P r o j e c t o f

IBF

HAILEY COLLEGE OF COMMERCE

UNIVERSITY OF THE PUNJAB

1
We are thankful to ALLAH (all mighty) for guiding us and giving us power
and courage.

Project prepared by:

Bilal Raja 792

2
 C O N T E N T S
1. PROFILE

2. GLOBAL FINANCIAL SYSTEM

3. ROLE OF THE CENTRAL BANKS

4. STRUCTURAL EVOLUTION AND PRUDENTIAL

SUR-VEILLANCE OF THE BELGIAN FINANCIAL MARKET IN THE EU
ENVIRONMENT

5. GENERAL FINANCIAL ACTIVITIES

6. RISK MANAGEMENT TECHNIQUES

7. CENTRAL BANKING IN 19TH-CENTURY BELGIUM:

WAS THE NBB A LENDER OF LAST RESORT?

8. LIST OF BANKS IN BELGIUM

9. ING SECOND LARGEST FINANCIAL INSTITUTION OF BELGIUM

10. 2008–2009 BELGIAN FINANCIAL CRISES

11. SECTORS

3
PROFILE
OFFICIAL NAME
Kingdom of Belgium

Geography
Area: 32,547 square kilometers (12,566 sq. mi.), about the size of Maryland.
Cities: Capital--Brussels (pop. 1,031,215). Other cities--Antwerp (466,203); Ghent
(235,143); Charleroi (201,550); Liege (188,907); Bruges (116,982); and Namur (107,653).

People
Population (2009): 10,666,866.
Annual population growth rate (2009): 0.094%.
Density: 861 per sq. mi. Linguistic regions--(Dutch-speaking) Flanders 57.9%; (French-
speaking) Wallonia 31.7%; (legally bilingual) Brussels Capital Region 9.7%; German-
speaking 0.7%.
Religions: Predominantly Roman Catholic, with Protestant, Jewish, Muslim, Anglican,
Greek and Russian Orthodox, as well as secularism, "recognized" religions receiving
government subsidies.
Languages: Dutch, French, German.
Education: Literacy--99%.

Government
Type: Parliamentary democracy under a constitutional monarch.
Independence: 1830.
Constitution: 1994 (revised).
Branches: Executive--King (head of state), Prime Minister (head of government), Council
of Ministers (cabinet). Legislative--bicameral parliament (Senate and House of
Representatives).
Major political parties: Christian Democratic, Liberal, Socialist, Green, Vlaams Belang.
Suffrage: Over 18, compulsory.
Political subdivisions: Ten provinces, three regions, three communities, 589 municipalities.

Economy of Belgium
Currency: Euro
Fiscal year: Calendar year
Trade organizations: EU, WTO and OECD

Statistics
GDP: $390.5 billion (2008)

4
GDP growth: 1.3% (2008)
GDP per capita: $37,500 (2008 est.)
GDP by sector: agriculture (1%), industry (24.2%), services (74.9%) (2008 est.)
Inflation (CPI): 4.5% (2008 est.)
Population below poverty line: 15.2% (2007 est.)
Gini index: 28 (2005)
Labour force: 4.99 million (2008)
Labour force by occupation: services (73%), industry (25%), agriculture (2%) (2007est.)
Unemployment: 6.5% (2008 est.)
Main industries: engineering and metal products, motor vehicle assembly, transportation
equipment, scientific instruments, processed food and beverages, chemicals, basic metals,
textiles, glass, petroleum.

External
Exports: $372.9 billion f.o.b (2008 est.)
Export goods: machinery and equipment, chemicals, finished diamonds, metals and metal
products, foodstuffs
Main export partners: Germany 19.5%, France 16.7%, Netherlands 11.9%, United
Kingdom 7.6%, United States 5.7%, Italy 5.2% (2007)
Imports: $375.2 billion f.o.b. (2008 est.)
Import goods: raw materials, machinery and equipment, chemicals, raw diamonds,
pharmaceuticals, foodstuffs, transport equipment, oil products
Main import partners: Germany 17.7%, Netherlands 17.6%, France 11.2%, United
Kingdom 6.2%, United States 5.4%, Ireland 4.9%, China 4.1% (2007)
Gross external debt: $1.354 trillion (2008)

Public finances
Public debt: $451 billion (89.1 % of GDP) (2008 est.)
Revenues: $251.3 billion (2008 est.)
Expenses: $254.2 billion (2008 est.)
Economic aid: $1.978bn (2006)
All values, unless otherwise stated, are in US dollars

GLOBAL FINANCIAL SYSTEM

The global financial system (GFS) is a financial system consisting of institutions and
regulators that act on the international level, as opposed to those that act on a national or
regional level. The main players are the global institutions, such as International Monetary
Fund and Bank for International Settlements, national agencies and government
departments, e.g., central banks and finance ministries, and private institutions acting on the
global scale, e.g., banks and hedge funds.

Deficiencies and reform of the GFS have been hotly discussed in recent years.

History
The history of financial institutions must be differentiated from economic history and
history of money. In Europe, it may have started with the first commodity exchange, the
Bruges Bourse in 1309 and the first financiers and banks in the 1400–1600s in central and

5
Western Europe. The first global financiers the Fuggers (1487) in Germany; the first stock
company in England (Russia Company 1553); the first foreign exchange market (The Royal
Exchange 1566, England); the first stock exchange (the Amsterdam Stock Exchange 1602).

Milestones in the history of financial institutions are the Gold Standard (1871–1932), the
founding of International Monetary Fund (IMF), World Bank at Bretton Woods, and the
abolishment of fixed exchange rates in 1973.

