Federal Government Debt Debt Agency

Transcription

1 Federal Government Debt Debt Agency 2013 annual report 2013 annual report 1

2 2 Debt Agency Kingdom of Belgium

3 Contents Contents... 3 Key Indicators of Government Debt... 6 I. DEVELOPMENTS IN THE ECONOMY AND IN GOVERNMENT FINANCE IN Developments in the Belgian economy and interest rates Belgian economy Interest rates Developments in government finances in Developments in the different sub-sectors Revenue and expenditure European comparison II. FINANCING POLICY IN Financing requirements and resources An issuing policy based on two types of products Liquid and standardised products Linear bonds (OLOs) Syndications OLO Auctions Non-competitive subscriptions ORI Auctions Buy-backs Strips Treasury Certificates (TCs) State notes Tailor-made products "Euro Medium Term Notes" (EMTN) Programme "Schuldscheine" Contracts Belgian Treasury Bills (BTBs) Treasury Bonds Silver Fund Perpetual bonds and lottery bonds: redemptions Lottery bonds Perpetual bonds General Directives and control of risks Refinancing and refixing risks Credit risk III. MAIN STRATEGIC POINTS 1. Ongoing improvement in the economic situation in the eurozone State guarantees in certain financial institutions Dexia guarantee Dexia /2013 guarantee RPI (Fortis OUT) Fortis RPN (CASHES) KBC New increase in the average life and duration of the debt Distribution of the Belgian federal debt Linear Bonds (OLOs) Holdings of OLOs The primary market for OLOs The secondary market for OLOs annual report 3

4 4.2. Treasury Certificates Holdings of Treasury Certificates The primary market for Treasury Certificates The secondary market for Treasury Certificates Creation of the framework for issuance of inflation-linked debt instruments Measures for the consolidation of general government financial assets New data-processing system for managing the Belgian Federal public debt Assigning a rating for the Treasury s OLO and EMTN issues ANNEXES A. Changes in the Federal State s rating B. Securities intermediaries of the Treasury of the Kingdom of Belgium in Primary Dealers Recognised Dealers BTB Dealers Investment establishments (State notes) C. Organisational Chart D. Contacts (Debt Agency) Colophon Debt Agency Kingdom of Belgium

5 Foreword by Mr Koen Geens, Minister of Finance In contrast with 2012, our country recorded positive economic growth in GDP grew by 0.2% mainly due to private consumption and exports. The way in which our GDP trended in 2013 shows that the economic recovery gathered momentum at the end of the year, since in the last quarter of the year, GDP grew by 0.8% compared with the corresponding quarter of Accordingly, the Belgian economy outperformed most other European economies. However, this moderate economic recovery was not mirrored by a reduction in the unemployment rate. On the contrary, unemployment rose: in 2013, 8.5% of the population was unemployed (versus 7.6% in 2012). Traditionally, the employment situation lags behind economic developments. The General Treasury Department in particular the Debt Agency has succeeded in meeting the State s financing needs by its efficient debt management. Thus, in 2013, the Agency successfully issued medium and long-term debt (mainly OLOs) for EUR billion, i.e. EUR 4.71 billion more than initially scheduled. Although the cash shortfall of the Federal authorities was lower than expected, the Agency wanted to take full advantage of favourable financing conditions: the average weighted interest rate on debt issued with a maturity of more than one year in 2013 was only 2.23%. Additional resources were devoted to reducing short-term debt and prefinancing operations by buying back debt maturing in 2014 or later. As a result the duration and weighted average maturity of the debt increased, while refinancing and rate refixing risks decreased significantly. In this regard I would like to thank the Agency for its ongoing debt management work. Minister of Finance, Koen Geens In 2013, public finances improved. Thus, the general government deficit was 2.6% of GDP, i.e. an improvement of 1.4 percentage points versus 2012, when the deficit was 4.0% of GDP. Therefore, for the first time since 2008, this balance remained below the 3% threshold, above which a public deficit is considered to be excessive. This improvement was largely due to a reduction in expenditure, including interest costs, and an increase in revenue. Interest costs fell from 3.4% of GDP in 2012 to 3.2% of GDP in The weighted average interest rate of the debt also fell in 2013 to 3.33% (versus 3.49% in 2012). After revision of the consolidation scope of the public sector by the Institute of National Accounts and Eurostat in 2013, the public debt-to-gdp ratio was 101.2%. The planned introduction at the European level of a new method of calculating GDP and a more precise delineation of the government sector will result in September 2014 in a discontinuity point in the series of the figures measuring the debt ratio annual report 5

6 Key Indicators of Government Debt (in billions of EUR or in %, at 31 December) I. AMOUNTS OUTSTANDING OF THE MAIN FEDERAL GOVERNMENT DEBT INSTRUMENTS Gross outstanding federal debt Treasury financing and investments Financing of other entities Portfolio securities Investment reserve Net federal debt outstanding Debt instruments A. Instruments in EUR after swap: Linear bonds (OLOs) Treasury certificates EMTN issued in EUR Schuldscheine Conventional loans State notes Treasury Bonds Silver Fund Belgian Treasury Bills (BTBs) Private loans, interbank loans, etc EMTN issued in foreign currencies Borrowings of certain organisations for which the federal government helps service the debt As % of the debt in EUR: Linear bonds (OLOs) % % Treasury certificates 6.64 % 8.68 % EMTN 2.37 % 2.22 % Schuldscheine 0.50 % 0.27 % Treasury Bonds Silver Fund 5.38 % 5.25 % State notes 1.24 % 1.96 % Others 2.87 % 3.13 % B. Instruments in foreign currency: Long- and medium-term debt Belgian Treasury Bills (BTBs) II. CHANGES IN NET OUTSTANDING FEDERAL GOVERNMENT DEBT OVER THE YEAR Changes Net balance to be financed Exchange gain/loss Interest capitalised Borrowings of certain organisations % changes 1.74 % 2.39 % III. CHARACTERISTICS OF THE FEDERAL GOVERNMENT DEBT Ratings issued by the various rating agencies Long-term rating (Fitch/S&P/Moody's) AA/AA/Aa3 AA/AA/Aa3 2. Breakdown by currency after swap Borrowings in EUR % % Borrowings in foreign currencies 0.16 % 0.00 % 6 Debt Agency Kingdom of Belgium

7 3. Breakdown by maturity Long and medium term (> 1 year) % % Short-term 8.79 % % 4. Breakdown by rate Fixed rate % % Variable rate 9.91 % % 5. Effective duration of the debt in EUR of the debt in foreign currencies Federal government interest rate burden Weighted average interest rate 3.33 % 3.49 % IV. CHANGEOVER FROM FEDERAL DEBT (TREASURY) TO GENERAL GOVERNMENT DEBT Federal debt outstanding Outstanding debt of other federal entities (*) Debt of Communities and Regions. local authorities and Social Security 4. Consolidation adjustment Other corrections Consolidated general government debt ( ) GDP Consolidated general government debt ratio ( )/ % % (*) Debt represented by financial instruments as defined for the purposes of the Maastricht Treaty 2013 annual report 7

8 MATURITY SCHEDULE FOR FEDERAL GOVERNMENT LONG-TERM DEBT IN EUR (in billions of EUR) OLOs ( ) Other Debts ( ) OLOs ( ) Other Debts ( ) WEIGHTED AVERAGE ACTUARIAL RATE OF THE DEBT IN EUR (in %) / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / Debt Agency Kingdom of Belgium

9 Month Postal account (1) MONTHLY BREAKDOWN OF THE COMPONENTS OF FLOATING DEBT MONTHLY LIABILITIES (in millions of EUR) Treasury certificates Cash Interbank Treasury bonds management + misc. 3 months 6 months 12 months Total in EUR Total floating debt (5) transactions (4) 01/ / / / / / / / / / / / / / / / / / / / / / / / (1) Private depositors holdings in postal accounts. (2) Interbank borrowing and lending. (3) Certificates issued by auction after the 29/01/91 reform. The amount shown represents the NET outstanding sum deposited by the Treasury, i.e. after deduction of interest and repayments for the month. Includes, for the 3-month certificates, maturities under 3 months. (4) Transactions performed to balance the daily cash flow. Cash surplus from tax revenue or from Treasury certificate issues. (5) Total floating debt with (4) deducted annual report 9

10 I. DEVELOPMENTS IN THE ECONOMY AND IN GOVERNMENT FINANCE IN Debt Agency Kingdom of Belgium

11 Developments in the economy and in government finance in Developments in the Belgian economy and interest rates 1.1 Belgian economy In 2013, the world economy posted GDP growth of 3%., i.e. one percentage point lower than that of There were however disparities between economic blocs: growth slowed in emerging countries, while economic conditions improved in advanced economies. However, the improved economic situation was reflected only marginally in growth rates, due in part to the effects of budget consolidation and structural adjustments. In the United States, GDP growth slowed, falling from 2.8% in 2012 to 1.9% in This moderate growth was supported by household consumption expenditure and residential investment. In a more reassured environment following the easing of the sovereign debt crisis, economic activity in the eurozone contracted by 0.4% year-on-year in 2013 (-0.7% in 2012), despite a trend reversal that started in the second quarter of the year under review. Overall, activity was supported by net exports and accompanied by signs of a recovery in domestic demand. It is also noteworthy that levels of activity differed very significantly among eurozone countries. In Belgium, economic activity also gathered pace during the second quarter of 2013 and this trend persisted, enabling Belgium to post GDP growth of 0.2% (versus -0.1% in 2012). Growth was underpinned chiefly by private consumption and exports, in a context of a sharp improvement in producer and consumer confidence. In terms of economic growth Belgium has outperformed the eurozone average in recent years. As was the case in 2012, Belgian inflation fell in 2013: from 2.6% in 2012 to 1.2% in This fall in inflation was mainly due to lower energy prices (oil, gas and electricity) as well as changes in service prices, in a context of low costs and price pressures. Moreover, because of the time lag between employment levels and an improvement in economic activity, the Belgian unemployment rate deteriorated in 2013 and rose to 8.5% of the active population at the end of the year (versus 7.6% in 2012). 1.2 Interest rates /2013 AVERAGES OF 3-MONTH INTEREST RATES AND AVERAGE YIELDS FOR 10-YEAR BENCHMARK BONDS IN 2013 (in %) 02/ / / / / month Euribor 3 month TC Belgium (LT) Germany (LT) Interest rates remained low in the United States and, on average, in the eurozone, with however differences among the various eurozone Member States. The United States, Japan and the eurozone maintained accommodating monetary policies which in general kept short-term interest rates at low levels. 07/ /2013 USA (LT) Japan (LT) Italy (LT) 09/ / / / annual report 11

12 Chapter I In the United States, publication of favourable economic data and declarations in May of the US central bank (the FED) concerning a possible tapering of its bond purchases led to an increase in US long-term interest rates between May and September when they reached levels of around 3%. They then fell in September after the FED s decision to leave its bond buying programme unchanged. However, they rose once again in November following the publication of better than expected unemployment figures. Overall, US short-term interest rates remained low during the year under review. In the context of a still very hesitant economic recovery and falling inflation in the eurozone, the ECB decided at the beginning of May to cut its key interest rate from 0.75% to 0.50%. This decision helped to push long-term interest rates lower. However, the FED s monetary policy statements, other than having an impact on US interest rates, also led to an increase in long-term interest rates in the eurozone. In July of the year under review, the ECB s governing council decided to publish forward guidance for its key rates, which had a stabilising effect on interest rates. In November 2013, the ECB once again cut its key rate from 0.50% to 0.25% which stabilised interest rates. In addition, it is to be noted that the ECB s accommodating monetary stance, together with progress on European banking union and investor confidence, helped to calm financial markets during Accordingly, there was no need to activate the Outright Monetary Transactions (OMT) programme. Finally, the Eurosystem continued to provide liquidity to banks via its open market operations in the form of fixed rate tenders, with a full rate of allotment. However, demand for these operations decreased, also reflecting a reduction in financial tensions. Interest rates on Belgian financial markets also remained very low. 3 month Treasury Certificate rates on the secondary market therefore moved on average from 0.02% in January to 0.10% in December /01/13 16/01/13 30/01/13 INTEREST RATE CHANGES IN THE EUROZONE IN 2013 (in %) 13/02/13 27/02/13 13/03/13 27/03/13 10/04/13 24/04/13 08/05/13 22/05/13 05/06/13 19/06/13 Interbank rates also remained fairly low under the influence of the Eurosystem s monetary policy. Thus, the 3-month Euribor increased, on average, from 0.205% in January to 0.274% in December As regards long-term rates, the benchmark 10-year OLO yield was relatively stable, increasing from 2.31% in January to 2.44% in December The spread between the German benchmark Bund and the 10-year OLO yields was stable throughout 2013, being on average less than 80 basis points, in line with spreads at the end of the previous year. 03/07/13 17/07/13 3 month Euribor 3 month TC ECB central key rate OLO Benchmark 31/07/13 14/08/13 28/08/13 11/09/13 25/09/13 09/10/13 23/10/13 06/11/13 20/11/13 04/12/13 18/12/13 12 Debt Agency Kingdom of Belgium

