Dutch to change bank debt rules

The Dutch government proposed to amend its tax rules to make it easier for lenders there to tap into Europe’s fastest-growing market for bank debt.

The Netherlands has trailed its European partners in deciding how to treat hybrid debt, which combines elements of equity and debt. As a result Dutch lenders, including ABN Amro, ING, and Rabobank, have stayed out of a market that allowed Deutsche Bank to raise about €3.3bn on May 20 after Germany decided how to tax the securities.

“Market conditions are currently favourable for issuing additional tier 1 capital. Clarity on fiscal treatments is of great importance to banks,” the government said in a legislative proposal sent to parliament yesterday. The new rule would allow Dutch lenders to issue this form of debt under conditions similar to those of their European peers.

The securities will be treated as debt and banks will be allowed to deduct interest on them, the government said. Buyers will have to pay a levy on the coupon while no dividend tax will be payable to avoid “mismatches” internationally, it said.

Under European Union rules, the three biggest Dutch banks can bolster their capital with hybrid debt equivalent to 1.5% of their combined €600bn of assets weighted by risk.

Issuers can’t default on additional tier 1 debt because the securities have no final maturity and payments to holders are at the discretion of the bank. The structure is designed to allow an issuer that gets into trouble to continue as a going concern without taxpayer support.

Amsterdam-based ING, the nation’s largest lender, sees additional tier 1 debt as a “key piece” in calculating its leverage ratio, chief financial officer Patrick Flynn said on May 7. Its leverage ratio was 3.7% at the end of March.

The ratio, designed to prevent banks from bulking up excessively, divides total assets by capital, including additional tier 1 securities, and must be higher than 3%. That’s a figure Dutch Finance Minister Jeroen Dijsselbloem wants to raise to at least 4%, with or without other EU countries.

“Deductibility of interest on additional tier 1 capital ensures it will not get more expensive for Dutch banks to meet the government’s demand of a leverage ratio of at least 4% in 2018 for systemically important banks,” it said.

The proposal, which has to be approved by both houses of Dutch parliament, will enter into effect retroactively from January last, the government said.

- Bloomberg