Institutions
International institutions:
The most prominent international institutions are the IMF, the World Bank and the WTO:

 The International Monetary Fund keeps account of international balance of payments

accounts of member states. The IMF acts as a lender of last resort for members in financial distress,
e.g., currency crisis, problems meeting balance of payment when in deficit and debt default.
Membership is based on quotas, or the amount of money a country provides to the fund relative to
the size of its role in the international trading system.
 The World Bank aims to provide funding, take up credit risk or offer favorable terms to
development projects mostly in developing countries that couldn't be obtained by the private sector.
The other multilateral development banks and other international financial institutions also play
specific regional or functional roles.
 The World Trade Organization settles trade disputes and negotiates international trade
agreements in its rounds of talks (currently the Doha Round)

Government institutions:
Governments act in various ways as actors in the GFS: they pass the laws and regulations
for financial markets and set the tax burden for private players, e.g., banks, funds and
exchanges. They also participate actively through discretionary spending. They are closely
tied (though in most countries independent of) to central banks that issue government debt,
set interest rates and deposit requirements, and intervene in the foreign exchange market.
Private participants

Players acting in the stock-, bond-, foreign exchange-, derivatives- and commodities-
markets and investment banking are
 Commercial banks
 Hedge funds and Private Equity
 Pension funds

Legal frameworks and treatises:

 Commonwealth of Independent States (CIS)
 Euro zone
 Mercosur
 North American Free Trade Agreement (NAFTA)] Perspectives

There are three primary approaches to viewing and understanding the global financial
system.

The liberal view holds that the exchange of currencies should be determined not by state
institutions but instead individual players at a market level. This view has been labeled as
the Washington Consensus. This view is challenged by a social democratic front which

6
advocates the tempering of market mechanisms, and instituting economic safeguards in an
attempt to ensure financial stability and redistribution. Examples include slowing down the
rate of financial transactions, or enforcing regulations on the behavior of private firms.
Outside of this contention of authority and the individual, neoMarxists are highly critical of
the modern financial system in that it promotes inequality between state players, particularly
holding the view that the political North abuse the financial system to exercise control of
developing countries' economies.

ROLE OF THE CENTRAL BANKS

This unit could be considered

 part of the political environment - because laws and regulations effect this
 part of the economic environment - because banking is a consequence of economic activity
 even part of the technological environment - because the central banks of some large
countries have very complex IT systems which facilitate processing complex information
and aid in critical decision making

In this short section you will be advised to read some material directly on he website for the
central bank of Belgium, namely the "National Bank of Belgium". You are strongly
encouraged to do this since it is the best way of learning about the activities of this
institution - directly from the source.

Several ways a Central bank can intervene in currency markets

 coordinate its action with other banks

 execute action on its own
 enter the market aggressively (means to buy or sell a lot of the currency of its nation)
 call for reassuring action (means a public speech by the Governor of the Central Bank)
 public relations activities
o announce some detail about an operation
o avoid an announcement
 operate through brokers
o secretly
o in the open

STRUCTURAL EVOLUTION AND PRUDENTIAL

SUR-VEILLANCE OF THE BELGIAN
FINANCIAL MARKET IN THE EU
ENVIRONMENT

MAJOR STRUCTURAL CHANGES IN THE BELGIAN

FINANCIAL SECTOR

GROWING CONCENTRATION IN THE SECTOR

7
One of the most striking developments within the Belgian banking sector is undoubtedly
the concentration into a small number of very large groups. Nowadays, the 4 main
institutions collect 82 p.c. of all bank deposits from Belgian residents. While Belgium is a
rather extreme case in the EU, the banking sector is also becoming increasingly
concentrated in the other euro-zone countries as the share of the 5 largest credit institutions
in each domestic market, expressed in terms of percentage of total assets, exceeds on
average 50 p.c.
The 4 main Belgian groups share two specific characteristics. First and fo-remost, they
have a strong international dimension. The cross-border structure is the most complete in
the case of Fortis and Dexia which are among the few international financial groups formed
through a merger between institutions from different coun-tries. ING Belgium is one of the
main subsidiaries of a multinational Dutch financial group, while the Belgian group KBC
has a strong presence abroad, too, most notably in Central and Eastern Europe.

NEW PATTERNS IN HOUSEHOLD SAVING BEHAVIOUR

The development of bank assurance has enabled the main Belgian financial groups to both
accompany and benefit from a major trend in the saving behavior of Belgian households, i.e.
a growing interest in institutional investment products. While Belgian households have
traditionally invested the bulk of their savings with banks, the relative importance of this
category of claims had declined from 46 p.c. in 1994 to 34 p.c. by 2005. The value of
outstanding claims on institutional investors – the sum of financial assets invested in
insurance products, mutual funds and pension funds – now largely exceeds total household
investment in bank products. At the end of 2005, it accounted for 41 p.c. of total financial
assets compared to just 18 p.c. in 1994.

8
NEW ENVIRONMENT FOR INTEREST RATE RISK MANAGEMENT
The diversification into insurance products also offers potential in terms of risk management
as it allows Belgian financial groups to better manage their global interest rate exposure.
Indeed, the main consequence of banks‟ maturity transformation activities is that the
duration of their liabilities is much shorter than that of their assets. This maturity mismatch
is offset, at the level of bank assurance groups, by an opposite mismatch, in the insurance
branch of business, between the long duration of life insurance liabilities and the shorter
duration of the asset portfolio.
While this kind of compensation effect is at work in the case of an interest rate "change", a
low general "level" of interest rates, as has been observed in recent years, raises issues for
both types of business. In the banking sector, the intermediation business becomes less
profitable as the gap between market rates and low-interest sight deposits narrows. In the
insurance sector, it becomes much harder to generate the regular income needed to get the
return guaranteed to the defined benefit contracts.

