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(Last updated: 13 May 2011)
Trends and opportunities
The market
Belgium has one of the most open economies in the world and is forecast to hold 3.1 per cent of world GDP in 2013. With its central location in Europe, its position in the European Economic Area (EEA) and the stability of the economy, Belgium is a positive market for Australian financial services.
Since 1921 Belgium has had an economic union with Luxembourg, the Belgium-Luxembourg Economic Union (BLEU). The BLEU is Australia's 10th largest investor with total inward investment valued at €20.7 billion at December 2009. The BLEU is the fifth largest European Union (EU) investor in Australia. Total two-way trade between Australia and the BLEU is also substantial, reaching €2.16 billion in 2009/10.
Due to its location, Belgium sits in a zone where 60 per cent of Europe’s purchasing power and 30 per cent of EU consumers are concentrated; practically speaking, this means access to 140 million consumers within a radius of 450km. However, Belgian banks were severely affected by the global financial crisis (GFC) with three banks receiving capital injections from the government, GDP contracting by 2.7 per cent and the unemployment rate rising slightly. In 2010, Belgium’s budget deficit widened to 4.8 per cent while public debt was just over 100 per cent.
Furthermore, Belgium has not had a government since their last election in June 2010. Negotiations to form a coalition government are ongoing but a resolution is proving difficult to reach as the cultural division between the French and the Dutch becomes more difficult to bridge.
This instability in the government has made some investors nervous about the national position as borrowing costs continue to rise and public debt increases. Belgium has a huge debt, but according to an economist at ING, it is one of the few countries which can afford it; most of the debt is held within the neighborhood as opposed to speculative foreign investment funds so volatility is less likely.
In 1999, the EU introduced the Financial Services Action Plan, which was designed to open up a single market for financial services in the EU. It is made up of 42 measures which were due for completion in 2004 (some deadlines have been since extended).
One key part of the plan is the Market in Financial Instruments Directive (MiFID). Originally effective from 2004, and revised in 2007, MiFID aims to create a harmonised regulatory regime for investment services across the 30 member states of the EEA. The MiFID allows investment firms to offer products and services across the EU without restrictions of borders or protectionist national regulatory regimes. It has liberalised Europe’s capital market and introduced common standards of regulation and investor protection. The scope of the MiFID includes most players in the financial services market, from investment banks to brokers and fund managers. In Belgium, the Commission Bancaire, Financière et des Assurances (CBFA) works with other European ‘watchdogs’ to ensure standards within the MiFID are adhered to.
Banking sector
With relatively high levels of savings, the Belgian banking sector has weathered the GFC better than many countries. Households remain less indebted than other European countries, such as the United Kingdom and the government has had to perform far fewer bailouts and capital injections. The Economist Intelligence Unit (EIU) forecasts economic growth of two per cent in 2010 and 1.2 per cent in 2011. The Belgian government proposes to continue to implement the economic stimulus package introduced in 2009, although elements of it may be reconsidered.
At the end of September 2009, the Belgian banking sector had assets of €1.226 trillion, which represented a sharp contraction in the sector (-18.3 per cent from the previous year).
The leading commercial banks in Belgium include KBC Bank, Dexia Banque Belgique, Argenta Spaarbank and Puilaetco Dewaay Private Bankers. The top five banks in Belgium are responsible for more than 80 per cent of the total assets in the sector.
| Belgian banks |
Total assets (millions of €) |
| KBC Bank |
318.55 |
| Dexia Banque Belgique |
263.09 |
| Argenta Spaarbank |
30.04 |
| Puilaetco Dewaay Private Bankers |
16.18 |
While they have significant operations in Belgium, BNP Paribas Fortis Banque and Banque de La Poste are of French origin. BNP Paribas purchased 75 per cent of Fortis Banque in 2009. They would be ranked 1st and 8th among the Belgian banks.
Loans to customers are lucrative for the Belgian commercial banking industry. The value of gross advances in the Belgian consumer credit market grew at a CAGR of 14.7 per cent over the 2004/08 period and are expected to grow at a CAGR of 7.9 per cent in 2009/13.The commercial bank prime lending rate at the end of 2009 was 6.15 per cent.
However, the banking statistics for lending to Belgian households have been distorted by the effects of securitisation operations performed by some banks with a view to using the securities in question for refinancing purposes with the central bank.
However, data published by the National Bank of Belgium indicates that the level of lending in this segment has been sustained. The outstanding amount of mortgage loans to households stood at €138 billion at the end of June 2009; an increase of 7.7 per cent from the previous year. The outstanding amount of consumer credit was a much less impressive at €16 billion, indicating an annual growth of four per cent.
In 2009 the increase in mortgage lending over the past ten years was significant (+126 per cent). This improvement was significant when compared to the consumer credit sector (+75 per cent). However, no certainty exists over the demands for loans over the coming years as Belgian households are expected to reduce spending.