13 Developments in the economy and in government finance in Developments in government finances in 2013 The data published by the National Accounts Institute (ICN) in April 2014 show that the Belgian general government accounts for 2013 closed with a deficit equivalent to 2.6% of GDP, i.e. an improvement in the balance of 1.5 percentage points of GDP compared with the previous year. The financing balance in 2013 was below the benchmark of 3% of GDP, used to define an excessive deficit within the framework of the European surveillance of budget positions. The results are better than the target of a deficit of 2.7% of GDP set by the Council of the European Union in its notice of 21 June 2013, requiring Belgium to take the necessary steps to put an end to the excessive deficit. This target was consistent with an improvement of the structural balance of 1% of GDP, according to the European Commission s forecasts of spring Belgium s stability programme drawn up in April 2013 provided for a nominal deficit of 2.5% of GDP, on the basis of the parameters available at that time. In this programme, the government had focused on the concept of structural balance, because of the deterioration in the economic environment. This approach was also in line with the new European budget surveillance framework. The government has undertaken to improve the structural balance by 1% of GDP in Several factors explain the change in the financing balance during the year under review. The various levels of government have adopted fiscal consolidation measures, both as regards revenue and expenditure, which have helped to improve the financing 1 In its opinion on the draft Belgian budget plan of November 2013, the European Commission considered that the structural balance improved by 0.8% of GDP in However, the target of a structural improvement of 1% of GDP was considered to have been achieved, given the downward revision of potential growth and the amount of foregone revenue since the Council s decision. balance. The fall in interest cost also had a favourable impact. Unlike the previous year, when the recapitalisation of Dexia had placed a burden on public finances, nonrecurring factors had a positive impact on the balance in These factors chiefly involved the tax regularisation operation and revenue generated by the sale of telecommunication licences. On the other hand, the economic slowdown had a negative effect on public finances. The 2013 budget had been drawn up on the basis of projected growth of 0.7%. However, according to the Belgian National Bank (BNB) economic activity grew by only 0.2% in Developments in the different sub-sectors At the Consultation Committee meeting of 2 July 2013, the Federal government and the governments of the Communities and Regions responded to the Council notice and approved the breakdown of the Entity I (Federal authorities and social security) and Entity II (Communities, Regions and local authorities) 2013 budgetary objectives. An overall deficit target of 2.5% of GDP had been set in order to provide a safety margin with regard to the target of 2.7% of GDP specified in the Council decision. A deficit target of 2.4% of GDP was set for Entity I. An allocation from the Federal authorities is intended to balance the social security budget. For Entity II, the objective was to achieve a balanced budget for the Regions and Communities and a deficit of -0.1% of GDP for the local authorities. The Communities and Regions had undertaken to comply with the targets fixed by them in their respective budgets. In addition, the Regions and Communities had been asked to set aside reserves in order to offset non-payment of the pension accountability contribution and to cover a possible local authority deficit 2. According to ICN data, the deficit of 2.6% of GDP can be broken down as follows: a deficit of 2.4% of GDP for Entity I and a deficit of 0.2% for Entity II. Within Entity I, the Federal authorities had a deficit of 2.5% of GDP, while the social security accounts had a small surplus of 0.1% of GDP. Within Entity II, the Communities and Regions balanced their budgets and the local authorities had a deficit of 0.2% of GDP. 2 This reserve for a local authority deficit concerns the Regions and the German-speaking Community annual report 13

14 Chapter I The budgetary outcomes were therefore under target for local authorities and Federal authorities, but in line with targets set in the case of the Regions and Communities and better than expected for social security accounts. FINANCING BALANCE OBJECTIVES AND ACHIEVEMENTS (IN % OF GDP) Achievements 2012 Objectives Estimates 2013 General Government Entity I Federal authorities Social security Entity II Communities and Regions Local authorities Revenue and expenditure Tax and special tax revenue again increased in 2013: from 44.8% to 45.6% of GDP. Direct taxes on households rose by 0.6 percentage point of GDP. Several factors had a favourable impact on personal income tax revenue: tax regularisation operations, the limitation on refunds by assessment, the steady increase in social benefits subject to withholdings on income and the increase in withholdings on temporary unemployment. Receipts of social security contributions increased slightly, by 0.1 percentage point of GDP, following payment of the pension accountability contributions borne by the local authorities. Corporate tax revenue increased by 0.1 percentage point and represented 3.5% of GDP. The trend towards deferral of advance payments in favour of tax by assessment was confirmed, given that the additional revenue which new measures should have generated (in particular limits on venture capital deductions) did not fully materialize. 3 According to the decisions of the Consultation Committee of 2 July 2013 Withholdings on other income and assets increased once again as a result of various measures and reached 4.5% of GDP, compared with 4.2% of GDP the previous year. The withholding tax rate was increased from 21% to 25%. Substantial dividend payments were made at the end of the year, in order to benefit from a transitional measure before the increase in taxes on liquidation surpluses. Registration duties on long-term leases and taxes on savings deposits were increased. Inheritance duties increased significantly, following the tax regularisation operation, reinforcing of the control obligations of notaries and dematerialisation of securities. Taxes on goods and services fell by 0.1 percentage point of GDP. This decrease was due to the sharp fall in investments by individuals, essentially for residential projects, and by public authorities. However, several measures helped to offset the fall in indirect taxes, such as the increase in excises on alcohol and tobacco and the tax on insurance premiums, as well as tighter fraud control measures. Tax and special tax revenue stabilised at 6.2% of GDP. The decrease in payments made by financial institutions (remuneration of guarantees and contribution to the deposit protection fund) was balanced by the increase in dividends. Primary expenditure fell to 51.4% of GDP, i.e. down by 0.3 percentage point of GDP versus The various levels of government put in place savings measures in order to curb the excessive spending of previous years. The one-off factors mentioned above (licence sales, effect of the recapitalisation of Dexia in 2012) also helped to cut expenditure. On the other hand, the strong increase in the number of unemployed people led to an increase in unemployment benefits distributed. Furthermore, the health index increased more rapidly than the price index used to deflate expenditure, given the time lag inherent in the mechanism for the indexation of civil servive salaries and welfare benefits. GENERAL GOVERNMENT REVENUE AND EXPENDITURE (IN % OF GDP) Achievements Estimates Total revenue (of which general and special tax revenues) Primary expenditure Total expenditure Debt Agency Kingdom of Belgium

15 Developments in the economy and in government finance in 2013 The primary balance in 2013, after combining primary revenue and expenditure, was 0.6% of GDP, i.e. an improvement of 1.3 percentage points of GDP compared with the previous year. The primary balance therefore moved back into positive territory, after being negative since The result however fell short of the objective of the stability programme, which provided for a primary balance of 0.8 % of GDP for Unlike the previous year, interest costs on the public debt fell in 2013: by 0.2 percentage points to 3.2% of GDP. This decrease was mainly due to the low level of short and long-term interest rates payable on public debt, in a context of reduced tensions on financial markets. According to figures published by the ICN, the debt ratio of public authorities was % of GDP at the end of 2013 compared with % of GDP the previous year. As requested by Eurostat, the ICN has made a series of improvements relative to ESA 95 to accounts of public authorities. Flaws and weaknesses of the public accounts concerned the lack of information on units controlled by public authorities and the alternative financing used by various public authorities. Following additional information received, the ICN has reclassified in the general government sector public units previously classified in the sector of financial corporations or that of non-financial corporations. Tasks delegated by the public authorities to other public units and operations carried out within the framework of alternative financing, which had not been recorded in public accounts, have also been fully integrated into these accounts. This enlargement of the delineation of the government sector has resulted in an increase in the debt ratio. Regardless of these methodological changes, the influence of exogenous factors on changes in the debt ratio can be analysed on the basis of data in the NBB s annual report of February Overall, exogenous factors helped to balance the unfavourable influence of endogenous factors. Several exogenous factors had a positive impact on the debt ratio, such as the early repayment by KBC of a first instalment of the aid granted by Flemish authorities during the financial crisis, sale by the Federal government of a series of assets, in particular the shares held in Royal Park Investments and Fortis Banque, as well as the debt claim on the European Commission in connection with the Berlaymont building. Moreover, public debt issue premiums were favourable, as was the case in On the other hand, other exogenous factors had an adverse effect on the debt ratio, such as the financial support granted to European countries in difficulty via the European Financial Stability Fund and capital contributions to the European Stability Mechanism. 2.3 European comparison In 2013, the Belgian financing balance was better than the eurozone average: the Belgian deficit corresponded to 2.6% of GDP, compared with an average of 3% of GDP 4. The Belgian improvement in comparison with the previous year was also more marked, i.e. 1.5 percentage points of GDP versus an average eurozone improvement of 0.7 percentage point of GDP. The Belgian primary balance result was also more favourable: 0.6% of GDP in Belgium versus an average primary balance of -0.1% of GDP in the eurozone. The improvement on the previous year was also more marked in Belgium: 1.3 percentage points of GDP versus a eurozone average of 0.5 percentage point of GDP. The average eurozone debt ratio (92.6% of GDP) is lower than that of Belgium. However, the Belgian debt ratio has increased at a slower pace than that recorded in the eurozone on average. As a result, the difference between the Belgian debt ratio and the average debt ratio for the eurozone has fallen again. It was 8.6 percentage points of GDP at the end of 2013, compared with 10.4 percentage points of GDP at the end of the previous year. 4 The eurozone data are those communicated by Eurostat in April 2014 as part of the first notification in view of application of the excessive deficit procedure annual report 15

16 Chapter I TREND IN GENERAL GOVERNMENT DEBT RATIO (in % of GDP) EUROPEAN FINANCING BALANCE COMPARISON (in % of GDP) Euro-Zone Belgium Germany Ireland Greece Spain France Italy Netherlands Austria Portugal Finland TREND IN GENERAL GOVERNMENT PRIMARY BALANCE AND FINANCING BALANCE (in % of GDP) Primary balance Financing balance Euro-Zone EUROPEAN GROSS CONSOLIDATED DEBT COMPARISON (in % of GDP) Belgium Germany Ireland Greece Spain France Italy Netherlands Austria Portugal Finland 16 Debt Agency Kingdom of Belgium

17 Review 2012 II. FINANCING POLICY IN annual report 17

18 Chapter II 1. Financing requirements and resources The Treasury had anticipated that financing needs in 2013 would amount to EUR billion. In the end, its financing needs amounted to EUR billion, i.e. in line with forecasts. It is to be noted that not all components of gross financing needs were in line with forecasts. The budget deficit in the narrow sense not including purchases and sales of participating interests and support measures in favour of other eurozone countries amounted to EUR 8.30 billion. This corresponded to the deficit of EUR 8.64 billion included in the initial financing plan. However, in the end, sale of the remaining stake in BNP Paribas Fortis and, to a lesser extent, sale of the assets of Royal Park Investments reduced the amount of the cash shortfall to only EUR 5.69 billion, i.e. considerably less than the projected amount. However, the increase in redemptions of debt maturing in 2014 and at later dates once again nullified this effect. In fact, the Treasury redeemed an amount of EUR 7.41 billion compared with a scheduled amount of EUR 4.22 billion. Lastly, the bulk of financing needs came, as usual, from the refinancing of maturing medium and long-term debt (EUR billion). Therefore, projected resources (EUR billion) largely covered financing needs. But in 2013, the Treasury once again issued more medium and long-term debt than initially announced. It therefore issued OLOs for an amount of EUR billion, i.e. EUR 5.33 billion more than initially planned. This decision was based on the strong demand for long-term OLOs and historically low interest rates. There was also strong demand for Euro Medium Term Notes and Schuldscheine even if the volume issued, i.e. EUR 2.81 billion, was slightly below the Treasury s objective of EUR 3.00 billion. On the other hand, demand for Treasury notes was once again muted given the low level of interest rates and only EUR 0.07 billion was raised via such instruments. The significant volume of long-term debt issues generated a further reduction in short-term debt. For example, Treasury Certificates outstanding fell by EUR 7.05 billion. As a result, short-term debt returned to a pre-crisis level. TREASURY FINANCING IN 2013 (IN BILLIONS OF EUR) 2013 Financing plan Situation on I. Gross financing requirements Federal State budget deficit Budget deficit (stricto sensu) Participation in/loans to financial institutions and sovereign States Transfers to the Silver Fund Debt maturing in Medium- and long-term debt in EUR Medium- and long-term debt in foreign currencies 3. Planned prefinancing of bonds maturing in and later Buy backs Other financing requirements II. Financing resources (long and medium-term) Medium and long-term financing OLOs Euro Medium Term Notes/Schuldscheine Securities for retail investors Others Treasury Bonds Silver Fund III. Net change in short-term foreign currency debt IV. Change in Treasury Certificates stock V. Net change in other short-term debt and financial assets Debt Agency Kingdom of Belgium