9
DIVERSIFICATION OF CREDIT ACTIVITIES
The constitution of large cross-border financial groups, already discussed in section 1.1, has
had a very significant impact on the nature of Belgian banks‟ credit activities. While, at the
end of 1999, almost half of Belgian banks' total assets was still on domestic counterpart, this
share declined to less than 30 p.c. in 2006. It is true that interbank activities have, for many
years, been largely internationalized. But this trend has now spread to other wholesale
activities. In particular, the outstanding amount of loans to foreign non-financial
corporation‟s currently comes to about three times the corresponding amount for Belgian
corporations. Even in the retail sector, Belgian banks have greatly enlarged their market as
loans to foreign households now account for 45 p.c. of total loans to households.

CHANGING NATURE OF BANKING ACTIVITIES

All the above-mentioned structural developments are gradually contributing to change the
nature of banking. Belgian credit institutions have come a long way from the traditional
collection of deposits and their intermediation through providing loans or acquiring bonds.

10
When it comes to client relations, banks are increasingly acting as advisers through their
private banking activities. They are also offering asset management services to institutional
investors, when they are not acting in that capacity themselves. In certain segments of the
credit market, banks' role is increasingly moving towards one limited to origination, with
exposures subsequently being offloaded onto third parties. Instead, credit institutions are
turning more and more towards the provision of merger and acquisition advice or corporate
finance services by setting up bond-financing programmers‟ or private and public equity
issues.

IMPLICATIONS FOR PRUDENTIAL SURVEILLANCE OF

BELGIAN FINANCIAL INSTITUTIONS AND MARKETS

Supervisory Authorities
As a result of the various developments described in the first section, supervisors have
come under heavy pressure to adapt their regulatory approach. In no field has this been felt
more strongly than in the definition of capital requirements, traditionally considered as the
primary instrument for regulating banking activities. Indeed, the very nature of risks
endorsed by banks in the exercise of their core activity, i.e. the financing of mostly illiquid
assets, usually held to maturity, by liquid liabilities, mainly collected from uninformed
depositors, requires strong capitalization. Yet, in response to deregulation and the ensuing
competition, many banks have been inclined to increase their leverage or to undertake more
risky business with an unchanged capital base.
The close dialogue between financial institutions and prudential authorities is not confined
to the analysis and validation of internal models. It also extends to the global organization of
the risk-management function. As banks' risk profiles are changing very rapidly and the
internal models used for monitoring these risks are becoming increasingly complex,
supervisors are finding it more and more difficult to carry out their mandate. As a result,
they have to rely more heavily on the existence of sound governance principles and good
management practice within the banks themselves.
Requirements for market information are also changing. This dimension has been taken
explicitly into account by Basel II through the specific role assigned to market discipline. It
is probably no coincidence that the introduction of the new international accounting
standard (IAS/IFRS), which requires a much greater use of market prices in accounting
reports, has more or less coincided with the implementation of the Basel II rules. The
objective should be that financial institutions publish what they use in their internal
management systems and, conversely, use internally what they publish.
This combination of more risk-sensitive solvency rules, a dialogue between banks and
supervisors and market discipline forms the three pillars of the Basel II system. Those
various approaches will be needed to meet the forthcoming challenges linked to the above-
mentioned changes in the nature of banks' activities.
One of the challenges emerges from risk diversification by financial institutions through the
creation of cross-sectoral conglomerates. As already discussed in section 1, the major
Belgian financial institutions combine commercial banking, insurance and security services.
Yet risk management is still highly fragmented as supervisors calculate separately how
much capital is needed for credit risks, interest rate risks, market risks or even underwriting

11
risks in insurance. Since the total risks are not equal to the sum of the parts, a more
integrated approach is recommended.
However, a lot of research is still needed to devise adequate instruments to measure the
true correlations between the various categories of risk.
Banks are also increasingly shifting some of their financial risks to third parties which
make it more difficult for authorities, as well as for markets, to track the circulation of
risks. As an example, nowadays banks are transferring parts of their loan portfolios to
hedge funds which, in turn, are leveraging their own position by borrowing from the
banks. As a consequence, the latter could well end up financing the very elements of the
portfolio that they have previously securitized in the markets.
More generally, when banks are transferring financial risks, this does not mean that they
no longer have any responsibility to assume. This is especially the case when risks are sold
to retail customers. Supervisors have to make sure that banks are fully aware of the
potential consequences, in terms of reputation, of mis-selling products, giving bad advice
or neglecting their duty of care.

CONCLUSION
Recent changes in the EU financial sector have been wide-ranging. The combined effects of
new technologies and deregulation have helped remove barriers and have had the result of
speeding up consolidation of the sector. Households and corporations have greatly benefited
through the positive effects of stronger competition on prices and through wider choice.
Financial institutions have adapted to this changing environment, relying on improved risk-
management techniques to master the new risks they are taking on.

