2025 IFRS 9 benchmark: Dutch banks lower provision levels as Stage 2 loans surge
The 2025 IFRS 9 Benchmark for Dutch Banks from 4most and VB Risk Advisory highlights a notable development in the Dutch banking sector: rising Stage 2 loan exposures and falling provision levels, driven by lower use of post model adjustments and rising house prices. Richard Whiting, partner at 4most, walks through the report’s key findings and what it means for banking CFOs.
As economic conditions shift and regulatory scrutiny intensifies, how banks assess credit risk is under the spotlight. IFRS 9 is the accounting standard that governs how banks provision for expected credit losses, and plays a critical role in how institutions anticipate and absorb future shocks. It forces banks to recognise potential losses early on and adjust their risk models dynamically as conditions evolve.
Increased risk due to interest only mortgages
Our analysis of IFRS 9 for the Dutch banking landscape (together with VB Risk Advisory) reveals a notable rise in Stage 2 loans for mortgages at the four largest ECB supervised institutions providing retail banking products: ING, Rabobank, ABN AMRO and ASN Bank.
Rabobank’s Stage 2 ratio for mortgages rose from 5.8% to 19.9%, while ASN Bank raised its Stage 2 ratio from 5.3% to 12.9%. ING and ABN AMRO also show increases and complete the top four of the mortgages Stage 2 ratio. As a result, Rabobank reports the highest Stage 2 ratio in Europe for Household exposures in their Pillar 3 report. This significant shift is caused by the perceived increase of default risk for interest only mortgages.
Interest only mortgages, where no principal is repaid during the term of the loan, have been a cornerstone of the Dutch housing market. However, they yield a risk that the borrower may not be able to pay down their mortgage at maturity.
Since 2013, banks have only been allowed to provide interest only mortgages up to 50% of a property’s market value. As exposure to this product remains substantial, the ECB has placed Dutch banks under heavy scrutiny for lacking sufficient information on borrowers’ repayment capacity.
Despite this uptick in early signs of credit stress, Stage 3 exposures – mortgage loans classified as credit-impaired – have remained broadly stable. Noteworthy are the increase in the Stage 3 ratio of ABN AMRO and Rabobank to 1.2% (2023: 0.9%) and 0.9% (2023: 0.5%) respectively. This suggests that while credit risk is building, it is not yet translated into widespread defaults.
The trend highlights the need for banks to stay vigilant and ensure early-warning systems are responsive, as today’s Stage 2 movements could signal tomorrow’s deterioration.
Banks scale back provisions amid housing rebound
While Stage 2 balances are rising, loan loss coverage ratios are moving in the opposite direction. The report highlights that average expected credit losses in the Dutch banking sector have dropped from 0.41% in 2023 to 0.35% in 2024. This shift reflects confidence in the economic outlook, particularly as Dutch house prices rise to record levels due to shortages in housing supply.
Buying a house is now harder than ever, with many younger people giving up the dream of buying their own home.
The overall coverage ratios for ING, Rabobank and ABN AMRO remain below the European average of 1.45%, echoing provision levels of the Nordic region. Observed losses in Northern Europe have generally been lower than in Southern Europe. This also means there is less internal default data to develop credit risk models, which motivated many banks to move their capital requirement calculations away from internal models.
IFRS 9 does not include a standardised calculation and banks must ensure their models and provisioning methodologies are agile enough to respond to sudden economic shifts – or risk being caught off guard.
Overlay cuts expose gaps in climate and mortgage resilience
In 2024, Dutch banks cut back on management overlays, with the average falling from 14% to 9.9%. Several lenders reduced or removed buffers originally established for broad economic uncertainty. Yet with geopolitical tensions and market volatility continuing, these reductions may prove premature. Overlay strategies must remain dynamic to ensure resilience in a fast-moving environment.
Notably, climate risk is becoming a more prominent factor in overlay decisions, now accounting for 25% (€187 million) of the total. At the same time, Dutch banks maintain overlays for interest-only mortgages, as models are not yet fully able to capture their risks.
The risk profile is becoming more visible: Stage 2 loans on mortgages nearly doubled in 2024 due to interest only mortgages. While Stage 3 exposures remain limited, declining coverage ratios in mortgage portfolios reflect renewed economic confidence, while also signalling potential underestimation of embedded risk.
To prepare for future shocks, banks should integrate climate and mortgage-specific risks more explicitly into their credit frameworks and their provisioning and stress-testing models.
What’s next for Dutch banks
As 2025 progresses, Dutch banks are navigating a distinctive risk environment: elevated Stage 2 exposures, rising house prices and a growing reliance on early warning signals. While headline metrics may appear stable, underlying credit risk is building in ways that require scrutiny, particularly in climate risk and mortgage portfolios.
ING, Rabobank, ABN AMRO and ASN Bank are all ECB supervised and hold the highest Stage 2 ratio. The other Dutch banks, subject to Dutch central bank supervision, should pay close attention to this development and assess how that information might be relevant for their provisioning strategy.
For risk teams, the second half of the year is a crucial window to reassess their provisioning models and fine-tune overlay strategies as we move towards December 2025. With regulatory expectations evolving and ESG factors gaining weight in credit models, banks must ensure their frameworks are keeping pace.
Those that proactively adapt will be better positioned to absorb future shocks. For others, the risk of being caught off guard is growing by the quarter.