19 Financing policy in An issuing policy based on two types of products 2.1 Liquid and standardised products Linear bonds (OLOs) In 2013, the Treasury issued OLOs for a total amount of EUR billion (versus a volume of EUR billion in 2012). This amount included in 2013 syndicated issues (EUR billions) and auctions (EUR billion). As usual the Treasury made use of the syndication technique each time when launching its new benchmark loans. Four syndicated issues were organised in 2013: three fixed rate issues and one OLO FRN syndication. During the year under review, the Treasury held 7 auctions out of the 11 that were originally envisaged in the financing plan Syndications OLO 68 Continuing the tradition of the January issue of a linear bond with a 10-year maturity date, the Treasury launched the syndication of a new benchmark bond, the OLO 68. By doing so, the Treasury effectively intended to add a new 10-year benchmark OLO to its curve. OLO 68, with a final maturity date of 22 June 2023, was placed by a syndicate for which the joint-lead managers were the primary dealers Barclays, Citi, RBS and SG CIB. Other primary dealers and recognised dealers also participated in the investment as co-lead managers and members of the selling group. At the beginning of 2013, the Debt Agency decided to take advantage of a buoyant market and the excellent performance of eurozone debt, and in particular Belgian debt in terms of swap differentials. Furthermore, this transaction was the first benchmark issue in 2013 in the eurozone and also the first syndication integrating Collective Action Clauses. The orders came flooding in to reach EUR 7 billion from 180 investors. Thanks to the size of the book and good performance of the Belgian yield curve it was possible to issue a total amount of EUR 4 billion. The issue spread was set at mid-swap +62 basis points, equivalent to basis points above the Bund 1.50% - September The OLO s coupon was set at 2.25% and the issue price at %, equivalent to a yield of 2.359%. For this transaction, the Treasury obtained an issue premium of 4 basis points above the interpolated OLO curve. The Treasury once again used the mixed pot system for the book-building process and allocation of orders. As in previous syndications, this system contributed to improving the efficiency, transparency and objectivity of the book-building and allocation process. A quality control inspection was carried out on the majority of the subscriptions in order to avoid duplication of subscriptions from investors working with a number of primary dealers. In the choice of orders, the Treasury focused on end investors ("real money"), in particular on fund managers and banks (81%). Lastly, at the time of the OLO 68 placement, the Treasury noted renewed interest from non-european investors (almost 8%). In addition, 9.19% of the bonds were taken up by Belgian investors, 34.94% by eurozone investors excluding Belgium and 48.11% by the rest of Europe. OLO 69 For the second syndication of the year, the Treasury continued its 2013 issuance programme by launching a 5-year line in February, with a final maturity date of 22 June This new transaction was announced by the Belgian Debt Agency against the backdrop of a stable market environment. This 5-year OLO with a coupon of 1.25% was issued at a price of %, corresponding to a yield of 1.297%, at mid-swap +16 basis points, i.e. a cost of basis points above the German OBL 0.50% - February 2018, while the spread above the OAT 1.00% - May 2018 was basis points. The Treasury issued this OLO with an issue premium of 4 basis points above the interpolated OLO curve. For this syndication, the Treasury chose the following four primary dealers as lead managers: Crédit Agricole CIB, HSBC, ING and KBC. Other primary dealers and 2013 annual report 19

20 Chapter II recognised dealers also participated in the investment as co-lead managers and members of the selling group. Investment orders totalled more than EUR 8.5 billion, split between 135 investors, and the amount finally allocated was EUR 5 billion. The Treasury also used the mixed pot system for allocation of the orders. In terms of geographical distribution, there was well balanced demand from Europe, which accounted for 89% of the total. It is also noteworthy that there was strong demand from domestic investors who took up 22% of the syndicated amount. The breakdown by type of investor was also well balanced, with strong participation of banks and fund managers (91% of the transaction). OLO 70 Given that interest rates had fallen significantly at the beginning of the year under review, the bond market was very receptive to the idea of a variable rate OLO issue. Accordingly, in April, the Treasury launched OLO 70, a variable rate linear bond, via syndication. This FRN issue offered investors access to a Eurosystem eligible asset and an interesting interest rate differential versus 3-month Euribor. In addition, this type of financial instrument offers investors protection in the case of rising interest rates. Moreover, for the Treasury, this OLO FRN enabled it to reduce its refinancing risk by reducing its stock of Treasury Certificates and by extending in an optimal way the refinancing period on the short-term segment. OLO 70 raised EUR 2.5 billion via the following four primary dealers: Barclays, Citi, Crédit Agricole CIB and Deutsche Bank. The small size of the syndicate was justified by the specific nature of this floating rate instrument. The issue price of this OLO was %, with a coupon of 3-month Euribor basis points. In addition there was no issue premium for this syndication. Almost 50 investors participated in the syndication, with a geographical spread covering Europe (83.6%) and the Middle East (16.4%). As regards the breakdown of investors, 39.6% of the transaction was placed with central banks and 44.6% with banks. Lastly, it is to be noted that there was no duration manager for this syndication. OLO 71 For the fourth and last syndication of the year, the Treasury launched a 30-year OLO in September. This decision was taken in the following context: - a rise in interest rates following the declarations of the FED, the US central bank, on tapering its bond buying programme as part of its monetary policy, - the existence of better economic data, - investor interest in the long-term segment, revealed by several surveys conducted by the Treasury. The Debt Agency had not issued a syndicated OLO for such a term since OLO 60 (4.25% - 28/03/2041), issued in This OLO enabled the Treasury to complete the OLO curve. OLO 71, with a final maturity date of 22 June 2045 and a coupon of 3.75%, was issued at a price of %, equivalent to a yield of 3.953% and at mid-swap +113 basis points. This corresponded to a cost of basis points above the German Bund 2.50% - July 2044 and 27.8 basis points above the OAT 3.25% - May The Treasury issued this OLO with an issue premium of 4 basis points above the interpolated OLO curve. For this syndication, the Treasury chose the following four primary dealers as lead managers: Barclays, BNP Paribas Fortis, J.P. Morgan and SG CIB. Other primary dealers and recognised dealers also participated in the investment as co-lead managers and members of the selling group. When the books were closed, investment orders exceeded EUR 7 billion from 110 investors. The Treasury finally allocated an amount of EUR 4 billion. The Treasury also used the mixed pot system for allocation of the orders. As regards the geographical distribution of this transaction, it is noteworthy that it was the syndication with the broadest non-domestic participation in In addition, more than 50% of the bonds were distributed among non-euro investors in Europe. As regards the breakdown by type of investor, the largest part (92%) of this transaction was allocated to real money investors, namely banks, insurance companies and fund managers. The results of this distribution, both geographically and by type of investor, illustrate the high reputation of the Kingdom of Belgium on the international capital market. Lastly, it is to be noted that a duration manager was appointed for each of the three fixed rate syndications. 20 Debt Agency Kingdom of Belgium

21 Financing policy in 2013 OLOs - DISTRIBUTION BY INVESTOR TYPE IN % 60% 50% 40% 30% 20% 10% 0% 0.37% 3.63% 47.57% 6.83% 33.45% 8.15% 0.00% 5.14% 57.19% 3.05% 34.14% 0.48% 0.00% 39.56% 44.57% 0.60% 11.27% 4.00% 0.00% 2.88% 34.86% 19.47% 37.62% 5.17% OLO68 (2.25% - 22/06/2023) OLO69 (1.25% - 22/06/2018) OLO70 (FRN - 02/05/2018) OLO71 (3.75% - 22/06/2045) Others Central Banks and Public Entities Banks Insurance Companies Fund Managers Pension Funds OLOs - GEOGRAPHICAL DISTRIBUTION IN % 60% 50% 40% 30% 20% 10% 0% 9.19% 34.94% 48.11% 22.02% 37.96% 29.08% 55.67% 19.76% 36.15% 58.80% 4.00% 3.58% 0.18% 8.14% 2.80% 0.00% 8.17% 0.00% 8.40% 8.00% 3.90% 0.10% 0.68% 0.38% OLO68 (2.25% - 22/06/2023) OLO69 (1.25% - 22/06/2018) OLO70 (FRN - 02/05/2018) OLO71 (3.75% - 22/06/2045) Belgium Eurozone excluding Belgium Rest of Europe USA and Canada Asia Others 2013 annual report 21

22 Chapter II Syndication Syndication is an issuing technique via which the Treasury makes use of a syndicate of primary and recognized dealers to issue and place its securities. The syndicate is a temporary association of banks, whose common objective is collective placement of the bonds. There are three levels within the syndicate: 1. Lead manager: this is the bank that receives a mandate from the issuer to lead the syndicate. The lead manager underwrites placement of most of the bonds and is responsible for overall coordination and organization of the issue. In liaison with the issuer, it determines the structure, volume, spread and timing of the operation. Where several lead managers are in charge of the issue, they are called joint lead managers. 2. Co-lead manager: works one level below the lead manager. Guarantees a small share of the investment. 3. Selling group: this is the lowest level in the syndication structure. In the case of Belgium, the selling group is made up of recognized dealers. They are invited to participate but must not underwrite their participation. This participation is in fact limited to placing a small volume of securities. They do not have any other tasks or responsibilities. The co-lead managers consist of other primary dealers, who are not joint lead managers, together with recognised dealers. Mixed pot syndication In the mixed pot syndication structure, as in the normal pot syndication, the Treasury has the advantage of total transparency regarding the identity of the buyer. However there are two differences compared to normal pot syndication: 1. Blind retention is reserved for the co-lead managers. They are guaranteed this portion of the OLO allocation without the need to divulge the identity of the buyer to the joint lead managers. The blind retention forms a consideration in return for their efforts in placing the OLOs and Treasury certificates over the course of the previous year; 2. There is a strategic reserve. A fraction of the debt issue is reserved for allocation of certain purchase orders presented by the co-leads and the selling group. In allocating the strategic reserve, the Debt Agency strives to allocate the orders placed by the co-leads and the selling group members on the basis of the following criteria: a) the order is placed by an investor who is not yet registered in the book of lead managers; b) the order is of excellent quality and/or represents true diversification. Duration manager The Treasury generally appoints a duration manager for each auction. The function of a duration manager is to stabilise the market when the issue price of the new OLO is set, by acting as the counterparty for all switch orders placed by the investors in the book, amongst other roles. Switch orders are purchase orders for the new OLO on the condition that another security is sold simultaneously at a predetermined minimum price. This orderly and efficient organisation of investors selling orders is intended to limit erratic movements in the market when the new OLO price is set OLO Auctions The OLOs are issued through syndications (see above) and auctions. The Treasury publishes a calendar, for the latter type of emission, to inform financial markets of the timing of issues. These principles of transparency and predictability offered by the Treasury are important for the liquidity of OLOs. On the other hand, the Treasury runs a certain risk of dependency in relation to circumstances and conditions prevailing at the time of auction. In accordance with the calendar, auctions are organised on a monthly basis, except for December, as has been the case since In principle, the OLO auction takes place every last Monday of the month except, for the year under review, during the months of May and August when the date of the auctions was moved by one day, in 22 Debt Agency Kingdom of Belgium

23 Financing policy in 2013 order to take account of the fact that on the last Monday of the months in question the markets were closed in the United States and the United Kingdom. However, the Treasury always has the possibility to cancel an auction when a syndication is organised in the month in question. This occurred in January, February and September when OLOs 68, 69 and 71 were launched OLOs - DISTRIBUTION OF ISSUES BY MATURITY (in 2013, in billions of EUR) 3 years (0 < 4) 5 years (>= 4 < 8) 10 years (>= 8 < 15) >= 15 years There was an exception in April with the syndication of the variable rate OLO 70. This issue raised EUR 2.5 billion, but the Treasury nevertheless decided to proceed with the April auction. In addition, the November auction was cancelled following sale of the Belgian State s holding in BNP Paribas Fortis. This sale generated EUR 3.25 billion. There were therefore seven auctions which brought in a total of EUR billion, i.e. EUR billion during the competitive round of auctions and EUR 4.55 billion during the non-competitive round. The average amount issued per competitive round was just over EUR 3 billion (3.18 billion). The issuance calendar which is always published in December does not specify either which lines will be tendered the following year or the number of lines. This information is disclosed one week before the auction, following consultation with the primary dealers. Market demand and market circumstances are analysed in detail during this consultation and a decision is taken on that basis. Three OLO lines were issued each time at the March, August and October auctions, while the Treasury issued four lines at the four other auctions. The new 10-year benchmark (OLO 68) which was launched in January was demanded at each auction and offered in such a way that the initial amount of EUR 4.0 billion swelled to reach a total amount outstanding of EUR billion. OLO 69, the new 5-year issue, which was launched in February, was subsequently offered on six occasions at auctions, thereby increasing the amount in circulation from EUR 5 to billion. In September, the Treasury issued OLO 71, a new 30-year benchmark with a final maturity of 22 June This bond was not offered at subsequent auctions and as a result the amount in circulation at the end of the year was unchanged (EUR 4 billion). The bid to cover ratio for all seven auctions was an average of 1.88, compared to 1.89 in 2012 and 2.18 in The bid-to-cover ratio is the ratio between the amounts offered and the amounts selected. It is an indicator which makes it possible to determine whether the auction is sufficiently covered by the bids, and therefore, whether there is enough demand for the paper. The level of 1.88 indicates that demand for the OLO is still significantly high. The extreme values recorded for this ratio in 2013 were 1.47 and 2.98 respectively for the auction of OLO 68 (maturing on 28/06/2023) in May and of OLO 64 (maturing on 28/03/2026) in June. The tail is also another indicator for the auction. This is the difference between the limit price and the lowest price offered for the line in question. The tail highlights the quality of demand: a small tail means that all bids were competitive whereas a long tail indicates that the bids that were not accepted were too prudent and below the market price. This provides an illustration of primary dealers interests annual report 23