GENERAL FINANCIAL ACTIVITIES

 Bank Comparison Activity
 Banking
 Budget: Don't Go Broke (NEFE)
 Budgeting
 Budgeting & Checking Activity
 Budgeting Your Financial Resources (The Mint)
 Career Unit (NEFE)
 Consumer Fraud
 Credit: Buy Now, Pay Later (NEFE)
 Finan Lit.- Econ. Factors, Decision Making, Advertising
 Financial Literacy - Careers and Income
 Financial Literacy - Consumer Credit
 Financial Literacy - Consumer Privacy
 Financial Literacy - Consumer Rights & Responsibilities
 Financial Literacy - Credit Cards
 Financial Literacy - Debt and Poor Money Management
 Financial Literacy - Financial Institutions
 Financial Literacy - Financial Planning and Budgeting
 Financial Literacy - Income and Deductions
 Financial Literacy - Insurance and Risk Management
 Financial Literacy - Saving and Investing
 Financial Planning: Your Road Map Unit (NEFE)
 How Credit Works

12
 In Trouble
 Insurance: Your Protection (NEFE)
 Making Decisions
 Money Management Intelligence
 Online Financial Literacy Final
 Saving & Investing Unit (NEFE)
 Smart Shopping
 The Influence of Advertising
 What would it cost you today?

RISK MANAGEMENT TECHNIQUES

• Performance analysis of banks and financial institutions: Risk management perspective
• Interest Rate Risk (IRR) Management: sources, quantification techniques and management
•Commodity, Currency, Equity Risk Management: sources, quantification techniques and
management of such risks
• Derivatives and Hedging Strategies
• Value at Risk: concept, methodologies, and applications
• Architecting internal rating models and improving the quality of internal rating models
• Credit risk models: Multivariate techniques and Z-Score model, Structured credit risk
models, and other advanced credit risk models
• Credit derivatives and Securitization
• Operational risk management: Analysis of Models

Central banking in 19th-century Belgium: was the NBB

a lender of last resort?
Introduction
It is now commonly accepted that modern central banks have two main objectives:
monetary stability and financial stability. There is further a broad consensus that the
objective of monetary stability is better defined than the objective of financial stability.
Moreover, also our historical knowledge, at least with regard to Belgium, is much better
concerning the history of monetary stability and the role of the National Bank of Belgium
(NBB) hereby. Evidence on how this worked remains limited". The aim is to explore the role
of different institutions and of the NBB in particular during financial crises in 19th-century
Belgium.

Some observations on the notion of financial stability and 19 th-

century Belgium
There is a broad consensus that financial stability is one of the more difficult and elusive
concepts in economics. However, there is also a large consensus that there are reasons for
caring more about stability in the financial sector, especially banking, than in any other
industry (Lamfalussy, 1988). First, banks are highly leveraged institutions, with long-term
assets and short-term liabilities. So they are more vulnerable institutions. Second, the failure
of individual financial institutions can lead to chain reactions within the system because of
the strong links tying institutions to each other. The speed at which funds can be shifted and
the role of expectations are important elements hereby. Third, as a result of the central place
of financial institutions in the mechanism of credit allocation and in the payments system.

13
Whatever happens within the banking world can have far-reaching consequences for the real
economy. In this section, we highlight certain elements of financial stability which were
relevant for 19th-century Belgium.
It is generally accepted that monetary stability is a necessary condition for financial
stability. Indeed, it is important that money fulfils its key functions as disturbances on the
monetary front generally lead to problems in the financial system. During most of the 19th
century Belgium adhered to bimetallism. From our perspective it is important to point out
that banknotes gradually became more and more accepted. As a result, the convertibility of
banknotes into specie became an important element of monetary stability. In the 1830s and
1840s several banks obtained the right of issue. However, there were several banking crises
whereby the convertibility of banknotes was suspended. In 1850 Finance Minister Walthère
Frère-Orban succeeded in pushing through a major reform. The note issue was unified and
became the responsibility of the newly founded National Bank of Belgium (NBB).
Safeguarding the convertibility of banknotes into specie was a key function of the NBB in
19th-century Belgium. With the exception of one major crisis in July 1870, caused by the
threat of war between France and Prussia, the NBB always accomplished this mission.
While monetary stability is generally considered to be a necessary condition for financial
stability, it is certainly not a sufficient condition. Financial crises can occur also in periods
when money is stable. Banks can run into trouble both because of liquidity and of solvency
problems.
Naturally, financial stability is an important concern for policy-makers (Maes, 2007). In the
modern day literature, one distinguishes two main objectives: the protection of small
depositors and the avoidance of a systemic crisis. However, defining a systemic crisis is not
simple. Broadly speaking, one could characterize it as a situation whereby a crisis in the
financial sector has a large scale impact on the real economy (Lamfalussy, 2004).
For safeguarding financial stability, typically, two types of activities are distinguished: ex
ante preventive actions, especially regulation and supervision, which make it less likely
those crises will occur, and crisis management, especially the identification and resolution
of crises (EFC, 2001, Eichengreen, 2002, Mayes, 2004, Vaillant and Amouriaux, 1998).
Managing a crisis in a financial institution raises many issues. Crucial questions are: Who
takes the lead in the crisis operations? Should the bank be saved or can it go bankrupt? What
will be the role of bank mergers and restructurings in a long-term viable solution to the
crisis? What kind of (temporary) construction will be set up? Who will be financing the
rescue operations and paying for the losses?
Several institutions can have a role in dealing with banking crises: the government, the
central bank, prudential authorities and private banks. We will see that in 19th-century
Belgium, the government, especially the Finance Minister, often played a leading role in
dealing with banking crises. Like in many other countries, specific prudential authorities
were only created in Belgium in the 1930s, after the severe financial crises of the Great
Depression.
Also private banks were often involved in the resolution of banking crises. This is especially
the case in so-called „lifeboat arrangements‟ whereby a group of banks comes to the rescue
of a specific institution. In 19th-century Belgium, several times, consortia were created to
help an ailing bank. At various occasions the Société Générale, the biggest bank in Belgium,
played an important role in these. Sometimes the NBB was a member of the consortia, but

14
on several occasions it did not participate.
An important issue is then how one should weigh the benefits of preventing a banking panic
against the costs of inducing riskier activities. This distinction between solvency and
liquidity problems is especially relevant for 19th-century Belgium. Given the dominance of
universal banks, with participations in industry, solvability problems were a typical source
of banking crises in 19th-century Belgium.

