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TLTRO Update: 3

Dutch banks worth EUR 155.5 billion

In our previous contributions on TLTRO, we discussed the structure of the TLTRO III funding program and the lending performance target of 0%, which the banks had to achieve in the period between October 1, 2020 and December 31, 2021.

Based on the fourth quarter figures, we can conclude that ABN AMRO, ING and Rabobank have all achieved the performance target. Now that these banks have also published their 2021 annual accounts, we can determine the total size of the TLTRO III funding.


At the end of December, the three major Dutch banks had EUR 155.5 billion in TLTRO funding on their balance sheets. This is over 7% of the total TLTRO funding provided by the ECB.

Compared to the balance sheet total, ABN AMRO, followed by Rabobank, is the largest user, with ING at some distance. ABN AMRO is also the major consumer when compared to the size of the financing provided to companies by the banks, the 'corporate loans'. It is striking that, in relative terms, Rabobank is by far the largest financier of the industry, with 28% of the balance sheet total.

Source: 2021 annual financial statements

Impact TLTRO

The financial statements of the three banks show the major impact of TLTRO III on the profitability and funding of the Dutch banks.

TLTRO is offering the banks a 50bps discount on the Deposit Facility Rate, which is currently at 0.5% negative. ABN, ING and Rabo will pay a negative interest of 1.0% on their TLTRO funding in the period between June 2021 and June 2022. For all banks, this is an important contribution to profitability in 2021.

ABN AMRO: “Net interest income increased significantly, mainly as a result of the additional TLTRO discount of EUR 93 million”

Rabobank: “The participation in the TLTRO III program resulted in a benefit of EUR 334 million, increasing the net interest income by 4%”

ING: “Income rose by €126 million, or 1.0%, supported by €152 million of conditional TLTRO III benefits”

The second effect is that, partly due to the volume of long TLTRO funding, the banks can reduce their dependence on wholesale funding. Banks collect the majority of their funding from their customers, in the form of balances on accounts and deposits of individuals and companies. In addition, banks raise funding by issuing debt securities, the 'wholesale funding'. The majority of this funding consists of bonds with a longer maturity.

Banks need long-term funding, among other things, to meet the Liquidity Cover Ratio (LCR)* and the Net Stable Funding Rate (NSFR)*. With a term of 3 years, TLTRO contributes to the LCR and the NSFR, as witnessed by the quote below from Rabobank

Rabo: “Given the attractive economics and the strategic fit within the funding and liquidity framework, we have chosen to expand our participation in the Targeted Longer Term Refinancing Operations (TLTRO) III program by an additional EUR 15 billion in 2021.”

Basel IV

The LCR and NSFR are elements of Basel III. At the moment, the banks are mainly concerned with the upcoming implementation of Basel IV. Basel IV provides, among other things, for limiting the results of the internal models that banks use to determine the Risk Weighted Assets. Full implementation of Basel IV is expected from 2025, with the limitation of the internal models being phased in. The Dutch banks are currently well capitalized, anticipating the effects of Basel IV, as witnessed by the quote from ABN AMRO below.

“Reflecting our latest views on this proposal, the bank's fully-loaded Basel IV CET1* ratio was estimated comfortably above target, at around 16%, on December 31, 2021.”

The required level of the CET1 ratio is currently at 7.%.

In this year we will pay more attention to Basel IV and the possible effects that Basel IV can have on bank financing of companies.

* The Liquidity Cover Ratio means that banks have to calculate the possible size of outgoing liquidity in the next 30 days. This outflow must be covered by High Quality Assets (loans with the highest credit ratings)

*The Net Stable Funding Ratio means that banks must also maintain long-term funding against long assets.

*CET1 stands for Common Equity Tier 1, consisting of issued share capital and reserves.

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