24 Chapter II 1.6 OLOs - BID TO COVER RATIO AT THE 2013 AUCTIONS (in billions of EUR) OLO69 OLO68 OLO66 OLO69 OLO61 OLO68 OLO31 OLO69 OLO68 OLO66 OLO44 OLO69 OLO67 OLO68 OLO64 OLO69 OLO67 OLO68 OLO60 OLO69 OLO68 OLO66 OLO52 OLO67 OLO OLOs - ISSUES DISTRIBUTED BY TYPE (in billions of EUR) /03/ /03/ /03/ /04/ /04/ /04/ /04/ /05/ /05/ /05/ /05/ /06/ /06/ /06/ /06/ /07/ /07/ /07/ /07/ /08/ /08/ /08/ /10/ /10/ /10/ /01/ /02/ /03/ /04/ /04/ /05/ /06/ /07/ /08/ /09/ /10/2013 Auctions Bid-to-cover (right-hand scale) Syndications Competitive bids Non-competitive subscriptions The tail of OLO 68, the 10-year benchmark, which was offered at each auction, fluctuated between 0.19 and 0.48 cent for six of the year s seven auctions. It was only in June that it almost doubled, when it increased to 0.95 cent. Extreme values were recorded for the OLO 69 tail in July (0.17 cent) and March (1.11 cent). Compared with 2012, the relative share of the very long-term segment (more than 10 years) fell from 27.30% to 24.42% and the total issued fell from EUR billion to EUR billion. The relative share of the short and medium-term maturities (less than 10 years) rose from 36.39% to 43.33%. Demand for the 10-year segment remained significant with a relative share of 32.25%. It should also be noted that primary and recognised dealers received the auction results on average 6 minutes after the closure of bids. The shortest time was 4 minutes for the August and October OLO auctions. The longest time (9 minutes) was recorded at the auction of 29 July. 24 Debt Agency Kingdom of Belgium

25 Financing policy in Non-competitive subscriptions After the competitive round of auctions, primary dealers but not recognized dealers are entitled to participate in non-competitive subscriptions. They acquire this right through their active participation in the auctions. They can buy securities at the weighted average auction price, based on a predetermined percentage of their bids accepted in the two previous auctions. This right to non-competitive subscription for all the primary dealers amounted to EUR 7.01 billion, 57,23% (i.e. EUR 4.01 billion) of which was actually exercised (versus 68.44% in 2012). Exercise of this right depends on market conditions at the time of the non-competitive round. Some institutions such as the Caisse des Dépôts et Consignations and the Fonds Monétaire also have the option of subscribing to the non-competitive round. But, contrary to primary dealers, these institutions may only subscribe before the start of the competitive round at the weighted average price (which is not yet known at this time). EUR 537 million was also subscribed in this way, which meant that the noncompetitive subscriptions finally amounted to EUR 4.55 billion in OLO ISSUANCE RESULTS IN 2013 (in millions of EUR) Issue date Final maturity ISIN Code Outstanding before issuance Amount offered Amount accepted (Comp/ Syndication) Exerc. non comp Total accepted Bid-tocover Weighted average price / Syndication price Weighted average rate / Syndication Yield 9/01/ /06/2023 BE SYNDICATION /02/ /06/2018 BE Min/max bid Stop price Successful bidders SYNDICATION /03/ /06/2018 BE / /06/2023 BE / /03/2032 BE / AUCTION /04/2013 2/05/2018 BE SYNDICATION /04/ /06/2018 BE / /09/2021 BE / /06/2023 BE / /03/2028 BE / annual report 25

26 Chapter II Issue date Final maturity ISIN Code Outstanding before issuance OLO ISSUANCE RESULTS IN 2013 (in millions of EUR) Amount Amount Exerc. Total Bid-tocover offered accepted non accepted (Comp/ comp Syndication) Weighted average price / Syndication price Weighted average rate / Syndication Yield Min/max bid Stop price Successful bidders AUCTION /05/ /06/2018 BE / /06/2023 BE / /03/2032 BE / /03/2035 BE / AUCTION /06/ /06/2018 BE / /09/2019 BE / /06/2023 BE / /03/2026 BE / AUCTION /07/ /06/2018 BE / /09/2019 BE / /06/2023 BE / /03/2041 BE / AUCTION /08/ /06/2018 BE / /06/2023 BE / /03/2032 BE / AUCTION /09/ /06/2045 BE SYNDICATION /10/ /03/2018 BE / /09/2019 BE / /06/2023 BE / AUCTION TOTAL Debt Agency Kingdom of Belgium

27 Financing policy in 2013 OLO LINES OUTSTANDING AT Maturity Coupon ISIN Code N Net available5 Buybacks in portfolio Stripped securities Strippable /03 4 BE o X? 28/ BE X /03 8 BE X 28/ BE X 28/ BE X /02 FRN BE / BE X 28/ BE X /03 4 BE X 28/ BE X 28/ BE X /03 4 BE X 02/05 FRN BE / BE X /03 4 BE X 28/09 3 BE X / BE X / BE X /03 4 BE X / BE X / BE X / BE X / BE X /03 4 BE X /03 5 BE X / BE X / BE X Available on the market (amounts issued without buybacks) on annual report 27

28 Chapter II ORI Auctions Within the framework of its financing strategy, the Treasury introduced a new feature in 2012, the possibility of holding an "Optional Reverse Inquiry" (ORI) auction. This new form of issue appeared after the eurozone crisis reached its peak at the end of 2011 with high interest rates and significant drop in liquidity. Whenever there proves to be insufficient liquidity on the secondary markets, the ORIs allow the Treasury to respond at given moments to a specific demand from investors. After two ORI auctions in 2012, there were none in Buy-backs The buy-back of an OLO that had not yet reached its maturity has two advantages: - more efficient cash management of the maturity date itself; - prefinancing in the year prior to maturity; the latter allows adjustment of the total to be issued in an OLO if issue conditions are favourable. For the buy-back of its bonds, the Treasury has, since July 2001, had the use of the electronic trading system MTS Belgium (MTSB), which offers liquidity, efficiency and transparent pricing. Buy-backs are performed via a screen ( Belgian Buy-Backs / BBB) which can only be accessed by primary and recognised dealers and on which the Treasury continuously displays purchase prices. In addition to this possibility, the dealers can also contact the Treasury by telephone to be included in the buy-back programme. When an OLO line reaches a date less than 12 months prior to its final maturity, the Treasury offers it for buy-back, which enables investors to divest themselves of their securities in advance. For the Treasury, buy-backs allow planned prefinancing in light of future OLO maturity dates. In 2012, the Treasury had begun to buy back lines of OLO 50 (maturing on 28 March 2013) and 41 (maturing on 28 September 2013). The Treasury bought back EUR 939 million of OLO 50 during the first three months of 2013, which took the total amount bought back to EUR 4.61 billion. This sum represented 36.22% of the total amount issued. In 2012, the Treasury had also bought back 1.23 billion of OLO 41 and, added to the EUR billion of buy-backs in 2013, the amount to be redeemed at final maturity has been reduced to EUR billion, i.e. a reduction of 23.21%. In addition, in April 2013, the Treasury began buying back OLO 54 (maturing on 28 March 2014). The amount in circulation for this OLO was initially EUR billion. The Treasury bought back a further EUR 4.24 billion of OLO 54, i.e % of the initial amount, thereby reducing the amount in circulation at the end of the year to only EUR 8.65 billion. In October 2013, the Treasury began buying back OLO 43 (maturing on 28 September 2014). In the last few months of 2013, the Treasury bought back EUR 2.57 billion of this OLO, thereby reducing the amount in circulation of this bond to EUR billion, i.e. a reduction of 20.03%. In total, in 2013, the Treasury bought back, in the 4 OLO lines, EUR billion: EUR 3.31 billion in the two lines maturing in 2013 and EUR 6.81 billion in the two lines maturing in Debt Agency Kingdom of Belgium

29 Financing policy in 2013 BUY-BACKS CONDUCTED BY THE TREASURY IN 2013 ON A MONTHLY BASIS (IN MILLIONS OF EUR) JAN FEV MAR AVR MAI JUN JUL AOU SEP OCT NOV DEC TOTAL OLO 50 March OLO 41 September OLO 54 March OLO 43 September Monthly total Strips OLOS - CHANGE IN THE NET STRIPPED AMOUNT (in millions of EUR) The OLO strips market was less dynamic than in 2012, mainly due to the fact that the Treasury has not issued any more new OLO lines with the usual coupon dates of 28 March and 28 September. In a few years, all new OLO lines will have 22 June as their maturity date. Existing OLO lines with coupon dates of 28 March and 28 September can only be offered at auctions as off-the-run bonds. As a result, the possibility of reconstituting the BE-strips representing interest as OLOs is not increased and is limited to the final maturity dates of existing OLOs / / / / / / / / / / / / / / / / / / / / / / / /2013 At the end of 2013, the coupon date of 22 June corresponded to only 3 benchmark bonds. A good level of stripping activity is only possible if enough OLO lines are issued with this coupon maturity date. In addition, the final maturity dates must be evenly spread along the curve. It is then that most strip traders are able to derive a correct strip curve on the basis of yields of the underlying OLO curve. In the meantime, activity on the strips market remains limited. On the other hand, there is ongoing demand for fungible strips and, moreover, this demand has perhaps never been as high. The existence of long-term fungible strips (above 20 years) guarantees a yield above the break-even level at which insurance companies can comply with their obligations. Accordingly, with the strong demand for fungible strips, primary dealers have again shown an interest in dealing in OLO strips annual report 29

30 Chapter II OLOs - Activity splitting and consolidation (in millions of EUR) 01/ / / / / / / / / / / / / / / / / / / / / / / /2013 Splitting Consolidation Treasury Certificates (TCs) In 2013 the end-of-month outstanding amounts of Treasury certificates varied within a range of EUR 25 to 35 billion. The amounts outstanding increased at the start of the year in order to cover the OLO capital and interest reimbursements in March. They then decreased from May in an almost linear manner, due in part to the resounding success achieved in the implementation of the OLO issuance programme which enabled the Treasury to rely less on certificates for its financing needs. In the year under review, the basic Treasury certificates issue calendar remained unchanged in comparison with the previous year. There were therefore two auctions per month - one at the beginning of the month for 3- and 6-month maturities and the other in mid-month for 3- and 12-month maturities. As in 2012, the Treasury did not issue 1- or 2-month Cash Management T-Bills certificate issues that are added to the programme of conventional issues. Investors sustained their interest in Treasury certificate auctions, evidenced by the bid-to-cover ratio, which is the amount of bids received divided by the amount of bids accepted at auctions / / /2012 TCs - OUTSTANDING (end of month, in billions of EUR) 04/ / / / / / / / /2012 It should be noted that this ratio was, on average, still greater in 2013 than 2 for the three maturities. 01/ / / / / / / / / / / / Debt Agency Kingdom of Belgium

31 Financing policy in TCs - "BID TO COVER" RATIO FOR AUCTIONS IN 2013 In 2013, the average spread at auctions between the limit rate and the lowest offered rate was stable in relation to For the 3 and 6-month maturities it was just under 2 basis points, while on the 12-month segment it was just over 2 basis points TCs - WEIGHTED AVERAGE RATES IN 2013 (in %) /01/ /01/ /02/ /02/ /03/ /03/ /04/ /04/ /05/ /05/ /06/ /06/ /07/ /07/ /08/ /08/ /09/ /09/ /10/ /10/ /11/ /11/ /12/ /12/ months 6 months 12 months The average bid-to-cover rate rose to 4.16 for the 3-month segment, with an average bid per auction of EUR 3.29 billion, with a rise to 2.94 for the 6-month segment, with an average bid of EUR 3.06 billion and finally to 2.05 for the 12-month segment, with an average bid of EUR 2.94 billion. 10/01/ /01/ /02/ /02/ /03/ /03/ /04/ /04/ /05/ /05/ /06/ /06/ /07/ /07/ /08/ /08/ /09/ /09/ /10/ /10/ /11/ /11/ /12/ /12/ Months 6 Months 12 Months These ratios remained relatively stable, in line with those of the previous year. As regards changes in the bid-to-cover ratio for the 3-month segment, the beginning of the year under review was characterised by large issues with a bid-to-cover ratio slightly in excess of 2. From May, this ratio increased sharply, reflecting a decrease in issues in this maturity segment. In the middle of the year, it decreased again before increasing again in October, as a result of an additional reduction in the amounts allocated by the Treasury at auctions. In December, this 3-month ratio fell following a decrease in investor bids as they prepared to close their accounts. The weighted average auction rates, as set out in the graph above, were again fairly low in Overall, the level of these rates reflects the return to normal of markets in annual report 31