The creation of the National Bank of Belgium as a

cornerstone of financial reform.
The crisis of 1838: the government comes to the rescue:
In the early 1830s the Belgian Société Générale became the first mixed (or universal) bank
in Europe. It not only issued paper money, provided discount credit for commercial
purposes and operated a savings bank, but it also participated intensively in the share capital
of manufacturing corporations (Laureyssens, 1975; Kindleberger, 1993). Soon the Société
Générale completely dominated the banking landscape in Belgium. This created a lot of
animosity, the more so as the institution was suspected of favouring a return of the Dutch
House of Orange. So, in 1835, Belgian patriots set up a rival institution the Banque de
Belgique, which was granted a range of functions comparable to that of the Société
Générale, including the right of issue.
Both the Société Générale and the Banque the Belgique soon faced serious liquidity
problems because of their imprudent investment policies. Share prices for instance
plummeted, thereby slashing the value of the banks‟ participations in industrial
corporations.

15
Table 1:Balance sheet of the Société Générale and the Banque de Belgique (end

of 1838, in millions of Belgian francs)

Main items Société Générale Banque de Belgique

Assets

1. Cash on handa 24 1.2

2. Discounts 8 3

3. Loans and overdrafts 58 20

4. Government bonds 24 -

5. Loans on securitiesb 63 11

6. Corporate securities 40c 3

Liabilities

7. Bank notesd 27 3.5

8. Current accounts 30 12

9. Savings deposits 46 1

10. Bonds and notes 20 2

11. Capital 65e 20

12. Surplus 24 -

Source: Chlepner, 1943, p. 12.

a Includes some bank notes issued by the banks themselves. See note d.
b Collateral consisted almost exclusively of shares of industrial corporations promoted by the banks and, in what
concerns the Société Générale, in shares of the bank itself.
c Includes some shares of the Société Générale itself.
d This item does not represent the notes in circulation; a part of the notes were held by the banks themselves
and is included in "cash on hand". The actual circulation was less than 20 millions.
e A part of the shares, included in the assets under item 6, has not been actually issued.

16
The crisis of 1848:
The February Revolution in Paris provoked a new wave of panic in Belgium. To the great anger of the
business community the (re)discount activities of the two big banks once again came to a halt. This time
however it was the Société Générale that faced the most severe liquidity problems. In a few weeks time
the value of its banknotes in circulation fell by more than one third (Compte rendu de la Société
Générale. Année 1848).

The State guaranteed the issue of paper money up to a maximum of 20 million francs for the Société
Générale and up to 10 million francs for the Banque de Belgique. In return, both institutions had to
pledge real estate, state bonds and other securities of at least the same value to the government as
collateral. Moreover, the two banks had to publish at least every 15 days or quinzaine the total amount of
banknotes in circulation.

The law of 20 March 1848 also authorized each of the big banks to issue up to 2 million francs of
supplementary notes for providing assistance to other financial institutions (Moniteur belge, 21 March
1848). Using these funds the Banque de Belgique and the Société Générale jointly granted loans to the
Banque de Flandre and to the Banque Liégeoise, the two smaller Belgian issue banks. So, the
government used the big banks as financial intermediary to assist the other ones.

17
 Table 2: Amount of savings deposits at the Société Générale, 1847-1848 (end of
month, in thousands of Belgian francs)

Stock Received Paid

1847 March 39 676

June 38 722

September 38 181

December 37 149 475 654

1848 January 36 853 649 945

February 36 392 489 950

March 34 896 98 1 594

April 33 205 569 2 260

May 25 790 98 7 514

June 21 800 64 4 054

July 17 634 88 4 253

August 15 915 137 1 856

September 15 151 172 936

Source: Compte rendu de la Société Générale. Année 1848, pp. 44-45.

Note: Deposits of public authorities excluded.

18
The creation of the NBB:
Two severe financial crises in a decade left deep scars. Public opinion and many politicians
demanded substantial reforms of Belgium‟s shaky financial system. In July 1848 the young,
dynamic Walthère Frère-Orban became Minister of Finance. He was the main leader of the
„progressive liberals‟ in Belgium. He was convinced of the merits of free trade, but, very
much in line with French thinking, he also saw a role for the state in economic life, especially
in the financial sector.
Frère-Orban severely criticized the Belgian system of universal banking for several reasons.
First, it was unacceptable that saving deposits were used to acquire shares of corporations.
Such operations not only exposed savers to very high risks, but also jeopardized the liquidity
position of the financial institutions. Second, the Société Générale and the Banque de
Belgique focused strongly on obtaining controlling participations in companies and therefore
did very little to promote discount credit (see also table 1). The universal banks even
distorted the normal functioning of the discount market as they gave preferential treatment to
the companies they controlled. Therefore other firms often faced difficulties to find
commercial credit. To solve this market failure Frère-Orban favoured the establishment of an
institution that would grant discount facilities to any firm that provided the necessary
guarantees. Third, the universal banks neglected the issuing of notes.

