NETHERLANDS Trends and Developments Contributed by: Juliet de Graaf and Johannes de Jong, Osborne Clarke N.V.
avoided, and moderate growth is anticipated for 2024. In 2025, growth is expected to increase to 1.5%. It is expected that inflation will return to central banks’ targets without a sharp economic down - turn. This optimism is evident in historically high equity prices. Dutch banks have benefitted from rising interest rates and maintained strong sol - vency positions in 2024. However, the DNB, in its Financial Stability Report 2024, highlights lingering uncertainties in the market, which could lead to financial mar - ket corrections and heightened risks for financial institutions. Investor confidence makes financial markets susceptible to economic setbacks or shifts in sentiment. For instance, further geo - political tensions or rising inflation could trigger financial market corrections. Structural risks to financial stability also stem from cyber threats, climate change, and biodiversity loss. These fac - tors could exacerbate existing financial vulner - abilities, leading to interest rate or credit losses for financial institutions. According to analysis of the DNB, the fragmenta - tion of the global economy and the formation of regional blocs have intensified since the financial crisis, and the DNB notes that the Netherlands is particularly sensitive to these developments, posing risks to financial stability. For example, the frequency of global cyberattacks increases with rising geopolitical threats. Additionally, increased geopolitical tensions may reduce the effectiveness of multilateral consultative bodies in addressing global issues. Market interest rates and equities of European banks and insurers are also sensitive to geopolitical tensions, potentially leading to tighter financial conditions in the euro area. Although Dutch financial institutions have relatively few corporate loans and investments
in geopolitically distant countries, they are more vulnerable to fragmentation through the value chains of the firms they lend to or invest in. The DNB notes that Dutch banks may face a decline in asset quality if macroeconomic condi - tions worsen, but they are starting from a strong position. Thanks to post-financial crisis reforms, banks are well-capitalised and have liquid - ity ratios well above the required levels. Dutch banks achieved historically high profits in 2023, partly due to higher interest rates. Loan asset quality has also remained stable, despite firms facing higher interest charges. Looking ahead, credit losses may increase. The higher interest rates are still impacting the economy, reducing the repayment capacity and creditworthiness of firms and households. Credit quality is particu - larly deteriorating for loans secured by commer - cial real estate, a market under pressure. Banks must respond promptly by revaluing their col - lateral and setting aside provisions as necessary. Despite the potential for reduced asset quality and a deteriorating macroeconomic outlook, banks are resilient due to their strong starting positions. Macroprudential Developments Another development is that Dutch-licensed banks are increasingly investing in debt originat - ed by third parties, moving away from originat - ing loans themselves. DNB has been monitoring this development since 2019, and it is expected to continue into 2025. It is anticipated that the DNB will tighten supervision, and may expect banks to develop comprehensive credit over - sight procedures, establish robust outsourcing arrangements with third-party originators, and implement AML procedures to ensure proper cli - ent due diligence is conducted when originating loans.
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