32 Chapter II 0 TCs - ISSUE SPREADS BETWEEN THE AVERAGE WEIGHTED RATE OF TREASURY CERTIFICATES AND EURIBOR IN 2013 (in basis points) /01/ /01/2013 5/02/ /02/2013 5/03/ /03/2013 2/04/ /04/ /04/ /05/2013 4/06/ /06/2013 2/07/ /07/ /07/ /08/2013 3/09/ /09/2013 1/10/ /10/2013 5/11/ /11/2013 3/12/ /12/ Months 6 Months 12 Months The graph above illustrates changes in the spread between the weighted average rate of Treasury Certificates and the Euribor for issues of 3-, 6- and 12-month lines. The spreads on the 3-month segment were stable, with an average of -19 basis points. For the 6-month segment, the average was -28 basis points. For the 12- month segment, the spreads trended downwards throughout the year, with an average of -39 basis points. The levels of these spreads in 2013 reflect the confidence of investors in the Belgian market. Concerning participation in the auctions, on average 50% to 60% of participants were allocated Treasury Certificates for all the terms. In 2013, in terms of volume, primary dealers used 3% of their entitlement to obtain Treasury Certificates at the weighted average auction rate by means of noncompetitive subscriptions. It should be noted that the exercise of the entitlement of primary dealers to non-competitive bids depends on market conditions. 32 Debt Agency Kingdom of Belgium

33 Financing policy in 2013 Auction date Amount at maturity Maturity date ISIN BE0312 Month RESULTS OF TREASURY CERTIFICATE AUCTIONS IN 2013 (in millions of EUR) Amount Exerc. Weighted Amount Total Bid-tocover accepted Non average offered accepted (Comp) Comp rate Outstanding before auction Weighted average price Euribor Spread Min/max bid Limit rate/price 8/01/ /04/ / Successful bidders 20/06/ / /01/ /04/ / /01/ / /02/ /05/ / /07/ / /02/ /05/ / /02/ / /03/ /06/ / /08/ / /03/ /06/ / /03/ / /04/ /07/ / /09/ / /04/ /07/ / /04/ / /04/ /08/ / /10/ / /05/ /08/ / /05/ / /06/ /09/ / /11/ / /06/ /09/ / /06/ / /07/ /10/ / annual report 33

34 Chapter II Auction date Amount at maturity Maturity date ISIN BE0312 Month RESULTS OF TREASURY CERTIFICATE AUCTIONS IN 2013 (in millions of EUR) Amount Exerc. Weighted Amount Total Bid-tocover accepted Non average offered accepted (Comp) Comp rate Outstanding before auction Weighted average price Euribor Spread Min/max bid Limit rate/price Successful bidders 19/12/ / /07/ /10/ / /07/ / /07/ /11/ / /01/ / /08/ /11/ / /08/ / /09/ /12/ / /02/ / /09/ /12/ / /09/ / /10/ /01/ / /03/ / /10/ /01/ / /10/ / /11/ /02/ / /04/ / /11/ /02/ / /11/ / /12/ /03/ / /05/ / /12/ /03/ / /12/ / Debt Agency Kingdom of Belgium

35 Financing policy in State notes The Belgian Government issued State notes for the eighteenth consecutive year. State notes are fixed-interest medium- and long-term loans with annual coupons, in EUR. They are placed through investment institutions bound by contract to the Treasury. On the primary market, this product is targeted at private investors, and certain other investor categories: foundations, non-profit organisations, churches or institutions classified as religious bodies in the national register of legal persons, entities established in the European Economic Area which are similar to the entities listed above and which benefit from the same subscription rights by virtue of community law. The Treasury Department continued to implement the project for modernisation of the Ledger Service during The first phase of this project, which concerned the subscription for State Notes on the primary market, was completed in Thus, since the December 2012 issue, it has been possible for retail investors and certain legal entities to subscribe for State Notes online via the Ledger Service s website using their electronic ID card or a token. Since the December 2013 issue, it has also been possible for retail investors subscribing online to pay the amount of their subscription online by bank card. Other features, such as the possibility for investors to consult their portfolio online will be added gradually to the application with the aim of providing citizens with a user-friendly, high quality service. Moreover, the level of interest rates had an impact on the amounts raised, since the Treasury raised only EUR 12.7 million and 9.3 million via the first two issues of the year under review. The amounts generated by the last two issues recovered slightly and reached EUR 23.8 million and 20.5 million respectively. Therefore, the total amount of State note issues in 2013 was EUR 66.4 million, i.e. down on the 142 million raised in With regard to the secondary market, the State notes are quoted on the Euronext Brussels continuous market and the liquidity is provided by a liquidity provider, Florint BV. In addition, in order to facilitate liquidation and tax payment of State notes, they are included in the Belgian National Bank s X/N liquidation system. STATE NOTE ISSUES IN 2013 Issues State notes Coupon Price Total subscribed SN 5 years 1.00 % 100 % EUR SN 8 years 1.85 % 100 % EUR Total EUR SN 5 years 0.75 % 100 % EUR SN 8 years 1.50 % 100 % EUR Total EUR SN 5 years 1.35 % 100 % EUR SN 8 years 2.15 % 100 % EUR Total EUR SN 5 years 1.00 % 100 % EUR SN 8 years 1.90 % 100 % EUR Total EUR EUR Given the low interest rate environment, the Treasury issued only two types of State notes in 2013, namely 5-year and 8-year notes, as the yield on 3-year notes was not sufficiently attractive annual report 35

36 Chapter II 2.2 Tailor-made products OLOs are the Treasury s most important financing instrument as they cover 90% of the long-term financing requirements. In addition, the Treasury also offers flexible financing instruments such as the EMTN (Euro Medium Term Notes) and the Schuldscheine. These two products are issued at the request of investors with the objective of providing broader diversification of the investor base. As these are flexible issues, made to measure for the investor, these instruments can only be issued if they are shown to be cost effective. This means that the issue price must be lower or equal to that of an OLO with the same maturity. These two instruments must therefore be considered as a supplement to the standard programme and must not in any way compromise the liquidity of the OLOs "Euro Medium Term Notes" (EMTN) Programme As in 2012, the EMTN issuance programme was very successful in Fourteen transactions were carried out for a total amount of EUR 1,955,751,873. Three of the transactions were in Euros at floating rates which were then swapped for fixed term debt. Several transactions were slightly structured (call option). Middle East / North Africa 10.00% Germany / Austria 3.09% EMTN - GEOGRAPHICAL DISTRIBUTION OF THE DEAL IN USD IN 2013 Asia 14.50% Other Europe 8.95% Other 2.50% Switzerland 2.68% EMTN - DISTRIBUTION BY INVESTOR TYPE OF THE DEAL IN USD IN 2013 UK 58.28% Other than a few transactions in Norwegian Krone, the Debt Agency issued an EMTN in dollars for an amount of one billion, which corresponded to EUR million. This 5-year transaction was arranged via a syndicate composed of four banks: Barclays, Crédit Agricole, JP Morgan and Royal Bank of Scotland. The two graphs below show the investor base, revealing the strong participation of UK and real money investors. Central Banks / Official Institutions 27.00% Pension Funds 7.00% Banks / Private Banks 57.43% Lastly, in general, it is to be noted that in 2013 EMTN investors tended to favour chiefly maturities in excess of 5 years, with the longest one being in the 20-year segment. Asset / Fund Managers 8.57% 36 Debt Agency Kingdom of Belgium

37 Financing policy in 2013 EMTN ISSUES IN 2013 Value Maturity Amount Exchange value Rate type 18/01/ /12/ EUR EUR Floating 31/01/ /01/ EUR EUR Floating 12/03/ /06/ EUR EUR Floating 03/06/ /06/ EUR EUR Fixed 22/05/ /05/ EUR EUR Fixed 10/06/ /06/ USD EUR Fixed 14/06/ /06/ EUR EUR Fixed 24/06/ /06/ NOK EUR Fixed 29/07/ /07/ EUR EUR Fixed 29/07/ /07/ EUR EUR Fixed 09/07/ /07/ NOK EUR Fixed 10/07/ /07/ EUR EUR Fixed 18/07/ /07/ NOK EUR Fixed 18/09/ /09/ NOK EUR Fixed "Schuldscheine" Contracts EUR SCHULDSCHEINE CONTRACTS CONCLUDED IN 2013 Value date Amount Maturity 18/02/ EUR 28/03/ /02/ EUR 10/11/ /03/ EUR 10/04/ /03/ EUR 10/04/ /05/ EUR 08/08/ /05/ EUR 08/08/ /05/ EUR 22/05/ /05/ EUR 29/05/ /05/ EUR 26/05/ /05/ EUR 26/05/ /06/ EUR 03/06/ /05/ EUR 31/05/ /06/ EUR 12/06/ /06/ EUR 18/08/ /06/ EUR 18/08/ /06/ EUR 20/06/ /06/ EUR 26/06/ /07/ EUR 03/07/ EUR In 2013, the Treasury concluded 18 Schuldscheine transactions for a total amount of EUR 854 million. The vast majority of these transactions were slightly structured, that is to say with an embedded call option. These products were placed by the Treasury on a very long-term basis since 90% of the Schuldscheine had a maturity of 20 years or even longer one of the transactions even had a maturity of 49 years. In addition, these transactions satisfied the conditions required for issuing flexible products, namely cost-effectiveness and diversification. It is also important to stress that this product satisfied the need of German investors to obtain yields in excess of 3% and that it clearly contributed to the success of the 30-year OLO in annual report 37

38 Chapter II Belgian Treasury Bills (BTBs) As in previous years, BTBs which constitute the Belgian Commercial Paper (CP) programme, proved useful as flexible, inexpensive financing instruments. In addition, the Treasury made maximum use of the foreign currency issuing possibility. Above all, the Treasury took advantage of swap windows 6 when issuing in GBP. In March, the programme was used to finance the 28 March coupon maturity. In the last quarter of 2013, Treasury Certificate issuance was reduced. The resultant cash shortfalls were made good by issuing short-term commercial paper. The addition of a new dealer having a very good reputation in GBP also contributed to the success of the COP programme in As in previous years, the foreign currency debt was absorbed by CP issues. After swapping, the Treasury obtained negative interest rates in CHF Treasury Bonds Silver Fund No new resources were allocated to the Silver Fund in The Treasury Bonds Silver Fund are zero-coupon bonds. The interest, determined upon issue based on the OLO rate curve, is capitalised up until the final maturity date. The securities are included in the Government debt and the value posted takes into account the interest accrued. A "Treasury Bond - Silver Fund" matured in The Silver Fund reinvested the capital and interest in two new "Treasury Bonds Silver Fund" maturing in 2025 and On 31st December 2013, the reserves in the Silver Fund invested in Treasury Bonds Silver Fund amounted to EUR billion and had maturities extending from 2014 to BTBs - DEVELOPMENT OF THE OUTSTANDINGS IN 2013 (in millions of EUR) More detailed information is available on the Fund s website: / / / / / / / / / / / /2013 EUR CHF 6 Swap window: this is used when it is more advantageous to issue in foreign currencies and then swap the amount obtained rather than to issue directly in the currency in which the Treasury has a financing need. 38 Debt Agency Kingdom of Belgium

39 Financing policy in 2013 TREASURY BONDS SILVER FUND INVESTMENTS STATEMENT ON Treasury Bond Silver Pro rata interest on Amount invested Interest rate Fund Portfolio on Amount at final maturity 22/01/ /04/ (1) /01/ /04/ (1) /01/ /04/ (1) /01/ /04/ (1) /01/ /04/ (1) /12/ /04/ (2) /12/ /04/ (2) /05/ /04/ (3) /12/ /10/ (4) /04/ /04/ (5) /07/ /04/ (6) /10/ /04/ (7) /04/ /10/ (8) /10/ /10/ (9) /10/ /04/ (9) /04/ /04/ (10) /04/ /04/ (10) /12/ /04/ (11) /04/ /10/ (12) /04/ /04/ (12) (1) Belgacom Pension Fund ( ). (2) Fadels ( ). (3) DLU ( ); Credibe balance ( ) ; short term interest ( ). (4) BNB profit ( ); Belgacom Dividend ( ) ; DLU ( ); Credibe balance ( ); short term interest ( ). (5) Fiscal balance 2006 ( ); short term interest ( ). (6) Final maturity BT-FV ( ); short term interest ( ). (7) Final maturity BT-FV ( ); short term interest ( ). (8) Final maturity BT-FV ( ); short term interest ( ). (9) Final maturity BT-FV ( ). (10) Final maturity BT-FV 16 April 2012 ( ); short term interest ( ). (11) Final maturity BT-FV 15 October 2012 ( ). (12) Final maturity BT-FV ( ); short term interest (75.34) annual report 39