The Banking and financial sector had a gross added value of 5.3 per cent to the Belgian economy in 2006/08 when assessed vis à vis the economy as a whole. The industry also employed 135,000 people; remaining the country’s largest provider of employment. In addition, the financial sector also provides a considerable amount of indirect employment (an estimated 125,000 jobs). There is broad access to banking services in the country with 535 branches per one million inhabitants, and over 7,780 ATMs available in 2009.
According to the National Bank of Belgium, at the end of 2010 there were 123 Monetary Financial institutions, of which 106 were credit institutions and 16 were Money market funds. More than 50 per cent of these are banks governed under foreign law, with Belgian being a popular destination for the set-up of foreign offices and branches.
The Belgian foreign exchange market is unique because of its two-tier structure. The market is highly liquid in Belgium as the international banks tend to provide both bid (purchase) and ask (sell) offers on a regular basis. The volume of business in the forex market in Belgium is higher than any other financial market of the country. The National Bank of Belgium regulates the foreign currency exchange operations and is integrated in the European System of Central banks.
The two tier system comprises the retail tier and the wholesale tier. Each is intended for a different type of trader of the forex market; retail being used by smaller agents dealing in small amounts of currency while the wholesale tier is appropriate for currency brokerage firms and banks. In Belgium, as in the rest of the EU forex rates depend mainly on the exchange rate of the Euro with other foreign currencies of the world.
Stock market
In 2000 the stock markets of Paris, Amsterdam and Brussels merged into the Euronext system (Lisbon joined Euronext in 2002). This affiliation completely absorbed the Brussels Stock Exchange that had existed since its establishment in 1901. In 2006 the New York Stock Exchange bought Euronext (NYX) for €7.34 billion. The merger resulted in the creation of the first global stock market. With more than 4,000 listed operating companies NYX’s equities markets represent one-third of the world’s equities trading and is the most liquid of any global exchange group.
In 2008, Euronext was ranked fourth in the world of the leading share markets (according to market capitalisation), with over 3,000 market-listed companies. Belgium was responsible for 170 bonds, 345 warrants and close to 200 certificates at the end of 2008. Belgium was ranked 26th in the world in terms of total market value of publicly traded shares, recording more than €123 billion at the end of 2008.
NYSE-Liffe is a European based derivatives business of NYSE Euronext. Today Liffe is the world’s second largest derivatives exchange in terms of the value of transacted business, and trades in excess of €2,086 billion each day. Following approval of the respective regulators, Liffe announced in October 2010 that the rules and trading procedures of Brussels and Amsterdam derivatives markets had been harmonised. In the Brussels derivatives market the introduction of a Prof Trade Facility will offer professional market participants a flexible mechanism to trade wholesale size in a regulated environment without counterparty risk.
Debt market
The Brussels Interbank Offered Rate (BIBOR) merged along with other European domestic rates into Euribor on 1 January 1999; the European Monetary Union day. The benchmarks for the money and capital markets in the Euro zone are Euro Interbank Offered Rate (Euribor) and (Euro Overnight Index Average (Eonia).
Euribor rates are used as a reference rate for euro-denominated forward rate agreements, short-term interest rate futures contracts and interest rate swaps. They provide the basis for some of the world's most liquid and active interest rate markets.
Private equity
In 2008, more than 90 per cent of total contributions to the market were represented by government agencies and funds of funds. The level of fundraising remained relatively stable in 2008, with almost all new funds raised (99.5 per cent) being contributed by Belgian investors. Three funds reached final closing raising a total of €151.9 million. The average fund size decreased by 70 per cent; mainly driven by a sharp decrease in the buyout fund size at final closing. The amount of funding provided by bank decreased sharply due to the GFC.
Fundraising in 2008 remained stable at €608 million compared to €598.3 million in 2007, a number also above the annual average for the previous five years. The major private equity investors were government agencies, banks and corporate investors.
Interestingly, domestic investment in private equity firms no longer represents the majority of transaction in 2008; decreasing from 78.2 per cent (2007) to 41.5 per cent (2008). The share of investment in other European countries rose to 58.3 per cent with €389.2 million in 2008, which was an increase of more than 35 per cent. The remaining 0.2 per cent represents investments in non-European countries (this was 2.5 per cent in 2007).
Asset management
In 2009, Europe was responsible for 37.8 per cent of worldwide investment fund assets. Within the European Investment Fund Market, the Belgian industry of asset management was worth 1.3 per cent at the end of 2009 (France had a market share of 20.3 per cent and Luxemburg had 26.2 per cent). In 2010, this percentage equated to €92.5 billion (France €1,426.4 billion and Luxemburg €1,841 billion). This number represents a deficit of 4.6 per cent for Belgium since the end of 2009. Of this amount, €86.7 billion was held in UCITS assets, representing a 1.5 per cent share of the European UCITS industry in 2010.
Insurance sector
The Belgian insurance market shrank by 5.2 per cent in 2009 to reach a value of €29,884.5 million. However, the market is forecast to reach a value of €30,585.3 million in 2014. In the sector, life insurance accounts for 62.9 per cent of the market’s total value and Belgium accounts for 2.9 per cent of the total European market.