Of course, Frère-Orban realized that the big banks would fiercely resist his ambitious plans
and therefore he decided to follow a gradual approach. His priority was to set up a national
discounting and issue institute on the lines of the Banque de France.
The law of 5 May 1850 and the statutes (confirmed by royal decree of 4 September 1850)
define the principal tasks and structure of the National Bank of Belgium (NBB). Being a
private joint-stock company the profit motive was present in the NBB‟s commercial
activities. At the same time however the NBB performed tasks in the public interest, i.e.
issuing banknotes and being government cashier. Therefore it was not more than reasonable
that the state supervised the NBB‟s activities. So the government appointed the governor and
there was a government commissioner, something exceptional in those days.

In view of the 1838 and 1848 crises it comes as no surprise that the NBB‟s main objective
was to maintain convertibility. The NBB was authorized to discount foreign bills of
exchange. Officially Frère-Orban‟s intention was to stimulate the emergence of an
international money market in Belgium(Kauch,1950).

The NBB and monetary stability

The NBB‟s discount operations took off at a dazzling speed13. Already in 1852 the NBB
provided more discount credit than the previous record set by the Banque de Belgique and
the Société Générale combined. This success encouraged the NBB to set up a network of
discount agencies across the country. Parallel with the expansion of the discount activities the
value of banknotes in circulation rose rapidly. So, the NBB remedied several defects of the
Belgian money market. However, the formation of deposits at the NBB remained rather
negligible. The commercial banks were rapidly accustomed to rediscount freely with the
issue bank, whose rediscount policy was very liberal. Consequently they did not feel any
need to maintain important deposits at the NBB.

19
Figure 1: Discount rate and cover ratio of the NBB, 1872-1913 (annual averages,
percentages)

Source: NBB, Bulletin d’information et de documentation, vol. 25, n° II-3 (1950), pp. 126 and 160-164

The NBB and financial stability

The period 1851-1870
By 1870 Frère-Orban‟s grand design of a financial system dominated by specialized financial
institutions had largely been realized. With a market share of 68 percent the NBB dominated
the discount market (Kauch, 1950). Moreover, in 1865 the government had set up the Caisse
Générale d‟Epargne et de Retraite which soon played a leading role on the savings market.
Finally, the other two large financial institutions – the Banque de Belgique and the Société
Générale – more than ever concentrated their activities on investment banking. Nevertheless
several smaller institutions continued to operate as universal banks.
Figure 2: Economic slumps and financial crises, 1850-1913

20
Table 3: Financial crises in Belgium, 1851-1914

Institution in difficulty Financial rescue NBB Société Générale

Year

operation? involved? involved?

1857 Several Antwerp merchant Yes X

Houses

1866 Several Antwerp merchant Yes X

houses

Banque de Crédit commerciale No (X)

d'Anvers

1872- Banque de l‟Union Yes X X

1873

1875- Banque de Belgique Yes X

1876 Banque Centrale Anversoise Yes X

Union du Crédit de Bruxelles Yes X X

1885- Several banks among which No

1886 Banque de Belgique and

Banque des Travaux Publics

1900- Several banks No

1901

1914 Banque de Reports, de Fonds Yes ? X

Publiques et de Dépôts d‟Anvers

Sources: see text.

Notes: Major crises of the banking system are in bold. In 1875-1876 also several smaller banks got into difficulties that were not helped
out.

21
Figure 3: The NBB’s discount operations, industrial production and financial crises, 1866-1899

Sources: Discount operations: NBB, Rapports annuels, 1867-1899.

Industrial production: Gadisseur, 1973.

Conclusion
The creation of the NBB in 1850 marked a fundamental transformation of the Belgian financial
system. Frère-Orban's reform clearly aimed at rendering the financial system more crisis
resistant, especially by restricting the leverage of the banking sector. The NBB, which received
the privilege to issue banknotes, could only grant short-term credit and had strict rules
concerning collateral. Also, the financing of the government was strictly limited. The other
banks, the Société Générale and the Banque de Belgique, continued to have participations in
industry, but their financing became less short-term based as they lost the privilege to issue
banknotes. It was all part of Frère-Orban's vision of a financial system with specialized financial
institutions

22
 LIST OF BANKS IN BELGIUM

list of Belgian banks:

Bank Name Subsidiaries, older names Location SWIFT BIC-code
AXA Bank Antwerp AXAB BE 22
Argenta Antwerp ARSP BE 22
Banca Monte Paschi
Brussels BMPB BE BB
Belgio
Bank van De
Post/Banque de La Brussels BPOT BE B1
Poste
Artesia, Bacob (B.A.C.),
GKCC BE BB, BACB
Dexia Bank Gemeentekrediet/Crédit Communal, Brussels
BE BB
...
Europabank Ghent EURB BE 99
Generale Bank, ASLK/CGER
(Algemene Spaar- en CGAK BE BB, GEBA
Fortis Bank Brussels
Lijfrentekas/Caisse Generale BE BB
d'Epargne et Retraite), Fintro, ...
ING Bank Bank Bruxelles Lambert Brussels BBRU BE BB
Kredietbank, Cera, Raffeisenkas,
KBC Bank Brussels KRED BE BB!
Centea, Bank van Roeselare
Keytrade Bank Brussels KEYT BE BB
Rabobank.be Antwerpen/online
Volksdepositokas(VDK) Ghent VDSP BE 91

ING SECOND LARGEST FINANCIAL INSTITUTION

OF BELGIUM
Address: Avenue Marnix/Marnixlaan 24 B-1000 Brussels
Tel: + 32 2 547 21 11
E-mail: info@ing.be
www.ing.be

23
ING Group - parent company
ING Belgium SA/NV is a full subsidiary of ING Group N.V.

ING is a global financial institution of Dutch origin, offering banking, investments, life insurance
and retirement services. The ING Group headquarter is situated in Amsterdam, The Netherlands.