40 Chapter II 3. Perpetual bonds and lottery bonds : redemptions 3.1 Lottery bonds On 17 May 2013, the General Treasury Department made the very last drawing under the 1923 lottery bond, which was part of a series of financing operations carried out from 1921 by the Federation of Cooperatives for War Damages. It was at the same time a bond and a lottery. The Belgian State was responsible for paying the coupon and reimbursing the debt. The proceeds of these financing operations were used at the time to rebuild Ypres and Dinant which had been badly damaged during the war. At the end of 2012, the total amount of perpetual bonds in circulation was EUR 38,893,659, i.e. only 0.011% of the total Federal State debt. The law of 17 June 2013 laying down tax and financial provisions relating to sustainable development (art ) was the legal basis for redemption of the perpetual bonds. The Royal Decree of 17 July 2013 established the date and arrangements for redemption of the perpetual bonds. This decree was published in the Belgian Official Journal of 23 July The redemption date was set at 1 st August 2013, plus accrued interest from the previous interest payment date up to 1 st August The bonds concerned were redeemed, as announced, at their nominal value. The 1923 lottery bond had a term of 90 years, with a final maturity of 15 June The bond was redeemed on an annual basis by drawing lots in accordance with the drawing plan and redemption schedule. Drawn bonds were redeemable at their nominal value of BEF 1,050, increased by a premium of BEF 100. The lucky winners were repaid the amount of the lot attributed to them. 84 lots were attributed per year for a total amount of BEF 5 million. 3.2 Perpetual bonds On 26 September 2012, the Minister of Finance announced at a Cabinet meeting that he intended to table a government bill in order to redeem the following perpetual bonds their nominal value: - Debt 2.5%, ISIN code BE ; - Debt 3.5% 1937, ISIN code BE ; - "Unified debt 4%, 1 st series", code ISIN BE ; - "Unified debt 4%, 2 nd series", code ISIN BE ; - 4% Liberation, ISIN code BE Debt Agency Kingdom of Belgium

41 Financing policy in General Directives and control of risks CHANGE IN THE 12 MONTH REFINANCING AND REFIXING RISKS OF THE EURO DEBT IN 2013 (in % of the total) 4.1 Refinancing and refixing risks The 12 and 60-month refinancing risks - defined by the ratio of debts maturing in these terms to total debt decreased significantly in The 12-month refinancing risk was only 15.28% at the end of 2013 compared with 19.19% at the beginning of the year, while the 60-month refinancing risk was 51.47% compared with 55.69% twelve months earlier / / / / / / / / / / / /2013 Therefore, these risks remained easily below the maximum levels of 20.00% and 60.00% (55.00% with effect from July 2013) fixed by the Minister of Finance in the General Debt Directives. Refinancing Risk Rate Refixing Risk Another way of calculating refinancing risk is to compare the amount to be refinanced to GDP at current prices. At the end of 2013, the 12-month refinancing risk, calculated in this way, was 15.3%, i.e. the lowest percentage for many years. 57 CHANGE IN THE 60 MONTH REFINANCING AND REFIXING RISKS OF THE EURO DEBT IN 2013 (in % of the total) In order to take account of interest rate swaps and the variable nature of certain debt instruments, it is necessary to calculate what is known as the refixing risk which measures the sensitivity of the debt portfolio to interest rate variations. These refixing rates also decreased significantly in 2013: the 12-month refixing risk fell from 20.27% to 15.83% while the 60-month refixing risk fell from 56.83% to 51.29%. In 2013, the maximum authorised values were increased to 22.50% and 60.00% respectively / / / / / / / / / / / /2013 Refinancing Risk Rate Refixing Risk 2013 annual report 41

42 Chapter II 4.2 Credit risk Credit risk is determined by the potential loss to the Treasury if one or more of its counterparties fail to fulfil their contractual payment obligations. As in the previous year, the Treasury maintained in 2013 the decisions taken in 2008 and 2011 to limit by volume and duration the credit limits 7 of its bank counterparties and the eurozone countries. Given that the level of the credit ratings of most financial institutions and eurozone countries started to stabilise gradually in 2013 and that fewer ratings were lowered, the Treasury had to cancel only three credit lines because their rating no longer satisfied the minimum Treasury requirements 8. In 2013, a new counterparty was granted a credit line for the first time. In 2000, an add-on was added to the market value of volatility, unsecured products. This provided for the amount available under a credit line to be reduced in order to anticipate any sudden market reversal. However, this add-on does not provide information on current credit risk and the value of this add-on, namely 189 million at the end of 2013 versus 239 million at the end of 2012, is now reported only for informational purposes. Moreover, in the future, because of developments 9 in recent years, the Treasury will no longer have unsecured credit lines on the counterparties with which such products had been concluded. Apart from that, the principles applied by the Treasury for calculation of credit risk and to determine credit limits were largely unchanged in As part of its liquidities management, the Treasury concludes transactions on the interbank market. Cash surpluses are placed with financial counterparts. As in previous years, the Treasury maintained its decision to make use of reverse repos exclusively for placements greater than one week, and in general to grant preference to conclusion of reverse repos for shorter maturities. For the reverse repo period the Treasury receives an OLO and/or a Treasury certificate as collateral, which limits the credit risk of these operations. For the conclusion of these repo transactions, the Treasury has concluded in the past EMA 10 contracts with various counterparties. This policy of preferring reverse repos is evident from the figures. In 2013, the average daily amount invested 7 Credit limits of the Treasury s bank counterparties are calculated on the basis of their regulated capital and ratings. 8 The Treasury only accepts counterparties with a minimum credit rating of A for its new transactions. 9 Increase in CSA agreements and withdrawal of credit lines that no longer satisfied the minimum rating criterion. 10 See Annual Report on the Federal Government Debt 2007, Part 3, point 3 for an explanation of the EMA framework agreement. by The Treasury fell by 6%. This decrease was largely due to the 34% fall in the daily average amount of ordinary investments. On the other hand, the average daily amount of reverse repos increased by 17% and the share of reverse repos in total investments continued to increase: from 56% in 2012 to 69% in From June to September 2013, reverse repos even exceeded 80% of total investments. On 31 December 2013, the total credit risk on derivatives amounted to EUR 547 million, i.e. down by 71% on the end of the previous year (EUR 1,901 million). The Credit Support Annex (CSA) agreements that the Treasury concluded 11 with all of its primary dealers and with some other counterparties enabled the Treasury to partially cover itself against credit risk. At the end of 2013, it had received collateral of EUR 307 million, as a result of which the net credit risk in derivative products amounted to EUR 241 million, a decrease of 49% in comparison with the end of the previous year (EUR 467 million) SHARE OF INVESTMENTS AND REVERSE REPOS. AVERAGE DAILY AMOUNTS PLACED (in millions of EUR) Reverse repos Placements 11 In 2013, a Credit Support Annex (CSA) agreement was concluded with an additional counterparty. 42 Debt Agency Kingdom of Belgium

43 Financing policy in 2013 Whereas that of FXSwaps 12 was stable, it was the decrease in the credit risk (before collateral) of interest rate swaps (- EUR 874 million) and foreign currency swaps (- EUR 481 million) that was the cause of this reduction in total credit risk on derivatives. Thirteen final maturities and cancellations or partial cancellations of swaps accounted for 90% of this decrease; these cancellations were the result of a policy of reducing our risk exposure on certain counterparties. The remainder of the decrease was mainly due to slight improvement in the interest rate yield curve and appreciation of the Euro against the main foreign currencies MONTHLY CHANGES IN THE SHARE OF INVESTMENTS AND REVERSE REPOS (Average amounts placed daily, in millions of EUR) At the end of the year, only one counterparty having a position in derivatives representing a credit risk for the Treasury had a rating below the A limit which applies to the conclusion of all new transactions. The credit risk in derivatives of such counterparties has fallen by 23% since the end of the previous ear. At the end of 2013, 97% of the net credit risk on derivatives involved counterparties having an A rating. When the rating of a swap counterparty drops below the A threshold, the Treasury has the right to cancel the existing derivatives with this counterparty on the basis of a clause included in the ISDA 13 contract. This clause in the ISDA contract, called the Additional Termination Event (ATE), is an entitlement that only the Treasury can benefit from, to the exclusion of its counterparties. It should be noted that invoking the ATE does not constitute an obligation. When in 2013 the rating of a swap counterparty fell below A, as the derivative transaction concluded with the said counterparty did not represent a credit risk for the Treasury 14, the latter decided not to exercise the ATE clause and therefore not to cancel the derivative transaction outstanding with the said counterparty. As long as the said counterparty s rating remains under the A limit, the Treasury will not conclude any new transactions with it. Whereas at the end of 2012 almost 57% of the total credit risk on derivatives consisted of transactions having a minimum residual duration of 10 years, this percentage had fallen to 23% at the end of This decrease was mainly due to the cancellation of interest rate swaps with long maturities / / / / / / / / / / / / / / / / / / / / / / / /2013 Reverse repos Placements The 2008 annual debt report stated that following the bankruptcy of Lehman Brothers Holdings Inc., the Treasury held a (doubtful) credit claim of EUR 9.2 million on Lehman Brothers International (Europe). In 2012 the Treasury recovered a first instalment of 25% of this claim (EUR 2.3 million). In 2013, it received two further instalments of EUR 3.7 and 2.1 million respectively. At the end of 2013, the total amount recovered was therefore EUR 8.1 million. The balance will be received during Currently the only components of the Others heading in the following below. 13 International Swaps and Derivatives Association. The ISDA Master Agreement is a framework agreement for the conclusion of transactions in derivative products. 14 Negative exposure annual report 43

44 Chapter II CREDIT RISK FOR DERIVATIVE PRODUCTS BY RATING LEVEL AT Rating(*) No. of % Total risk before collateral % Collateral Total risk % transactions AAA % % % % % % A % EUR 98.8 % EUR EUR 97.4 % <A % EUR 1.2 % EUR 2.6 % Total % EUR % EUR EUR % (*) Quotation of the counterparty or the parent company CREDIT RISK FOR DERIVATIVE PRODUCTS BY RATING LEVEL AND BY PRODUCT AT Rating(*) Interest rate swaps % Foreign currency swaps % Other derivatives % AAA % % % AA % % % A EUR 98.2 % EUR % EUR % <A EUR 1.8 % % 0.0 % Total EUR % EUR % EUR % (*) Quotation of the counterparty or the parent company DISTRIBUTION OF CREDIT RISK FOR DERIVATIVE PRODUCTS BY RESIDUAL MATURITY AT Total Interest rate swaps Foreign currency swaps Others < 1 year 6.0 % -0.1 % 16.1 % % 1 to 5 years 52.4 % 80.3 % 5.1 % 0.0 % 6 to10 years 19.1 % -9.9 % 68.5 % 0.0 % >= 10 years 22.5 % 29.7 % 10.3 % 0.0 % Total % % % % 44 Debt Agency Kingdom of Belgium

45 Financing policy in 2013 III. MAIN STRATEGIC POINTS 2013 annual report 45

46 Chapter III 1. Ongoing improvement in the economic situation in the eurozone The sovereign debt crisis in the eurozone was characterised by strong differences in the interest rate that the States had to pay on their bonds. The size of these differences was also an indicator of the intensity of the crisis. yields fell to levels of less than 4.0% in the last months of Although Italian and Spanish yields were at slightly higher levels, they fell significantly. Certainly Greek levels were a little higher but there too significant decline was perceived. Only Portuguese interest rates did not have a clear trend in The fall in interest rates held out the possibility of a return to market financing for the countries benefiting from a support programme. On 8 December 2013, Ireland was able to exit from the support programme of the European Financial Stability Fund. Portugal followed suit in May During 2013, these two countries had already partially returned to the financial markets to raise long-term financing and they now rely completely on them after abandoning the support programme CHANGES IN 10-YEAR INTEREST RATES OF GIIPS IN 2013 The improved situation of sovereign bond markets was mainly due to the European Central Bank s communication in mid-2012 and the introduction of Outright Monetary Transactions by the ECB in August. At the time, this had an immediate positive impact on the bond market and this trend in 2013 was part of the ongoing convergence which began in / / / / / /2013 In 2013, there was a convergence of the different interest rates. The interest rates of a certain number of countries considered as peripheral eurozone countries fell to levels comparable to those that existed before the crisis. For example, 10-year Irish 07/2013 Ireland Spain Greece Portugal Italy 08/ / / / /2013 In addition, new initiatives were taken with a view to developing closer budgetary and economic collaboration in the European Union. With regard to necessary controls in this regard, on 27 May 2013, two new regulations entered into force, namely the Two Pack regulations which apply solely to eurozone members. The first regulation requires these countries to submit their draft budget to the European Commission by 15 October. The second provides a framework enabling the European Commission to monitor budgets closely and carry out checks in respect of countries that have serious financial difficulties or are at risk of such difficulties. Moreover, earlier in the year, on 1 st January 2013, the Fiscal Compact entered into force. This agreement is an extension of the Stability and Growth Pact. Significant progress was also made in the process intended to lead to Banking Union. In October 2013, the Single Supervisory Mechanism (SSM) formally entered into force and enables the ECB henceforth to play a key role in supervision of the banking sector. As regards the SSM, which describes the method of liquidation of banks in difficulty, considerable progress has been made but this mechanism will only be fully operational in Debt Agency Kingdom of Belgium

