings bank will be more affected than a bank that has multiple activities."
The spokesperson stressed that the NBB is currently "following the situation closely". Echoing Wunsch's comments, the spokesperson added that the NBB has "not yet raised any alarm bells" regarding banks' liquidity.
'Not a huge amount of space'
Wunsch also reiterated the view previously defended by the NBB that Belgium's banks do not, in fact, have significant room to increase their savings rates in order to retain customer deposits.
"Banks do not have a huge amount of space," he said. "They cannot offer 3% [savings rate] to their customers. They have too many mortgage loans at relatively low interest rates to be able to do that."
Such remarks appear to contradict the original rationale for the bond issue. By design, the bonds offer an attractive alternative to the savings rates currently offered by Belgian banks.
Indeed, Van Peteghem himself previously noted that the bonds' main purpose is to "boost competition and encourage banks to raise interest rates."
Wunsch's claims also conflict with a recent analysis by the IESEG School of Management, which concluded that "in Belgium, there are margins for banks to increase the rates on savings deposits."