ING Group employs some 114,000 employees servicing more than 85 million customers in over
40 countries in Europe, North and Latin America, Asia and Australia. For this, ING draws on its
experience and expertise, its commitment to excellent service and our global scale to meet the
needs of a broad customer base, comprising individuals, families, small businesses, large
corporations, institutions and governments.

In terms of global rankings, ING is the world‟s largest direct bank, one of the world‟s largest
savings banks and is ranked n° 86 on Interbrand top-100.

CEO and Chairman: Jan Hommen

Mission
In the financial products and services that ING offers, the customer is the focus of attention. ING
aims to offer outstanding service, maximum convenience and competitive rates.
ING‟s mission is therefore to provide customers with strong support when making their financial
choices for the future.

Strategy
In order to be able to respond to the changing preferences of the customer and to strengthen its
commercial power, ING‟s strategic focus lies on:

 Banking, investments, life insurance and retirement services;

 Providing retail customers with the products they need to grow savings, manage investments, and
prepare for retirement effectively and confidently;
 Align ING‟s business strategy around a universal customer ideal: saving and investing for the
future should be easier;
 Continue to strengthen customer confidence and meet their needs, preserve a strong capital
position, further mitigate risks and bring costs in line with revenue expectations.

On 9 April 2009, ING announced a change programme under the umbrella „ Back to Basics‟.
In a nutshell, ING is implementing this programme to:

 Focus on fewer, coherent and strong businesses;

 Ensure stable and predictable earnings and strengthen financials;
 Reinforce franchises in core markets;
 Build a stronger organisation and give a clear direction.

24
Consolidated balance sheet data

(Consolidated as of 31/12/2008)
Key figures

In EUR million 2008 2007 Evolution

Retail banking 1,842 1,912 -4%
Wholesale banking 1,128 1,088 +4%
Total Income 2,970 2,999 -1%
Operating Expenses -2,064 -1,964 +5%
Additions to Loan Loss Provisions -147 -36 +308%
Profit Before Tax 760 999 -24%
FTE 13,193 13,052 +1%

Banking activities
A retail bank
Within this segment, Retail Banking targets personal customers, the self-employed,
professionals, and small and medium-sized enterprises (SMEs) with an annual turnover of less
than EUR 4 million. Individuals with assets of more than EUR 1 million are handled by Private
Banking.

Branch network
ING Belgium had 786 branches nation-wide at the end of 2008, compared to 791 end 2007. The
number of branches run by a self-employed agent was 230. Customers' needs are clearly
changing. They are opting for more direct forms of contact with the bank, but still always need
professional advice.

Direct banking
Transactions carried out via direct banking channels, such as Self‟Bank, Home‟Bank and ING
Home‟Pay, are definitely on the rise and eclipse those conducted in the branch.

• ING Belgium has some 827* Self’Banks where a total of 3,211* ATMs are installed. 399*
“Cash In/Cash Out” machines allow customers to withdraw cash and deposit banknotes, which
are counted and immediately credited to the account.

• Home’Bank is also on a roll, with 1.7* million accounts already linked to this service.

(* End 2008)

25
The bank of tomorrow
The trend is clear: more and more customers are switching to online banking to carry out their
transactions. It intends to become Belgium's first direct universal bank. During 2007, plans were
unveiled to move the retail bank towards “the bank of tomorrow”. ING Belgium intends, where
possible, to sell a wide range of products online. This will mainly be standardised products
which customers examine and order online from home. The branch network forms a vital link for
providing personal advice. Most customers still need advice on more complex products, such as
investments and mortgage loans, before they decide to purchase.

ING-Proxi and full-service branches

Some 552 branches will be transformed into so-called ING-Proxy branches in the next few years.
The name refers to the “proximity” to the customers. There is no separation between the
Self‟Bank area and the rest of the branch to encourage contact between customers and bank
staff.. Customers can access the adjoining Self‟Bank on any day of the week to carry out cash
and other transactions.

End 2008, 138 ING-Proxi branches were up and running. The bank will retain some 249 full
service branches. These provide a full range of services and have counters. They are also geared
towards offering advice and sales, but are staffed by specialists who target professional
customers and provide wealth planning.

Personal Banking

In 2007 a new “personal banker” function was created within Retail banking. This department
gives advice to customers with assets of between EUR 125,000 and EUR 1 million. A personal
banker uses the customer's risk and investor profile as the starting point, in compliance with the
European Markets in Financial Instruments Directive (MiFID) which makes the bank more
accountable than before.

Private Banking
Private Banking is a service targeted at high net worth individuals with invested assets exceeding
EUR 1 million.
Private Banking also provides active assistance and advice concerning wealth structuring,
succession planning, and credit facilities.

Record Bank
ING has two banking networks operating in Belgium: ING Belgium, a universal bank, and
Record Bank, a retail bank that is a wholly-owned subsidiary of ING Belgium. Record Bank is
part of Record Group, along with Record Credit Services and Fiducré.