47 Main strategic points 2. State guarantees in certain financial institutions In order to preserve the stability of the Belgian financial system, the Government decided in 2008 to set up a system for issuing a State guarantee for undertakings contracted by any credit or financial holding meeting the criteria and conditions determined by royal decree. This system has remained in effect in subsequent years. The Treasury was charged with monitoring these cases. This service is provided by the Debt Support Service (Service de Support de la Dette - SSD Debt Guarantee) in close collaboration with the Debt Agency and the Markets and Financial Services Department (MSF - Marchés et Services Financiers). The following table provides an overview by institution of the guaranteed amounts in circulation in EUR on and GUARANTEED AMOUNTS IN CIRCULATION BY INSTITUTION Outstanding at Outstanding at Dexia 2008 guarantee EUR EUR Dexia 2011/2013 guarantee EUR EUR RPI (Fortis OUT) 0.00 EUR EUR Fortis RPN (CASHES) EUR EUR KBC EUR EUR EUR EUR In 2013, the Belgian State received in total EUR 580,770 million (Ways and Means Budget art ) as remuneration for the guarantees referred to above (compared with EUR 882,335 million in 2012). 2.1 Dexia guarantee This guarantee is expiring. At the end of 2009, Belgium s total commitment could not exceed EUR 60.5 billion. Dexia has made no further issues on this part of the guarantee since June As a result, the guaranteed amount in circulation has been steadily decreasing since that time. The outstanding amount shown in the table represents the share for which the Belgian Government is responsible, i.e % of the total amount outstanding. Each month, Dexia pays the State a guarantee premium. For transactions with a term of less than one year, the premium amounts to 0.50%, while for those over one year it is 0.865%.In 2013, the Belgian State received premiums totalling EUR million for the Dexia 2008 guarantee (compared with EUR in 2012). 2.2 Dexia /2013 guarantee The entities guaranteed are Dexia S.A. and Dexia Crédit Local (DCL). In December 2011, the Belgian, French and Luxembourg States granted a temporary guarantee of EUR 45 billion for a six-month period, valid up to 31 May In 2012, the amount of this temporary guarantee was increased by EUR 10 billion, up to a maximum of EUR 55 billion, and the validity was extended to January The maximum amount of the final guarantee granted in January 2013 is EUR 85 billion. Dexia Crédit Local can issue securities up to 31 December 2021 and the maturity of any such issues may not exceed 10 years. The shares of Belgium, France and Luxembourg in this final guarantee are 51.41%, 45.59% and 3% respectively (for securities issued after the date of entry into force of the final guarantee). In absolute terms, this means that the maximum amount guaranteed by the Belgian State is EUR 43,698,500,000. On 31 December 2013, the amount outstanding under this guarantee was EUR 33.9 billion. This guarantee provides for the payment of setting-up fees, less the setting-up fees already received for the provisional guarantees annual report 47

48 Chapter III During the period of the provisional guarantees, the monthly guarantee premium was calculated at a variable rate depending on duration. The monthly premium for the 2011/2013 guarantee now amounts to only 5 basis points of the amount guaranteed in circulation. The projected premium revenue has therefore decreased significantly. In 2013 the Belgian Government received a total of EUR million in setting-up fees and premiums for the 2011/2013 Dexia guarantee. 2.3 RPI (Fortis OUT) Royal Park Investments (RPI) has issued commercial paper guaranteed by the State. The guarantee amounted to a maximum of USD 5.8 billion and GBP 236 million. On 26 April 2013, the shareholders (the Belgian State, Ageas and BNP Paribas) of the Special Purpose Vehicle RPI decided to sell the RPI portfolio as a single package to Lone Star Fund (in partnership with Crédit Suisse). However, the guarantee on the commercial paper programme continued to run until the maturity of the last commercial paper issued, i.e. 13 August In 2013, RPI paid the State the equivalent of EUR 27.1 million as remuneration for the guarantee. After sale of the portfolio, RPI was not dissolved in order to continue the litigations instituted in the United States against several investment banks. 2.4 Fortis RPN (CASHES) This concerns the receivables held by Fortis Banque S.A. and assumed by Fortis S.A. on the basis of the Relative Performance Note concluded between Fortis Banque S.A. and Fortis S.A. relating to the CASHES (Convertible And Subordinated Hybrid Equitylinked Securities) issued by Fortis Banque S.A. in December The remuneration for the guarantee amounts to 0.70% of the guaranteed amount (EUR 870,910,000). In 2013, AGEAS paid the State EUR 1,555,547 as remuneration for the guarantee. 2.5 KBC In accordance with the Portfolio Protection Agreement (PPA) of 28 December 2009, signed by the Belgian State and the KBC group, the State guarantees certain Collateralized Debt Obligations (CDOs). On 19 December 2012, the State and KBC signed a PPA 15 Release Agreement. KBC and the government agreed to accelerate the dismantlement of the Collateralized Debt Obligations (CDOs), which is a positive point for the State, since after the early termination of a CDO no claim can be made on the State in respect of the said CDO. KBC has asked for any future CDO terminations to be coupled with reduction of the premium payments for the CDO in question. However, it is to be noted in this regard that there are limits on any such premium reductions. The conditions are specified in the PPA Release Agreement dated 19 December Reduction of premiums will be calculated on 30 June and will be deducted in reverse chronological order of the premium maturity dates. On 31 December 2013, only three CDOs were still guaranteed by the State compared with an initial portfolio of fifteen CDOs, which represents a maximum risk of EUR 4,699,845,000. In 2013, KBC paid the Belgian State EUR 340,739,840 as remuneration for its guarantee. BNP Paribas acquired 62.94% of the CASHES, which means that the State s guarantee in respect of the RPN interest also decreased by 62.94%. 15 Portfolio Protection Agreement 48 Debt Agency Kingdom of Belgium

49 Main strategic points 3. New increase in the average life and duration of the debt Section II.3, 4.1 of this report dealt with the decrease in debt refinancing risk. The decrease of these parameters implies that there are relatively fewer debts maturing in the first years than before. It was logical, therefore, to expect an increase in the average life of the debt portfolio in WEIGHTED AVERAGE LIFE AND DURATION (DEBT IN EUROS) This average life, which measures the weighted average time up to maturity, including the coupon payment dates, increased from 7.18 to 7,60 years. This figure is not only the highest level recorded over the last ten years, it is also one of the longest debt portfolio average lives in the eurozone. The change since 2009, when the average life was under 6 years, is in addition very striking and is not mirrored in the other eurozone countries. The reason for this strong increase is twofold: on the one hand, the Treasury has reduced short-term debt outstanding to pre-crisis or even lower levels and, on the other hand, since 2009, the term of medium and longterm debt issued has exceeded 11 years (in 2013, this term was years). At the same time, interest costs of the new medium and long-term debt issued remained very low. In 2013, the average cost of the new issues was 2.23%. The combination of low interest rates and longer terms resulted in significant savings in terms of future interest costs. In the General Debt Directives for 2014, the Minister of Finance has set a new minimum level of 7.5 year for the average life. On the basis of the first results for 2014, the Debt Agency expects the average life to increase further so that the new minimum level will certainly be respected. Duration is another measurement of the life of the debt. This represents the average life of the discounted value of redemptions and coupons. The importance of duration is therefore not only influenced by the structure of the portfolio but also by the discount rate level. As a result duration is a less appropriate indicator than average life for measuring debt structure. However, the duration generally follows the trends in the average life. Thus, during 2013, the duration increased from 5.96 to Weighted average life Duration 2013 annual report 49

50 Chapter III 4. Distribution of the Belgian federal debt 4.1. Linear Bonds (OLOs) Holdings of OLOs The volume of OLOs held by foreign investors increased in At the end of December 2013, 49% of OLOs were held by foreign investors. Therefore, the trend which began in mid-2008 has been reversed OLOs - FOREIGN HOLDING (in % of total) The primary market for OLOs 16 For the second consecutive year, demand from foreign investors increased. It represented 88.20% of the amount invested in 2013 compared with 83.83% in Demand from other European countries outside the eurozone increased slightly (40.16% of the total amount invested). The new benchmark 30-year loan (OLO 71) received the most significant interest from these countries (58.8% of the total amount invested). Demand from Asian investors also increased and now stands at 3.36%. This is however still considerably below the 2010 level (9.92%). Demand from America/Canada also increased, but is still relatively limited (3.68%). Demand from Belgian investors fell once again and Belgian investors now account for 11.80% of the total amount invested. Lastly, holdings of eurozone investors (excluding Belgium) are relatively stable at 39.57%. As regards the type of investor, there was a strong increase in demand from banks, as well as central banks and public entities. They took up 46.91% and 9.72% respectively of the amount allocated. On the other hand, there was a remarkably sharp fall in demand from insurance companies: from 20.50% in 2012 to 7.87% in Demand from fund managers (31.17%) also fell, while that of pension funds (4.24%) was relatively stable / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /2013 Belgium Eurozone (except Belgium) Outside the Eurozone 16 The conclusions are solely based on the figures that the joint lead and co-lead managers supply to the Treasury within the framework of issues by syndication. The Treasury does not have such data for issues by auction. 50 Debt Agency Kingdom of Belgium

51 Main strategic points OLOs - GEOGRAPHICAL DISTRIBUTION (PRIMARY MARKET) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Belgium Eurozone excluding Belgium Rest of Europe USA and Canada Asia Others % 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% OLOs - DISTRIBUTION BY TYPE OF INVESTOR (PRIMARY MARKET) Pension funds Fund managers Insurance companies Banks Central banks and public entities Others 2013 annual report 51

52 Chapter III OLOs - GEOGRAPHICAL DISTRIBUTION IN The secondary market for OLOs Europe (outside Eurozone) 40.16% Others 1.43% Belgium 11.80% Asia 3.36% It is very important to note that the conclusions that follow are solely based on figures obtained from primary and recognised dealers. These are the main dealers active on our debt, although they are not the only ones. However, these figures allow us to discern certain trends. It should also be noted that the figures only refer to the purchases/sales of the final investors and therefore not of the interdealer market. As was the case in the previous five years, volumes traded on the secondary market for OLOs increased (+2%) in Net purchases of OLOs by investors stabilised after the fall recorded in USA and Canada 3.68% Eurozone (except Belgium) 39.57% 300 OLOs - VOLUME EXCHANGED ON THE SECONDARY MARKET (in billions of EUR) 25 OLOs - NET PURCHASES ON THE SECONDARY MARKET (in billions of EUR) Central banks and public entities 9.72% Others 0.09% OLOs - DISTRIBUTION BY TYPE OF INVESTOR IN 2013 Banks 46.91% Pension funds 4.24% Fund managers 31.17% Insurance companies 7.87% However, this stability conceals different trends in terms of geographical distribution and breakdown by type of investor. For example, net purchases of other eurozone countries increased for the third consecutive year (+57%). Non-eurozone European investors also considerably increased their interest in the secondary market for OLOs. After having been net sellers in 2012, they became net buyers for large volumes. 52 Debt Agency Kingdom of Belgium

53 Main strategic points OLOs - NET PURCHASES - GEOGRAPHICAL DISTRIBUTION (in billions of EUR) Belgium Other Eurozone Countries Other EU Countries Americas (North & South) Asia Other Source : Primary et Recognized Dealers OLOs - NET PURCHASES - DISTRIBUTION BY TYPE OF INVESTOR (in billions of EUR) Commercial banks Central banks Pension funds Insurance companies Fund managers Hedge funds Private savers Companies Source : Primary et Recognized Dealers annual report 53

54 Chapter III Net purchases of Belgian, American and Asian investors decreased. Belgian investors even became net sellers in As in 2012, net purchases of commercial banks (-68%) and insurance companies (-45%) fell sharply. In contrast, central banks (+27%) and fund managers (+26%) purchased far more OLOs than in Only hedge funds were net sellers of OLOs in Treasury Certificates Holdings of Treasury Certificates TCs - FOREIGN HOLDING (in % of total) The primary market for Treasury Certificates Treasury Certificates are only issued at auctions during which primary and recognised dealers take securities on their own behalf or on behalf of investors. The Treasury now has no data that can determine the type of investor or geographical area of the investment The secondary market for Treasury Certificates As for the secondary market for OLOs, the following conclusions are based solely on figures obtained from primary and recognized dealers. These are the main dealers active on our debt, although they are not the only ones. However, these figures allow us to discern certain trends. It should also be noted that the figures only refer to the purchases/sales of final investors and therefore not of the interdealer market. Volumes traded on the secondary market in Treasury Certificates fell by 17%. Net purchases of Treasury Certificates also fell (-27%). This was undoubtedly due to the low amount of Treasury Certificates issued in TCs - VOLUMES EXCHANGED ON THE SECONDARY MARKET (in billions of EUR) TCs - NET PURCHASES ON THE SECONDARY MARKET (in billions of EUR) / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /2013 Belgium Eurozone (except Belgium) Outside the Eurozone The trend towards greater internationalisation continued in Thus, at the end of December, 92.6% of Treasury Certificates were held by foreign investors. An historical high was reached at the end of March with 94.6% of certificates held outside Belgium Debt Agency Kingdom of Belgium

55 Main strategic points TCs - NET PURCHASES - GEOGRAPHICAL DISTRIBUTION (in billions of EUR) Belgium Other Eurozone Countries Other EU Countries North & South America Asia Other Source : Primary et Recognized Dealers TCs - NET PURCHASES - DISTRIBUTION BY TYPE OF INVESTOR (in billions of EUR) Commercial banks Central banks Pension funds Insurance companies Fund managers Hedge funds Private savers Companies Source : Primary et Recognized Dealers annual report 55