The Belgian market is fragmented with smaller companies competing alongside major firms. The top insurance providers in Belgium (ranked by revenue in 2009) can be seen below.
| Name of company |
Revenue in million EUR (2009) |
| ING Groep N.V |
48,190.00 |
| Fortis |
16,730.00 |
| While they have significant operations in Belgium, the below insurance providers are of French origin. AXA Belgium was borne in 1999 from a merger between Royale Belge and AXA. These institutions would be ranked 1st and 4th among the Belgian insurance providers. |
| AXA |
90,120.00 |
| KBC Group NV |
5,310.00 |
In a simple sense, the market is made up of the life insurance and the non-life insurance sector. In 2009, the Belgian market had total gross written premiums of €29.9 billion, representing a compound annual rate of change (CARC) of -4.4 per cent for the period 2008/09. Of this, the life insurance segment was the most lucrative with gross written premiums of €18.8 billion.
The Belgian insurance market has been declining since 2005 with only brief acceleration in 2007. Specifically, the CARC in 2009 was -4.4 per cent, as compared to French and German markets which grew with CAGRs of 3.4 per cent and 1.8 per cent respectively. However, the market is forecast to accelerate with an anticipated compound annual growth rate (CAGR) of 1.1 per cent for the five year period 2009-2014, as compared to France and Germany, which are forecast with CAGRs of 0.4 per cent and 2.5 per cent, respectively over the same period.
Opportunities
Belgium is an attractive business location, with an open economy, a relatively benign environment for free enterprise, and a generally reliable transport and communications infrastructure. Set against this, Belgium is saddled with a high ratio of public debt to GDP (although this has been declining in recent years), an onerous tax burden and an excessively regulated labour market.
The general government budget has been kept in balance in recent years and should remain at or close to balance, but the need for fiscal stringency will make it hard to reduce the tax wedge (the difference between labour costs and take-home pay), which remains one of the highest in the world. Fiscal stringency will become more difficult as the devolution of power to the regions reduces the effectiveness of spending controls. The corporate tax rate in Belgium is high, although it is mitigated by tax deductions on notional interest when firms invest from own resources, and a ‘ruling’ system to allow long term tax planning. Add to this the current instability within the political system and investors should be wary of committing too earnestly to the Belgian market.
However, Belgium is ranked 15th in the world for ‘Business Environment’ (Australia is ranked 9th and France 18th). In a survey conducted by The Economist for 2009-2011, the level of political stability in Belgium was at 8.9 out of 10 (Australia not listed, France 7.8, and Germany 9.3). Belgium was also ranked 1st (of 82 global economies, France 8th, Germany 14th) for financing in the Business environment and 4th (France 21st, Germany 14th) for policy towards private enterprise and competition.
Developing markets:
- Belgium households traditionally hold significant quantities of savings in bank deposits. This amount increased significantly following the GFC. Typically, Belgians are risk-averse so new or innovative products in this area would be interesting and potentially well received.
- There is a steady increase in the volume of credit to small-medium enterprises. This indicates an overall share of 69.1 per cent of outstanding bank credit to businesses. Potential exists in this area if service providers can offer additional incentives or a higher quality of service.
- Life insurance is the most lucrative division in the insurance market. As the business is highly competitive, potential new entrants should focus on high-quality customer service at every stage of the customer-provider relationship and other services to improve customer loyalty.
- Asset and funds management is highly lucrative in the EU, but Belgium is not a hub in this sector. Any products specifically offered to the Belgian market should be risk averse, boast the backing or support of a well-known and reputable Belgian or European organisation and be highly accessible within the industry.
However, as a well-established sophisticated market where more than 75 per cent of the market is shared between just five banks, the market is likely to be difficult to penetrate. It is recommended (in most instances) that keen investors or service suppliers explore partnerships with well-established, reputable financial institutions within the market to ensure the correct demographic is targeted and reliable advice provided to any Australian exporter.
Competitive environment
In the Belgian market, buyer power is moderate overall as is the ability of new companies to enter the market. Buyer power is reduced as a result of the large number of individual customers acting as market consumers; with the loss of one customer having little impact on the market players. The desirability or necessity of insuring company assets for protection against commercial risk, and the high switching costs reduces buyer power further.
Large companies (airlines or pharmaceutical firms) will shop around until they find the best value deal for their needs, which means buyer loyalty is low. Suppliers attempt to lure high-margin corporate clients with loyalty discounts to provide an incentive for the company to sign on. Comparison websites are increasingly available, which offer consumers the opportunity to compare services and premiums; a tool that reduces the previously daunting task of seeking the best available deal.
There is a high degree of rivalry between insurance companies primarily caused by high exit costs. Of late, this competition has been even more elevated with an increase in the number of suppliers in the market, resulting in regular ‘price wars’ between companies.
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