Belgian banks’ profitability ‘remains low’

Belgian Central Bank Governor Luc Coene said yesterday that, while Belgian banks are improving in terms of solvency and liquidity, their profitability remains low. He explained this was due to several factors, writes Dow Jones’s Frances Robinson. "Overall, the situation has improved for banks in terms of liquidity and solvency," he said when presenting the bank's financial stability report. "Most banks have finished the process of restructuring or are nearly finished... but low growth, low interest rates--these things make it hard to return to profitability." Coene, who sits on the European Central Bank governing council, said "persistent vigilance" of the banking sector is needed to make sure this situation improves, and that low profits are exacerbating Belgian banks' profitability. The country's banks are also concentrating on buying Belgian sovereign debt in the wake of the euro-zone crisis, he noted. He also said creating a true banking union within Europe, complete with deposit guarantee schemes, is the best way to protect against future crises - starting with a single supervisory mechanism. "The ambitious timetable fixed for implementing that mechanism will have to be strictly followed," he wrote in the report's foreword. "The future supervision structure to be set up by the ECB will have to be backed by common or harmonized frameworks for bank resolution and [a] deposit guarantee scheme."

He added that risks remain high for Belgium's banking sector; recent years have seen the collapse of Fortis SA and multiple bailouts of Dexia SA. "There's uncertainty pertaining to legacy portfolios, with low rates and the risk of contagion in euro-zone markets are not particularly favourable," he said, adding there is also "the risk of contagion that can shift from banks to insurance or vice versa." Still, he noted, implementing new rules on capital standards wouldn't pose a problem for the country. " Basel III will be introduced very gradually and even with IMF stress tests we can see that with current profitability there will not be a problem," he concluded.