56 Chapitre III As in 2012, investors from other eurozone countries and European non-eurozone countries accounted for most of the net purchases of Treasury Certificates. However, these amounts were significantly lower than in After an increase in 2012, net purchases of certificates by Asian investors fell. In addition, the relatively low level of net purchases by American and Belgian investors is noteworthy. Despite a decrease of more than 30% compared with 2012, central banks, commercial banks and fund managers were still the main net buyers of Treasury Certificates. As usual, insurance companies, hedge funds and private investors showed no interest in Treasury Certificates. On the contrary, the interest of pension funds was more marked, with an increase of 146% on Unlike 2012, when hedge funds were net sellers, all types of investors were net buyers of Treasury Certificates in Creation of the framework for issuance of inflation-linked debt instruments However, to date, the Treasury has never issued index linked debt. In the latter category of instruments, inflation-linked debt has an important place. A large number of countries (France, United Kingdom, United States, etc.) have issued inflation-linked debt over the last 20 years. Debt issued in the eurozone includes instruments linked to national inflation indices as well as indices linked to European inflation, such as for example the HCPI ex-tobacco. As part of its diversification of financing sources, the Treasury also wanted to be able to tap this market. In order to integrate such financial instruments in the Belgian National Bank s X/N clearing system, it was necessary to issue a Royal Decree regulating among other things the deduction of withholding tax for non-exempt investors. The necessary Royal Decree was issued on 1 st July 2013 and entered into force on the tenth day after its publication in the Belgian Official Journal of 9 August. Henceforth, the Treasury can also issue inflation-linked instruments. However no such instruments were issued given that the General Directives for 2013 required the inflation risk to be hedged via derivatives. The General Directives for 2014 have removed this restriction, which increases the possibility of the issuance of inflation-linked debt. The Treasury mainly funds itself via short and long-term fixed rate instruments such as fixed rate OLOs and Treasury Certificates. In addition, it also issues floating rate instruments, for example linked to Euribor, in the form of both OLOs and EMTNs. Lastly, a small part of its funding including a not insignificant amount of debts taken over from the Railway Infrastructure Fund include options that can be exercised by the investor or the Treasury or by both parties. 56 Debt Agency Kingdom of Belgium

57 Principaux points stratégiques 6. Measures for the consolidation of general government financial assets The Federal government has adopted a series of measures in order to maintain the debt-to-gdp ratio below 100%. In order to achieve this objective, articles 113 to 121 inclusive of the law of 21 December 2013 laying down fiscal and financial provisions specify certain measures intended to consolidate general government financial assets, with effect from 31 December This law replaces the Royal Decree of 15 July 1997 which also introduced certain measures intended to consolidate general government financial assets but which needed to be revised on certain points. This law stipulates that institutions which fall within the scope at the Federal level of sub-sectors S1311 (central administration) and S1314 (public social security bodies) in accordance with the European System of National and Regional Accounts (ESA): must deposit their cash assets (the funds that the body needs for its day-to-day management) on an account opened with the institution designated by the State (currently bpost); must invest their other liquid assets directly with the Treasury and/or in financial instruments issued by the Federal State. Four times a year, at the end of every quarter, these institutions must submit a report to the Minister of Finance, containing full information on their deposits and investments as well as on any loans contracted by them. If they fail to comply with these notification or consolidation objectives, the State is entitled to impose administrative fines. 7. New data-processing system for managing the Belgian Federal public debt Throughout 2013 the Debt Agency implemented the project, launched at the end of 2012, to replace the data-processing system for the management of its debt system. The old system, installed at the end of 1999, had reached the end of its life. After a long procedure, the contract was awarded in September 2012 to the Irish firm FTI for its STAR software package. The STAR software package covers management of the full lifecycle of a transaction - front, middle and back-office - from its input into the system up to its payment and the relevant accounting entry. The application includes comprehensive market and credit risk management and reporting functionalities and constitutes the integrated database of Belgian Federal public debt. Audit and internal control best practices integrated in the STAR application are one of the strengths of the system and satisfy the security criteria in force in the banking sector. Access to various functionalities of the system is managed by a strictly delineated matrix of roles. All actions carried out in the system are recorded and can be audited. Implementation of this new system also enabled the Debt Agency to switch to a WEB-oriented system architecture, which offers new development possibilities and facilitates technical management of the system. Lastly, management of the project management involved a particularly heavy workload and a meticulous attention to detail because the new system needed to be and was - operational by 1 st January annual report 57

58 Chapitre III 8. Assigning a rating for the Treasury s OLO and EMTN issues Most rating agencies spontaneously assign a rating to the Belgian State, without any need for it to request a rating. Accordingly, Standard&Poor s, Moody s, Fitch, DBRS and a series of other rating agencies regularly publish reports updating Belgium s rating. However, these ratings are not always assigned to individual debt issues. Some rating agencies only assign a rating to individual issues if the issuer requests a rating which implies signing a contract with the agency and remunerating the agency for its work. Other rating agencies do not make any distinction: they assign the country s rating to individual debt issues provided that such issues are senior debt, which is for example the case of the OLO and EMTN issues of the Belgian Federal government. Initially this did not have any impact since Fitch Ratings maintained the rating on OLO and EMTN issues in circulation. But the new 10-year OLO issued in January 2013 was not assigned a rating by the said agency, which moreover did not rate the following issues. Fairly rapidly after the 10-year OLO issue, the Debt Agency was contacted, directly or via primary dealers, by certain investors: it appeared that some institutional investors did in fact require at least one rating by one of the three main rating agencies for individual issues. Although this requirement does not apply for the majority of institutional investors, the Treasury considered that it should accede to the request of this group by organising a new public procurement procedure in 2013 in order to appoint a rating agency for the assignment of individual ratings. Once again only one valid proposal was submitted by the same rating agency (Fitch Ratings). On 25 November 2013, the contract was therefore awarded to the said rating agency. During two years, therefore, Fitch must assign a rating to the OLO and EMTN issues of the Federal State. The latter may also extend the contract twice, each time for one year. Given that an increasing number of rating agencies require a contractual commitment in order to assign a rating to OLO and EMTN issues, the Treasury decided, at the end of 2010, to launch a public procurement procedure with a view to appointing two rating agencies to rate public debt securities. In the end, only one rating agency (Fitch Rating) submitted a proposal. On 6 May 2011, the contract was therefore awarded to that agency, on the basis of an annual contract renewable by tacit agreement. In the following months, however, the Treasury s doubts increased about the utility of a rating for its debt securities. In its dealings with institutional investors, the Debt Agency regularly discussed the need to have ratings for OLOs and it appeared from these discussions that in all cases investors were content to rely on the country s rating. Therefore, at the beginning of 2012, the Treasury decided not to renew the contract with Fitch Ratings for the rating of OLO and EMTN issues. 58 Debt Agency Kingdom of Belgium

59 Principaux points stratégiques ANNEXES 2013 annual report 59

60 Annexes A. Changes in the Federal State s rating Fitch Ratings 23/01/2013 Rating AA confirmed, outlook revised from negative to stable 19/11/2013 AA rating confirmed, outlook stable 16/05/2014 AA rating confirmed, outlook stable S&P 29/01/2013 Rating AA confirmed, outlook negative 20/09/2013 Rating AA confirmed, outlook negative 28/02/2014 Rating AA confirmed, outlook revised from negative to stable Moody s 16/12/2011 Rating Aa3, outlook negative 07/03/2014 Aa3 rating confirmed, outlook revised from negative to stable DBRS 15/02/2013 AA (high) rating confirmed, outlook negative 21/03/2014 Rating AA confirmed, outlook revised from negative to stable Japanese Credit Rating Agency 25/03/2013 AAA confirmed, outlook stable Ratings and Investment, Inc 04/03/2013 Rating AA+ confirmed, outlook revised from negative to stable 12/05/2014 AA+ rating confirmed, outlook stable 60 Debt Agency Kingdom of Belgium

61 Annexes B. Securities intermediaries of the Treasury of the Kingdom of Belgium in 2014 Primary Dealers BANCO SANTANDER SA, Madrid Ciudad Grupo Santander - Avda. de Cantabria s/n E Boadilla del Monte (Madrid) BARCLAYS BANK PLC, London 1 Churchill Place - Canary Wharf GB-London E14 4BB BNP PARIBAS FORTIS, Brussels Rue Montagne du Parc 3 B-1000-Brussels CITIGROUP GLOBAL MARKETS Ltd, London Citigroup Centre - 33 Canada Square, Canary Wharf GB-London E14 5HP CREDIT AGRICOLE CIB, Paris Quai du Président Paul Doumer 9 F Paris La Défense Cedex DEUTSCHE BANK AG, Frankfurt Taunusanlage, 12 D Frankfurt HSBC France, Paris Avenue des Champs Elysées 109 F Paris ING Bank NV, Amsterdam Amstelveenseweg 500 NL-1081 KL Amsterdam JP MORGAN Securities Ltd, London 25 Bank Street GB-London E14 5JP KBC BANK NV, Brussels Avenue du Port 12 B-1080-Brussels MORGAN STANLEY & Co Int. Plc, London 25 Cabot Square - Canary Wharf GB-London E14 4QA NATIXIS, Paris Avenue Pierre Mendès-France, 30 F Paris NOMURA INTERNATIONAL Plc, London 1 Angel Lane GB-London EC4R 3AB ROYAL BANK OF SCOTLAND Plc, London 135 Bishopsgate GB-London EC2M 3UR SOCIETE GENERALE SA, Paris Boulevard Haussmann, 29 F Paris Recognised Dealers ABN AMRO BANK NV, Amsterdam Gustav Mahlerlaan 10 - PO Box 283 NL-1000 EA Amsterdam BANCO BILBAO VIZCAYA ARGENTARIA SA (BBVA), Bilbao Plaza de San Nicolas, 4 E Bilbao BELFIUS BANK, Brussels Boulevard Pachéco 44 B-1000 Brussels COMMERZBANK AG, Frankfurt Mainzer Landstrasse, 153 D Frankfurt a/m GOLDMAN SACHS INT. BANK, London Peterborough Court 133 Fleet Street GB-London EC4A 2BB JEFFERIES INTERNATIONAL Ltd, London Vintners Place - 68 Upper Thames Street GB-London-EC4V 3BJ NORDEA BANK FINLAND, Helsinki Aleksanterinkatu, 36 FI Helsinki, Nordea SCOTIABANK, London Bishopsgate 201, 6th Floor GB-London-EC2M 3NS 2013 annual report 61

62 Annexes BTB Dealers BARCLAYS BANK Plc 5 North Colonnade, Canary Wharf GB-London E144BB BELFIUS BANK NV/SA Boulevard Pacheco 44 B-1000-Brussels BNP PARIBAS FORTIS Rue Montagne du Parc 3 B-1000-Brussels CITIBANK INTERNATIONAL Plc Citigroup Centre, Canada Square, Canary Wharf, GB-London E14 5LB DEUTSCHE BANK AG (London Branch) 77 London Wall, 1 Great Winchester Street GB-London EC2N 2DB GOLDMAN SACHS INTERNATIONAL 120 Fleet Street, River Court GB-London EC4A 2BB KBC BANK NV Avenue du port 12 B-1080-Brussels RABOBANK INTERNATIONAL Croeselaan 18 NL CB Utrecht UBS LIMITED 100 Liverpool Street GB-London EC2M 2RH Investment establishments (State notes) ABN-AMRO Private Banking Roderveldlaan, 5 (Bus 4) B-2600-Berchem BANQUE DEGROOF Rue de l Industrie, 44 B-1040-Brussels BELFIUS BANQUE Boulevard Pacheco, 44 B-1000-Brussels BKCP BANQUE Boulevard de Waterloo, 16 B-1000-Brussels BNP PARIBAS FORTIS Rue Montagne du Parc, 3 B-1000-Brussels BPOST BANQUE Boulevard Anspach, 1 B-1000-Brussels CRELAN Boulevard Sylvain Dupuis, 251 B-1070-Brussels DELTA LLOYD Avenue de l Astronomie, 23 B-1210-Brussels DEUTSCHE BANK Avenue Marnix, B-1000-Brussels DIERICKX, LEYS & CIE, Banque de Titres Kasteelpleinstraat, 44 B-2000-Antwerpen GOLDWASSER Exchange Avenue Adolphe Demeur, 35 B-1060-Brussels ING Belgique Avenue Marnix, 24 B-1000-Brussels KBC BANQUE Avenue du port, 2 B-1080-Brussels LELEUX Associated Brokers, Société de Bourse Rue du Bois sauvage, 17 B-1000-Brussels PETERCAM Place Sainte-Gudule, 19 B-1000-Brussels VAN DE PUT & Cie, Banque de Titres Van Putlei, B-2018-Antwerpen VDK SPAARBANK Sint-Michielsplein, 16 B-9000-Gent 62 Debt Agency Kingdom of Belgium

63 Annexes C. Organisational Chart 2013 annual report 63