As a retail bank, Record Bank targets personal customers, the self-employed, professionals, and
family-run businesses. It does this via a network of more than 750 independent banking agents. It
offers a range of savings, investment, credit, and insurance products. Consumer loans, mortgages
and business credit facilities are distributed not only via the banking agents, but also via other
channels, such as credit brokers and “vendors”.

26
A wholesale bank
ING Belgium approaches companies with products and services specifically geared towards their
needs. A small firm has different financial services requirements from a large multinational. This
is why companies are classified in different categories.

Small enterprises
The self-employed, professionals and small firms with a turnover of less than EUR 4 million are
catered for by Retail Banking.

Medium-sized enterprises
Companies with a turnover of between EUR 4 million and EUR 250 million are handled by the
Corporates & Institutionals segment. They can contact the 20 business centres and business
desks throughout Belgium, as well as the branch network. The bank has specialists in the fields
of transport and logistics, agriculture and foodstuffs, real estate, etc., so that it can focus more
effectively on the specific customer requirements in these different fields. Another primary focus
includes the family aspects of medium-sized enterprises (70% are family-run firms), such as the
transfer of the business. ING Belgium invests heavily in its international network so that it can
assist customers with their foreign operations and ambitions.

ING Belgium's market share within the medium-sized enterprises segment has risen sharply over
the last two years, due to the customer focus on this segment and a professional approach
catering to their specific requirements. The unique cooperation model between Retail Banking
and the Medium-sized Enterprises department has undoubtedly contributed to the success of the
business.

Institutional customers
Governments, hospitals, congregations, educational institutions, trade unions, and pension funds
call for a different approach.
ING Belgium aims to become the most efficient and preferred bank of this large, diverse
customer group.

Large corporates
Listed companies and companies with a turnover in excess of EUR 250 million come under the
“international” division within Corporate Banking. The bank is responsible for relations with
corporates not only in Belgium, but also throughout South West Europe. This responsibility
refers not only to the relationship between ING Belgium and such companies in South West
Europe, but also to their international dealings with all ING Group entities.

Financial Institutions
This department's customers include banks and other financial institutions, insurance companies,
pension funds, investment funds, and the like. The products and services provided include
structured financing for parent companies and subsidiaries, the issue of shares and bonds, and
exchange and interest rate risk hedging instruments.

27
Among specialised departments:
Corporate Finance
ING's Corporate Finance department focuses on capital market transactions, mergers and
acquisitions.

Equity Markets
ING Equity Markets intends to position itself as the leading player in the equity markets in the
Benelux countries. To achieve this, it relies on high-quality equity analysis, good access to
European and North American institutional investors and first-class trading and customer
service.
ING Equity Markets is also a strong player on the emerging markets and has a pan-European
platform at its disposal.

Financial Markets
The Financial Markets department handles the sale and trading of financial products, which form
a major source of profit for the bank. The department carries out assets and liabilities
management (ALM) and strategic trading on the bank's behalf. All kinds of solutions are sought
for companies to meet their risk-hedging and investment requirements. The product range
includes credit, equity and interest rate derivatives, cash management, currency transactions,
structured products, and bond issues. Within ING Group, Brussels is the centre of excellence for
complex interest rate and equity derivatives, index-linked products and structured loan products
– all financial instruments that are growing rapidly. For bond issues, ING Belgium is responsible
for the syndication of international bonds of investment grade investors and for the issue of
private and government bonds.

Leasing activities:

Leasing activities are carried out via two companies with a common single shareholder, ING
Lease Holding.

ING Lease Belgium is one of the country's leading leasing companies. Companies can lease a
highly diverse range of business assets, from photocopiers and hoisting cranes to real estate, as a
result of which they avoid purchasing an asset with their own funds.

ING Car Lease Belgium aims to offer companies a full service so that staff with company cars
can travel worry free. Mobility is therefore central. Even more so: ING Car Lease is complying
with the increasingly stringent requirements currently imposed in terms of the environment and
traffic mobility.

28
Real Estate:
ING operates in the Belgian real estate market via two companies that work in close collaboration with
each other.

ING Real Estate Investment Management

ING Real Estate Investment Management manages real estate projects on behalf of real estate
funds in which institutional investors hold shares. Investment Management (IM) include not only
the ING insurance companies, but also numerous major international institutional investors such
as investment and pension funds.

2008–2009 BELGIAN FINANCIAL CRISES

Bank crises:
Fortis Bank
Fortis was the largest Belgian bank in early 2008, positioned mainly in the Benelux. From mid-
2008 onwards, the bank began facing severe liquidity problems and its stock value began rapidly
declining. The problem was exacerbated by the earlier acquisition of the Dutch bank ABN Amro,
which had depleted Fortis' capital. Since the beginning of 2008, about 3% of the deposits stalled
at the bank were withdrawn. Belgian and Dutch ministers and financial regulators met each other
on 27 September to tackle the crisis..

The following day, Fortis was partially nationalized on September 28, 2008, with Belgium, the
Netherlands and Luxembourg investing a total of €11.2 billion (US$16.3 billion) in the bank.
Belgium will purchase 49% of Fortis's Belgian banking division, with the Netherlands doing the
same for the Dutch banking division. Luxembourg has agreed to a loan convertible into a 49%
share of Fortis's Luxembourg banking division.

The Dutch government purchased the Dutch banking and insurance division of Fortis for €16.8
billion ($23.3 billion), becoming the holder of Fortis Bank Nederland, Fortis Verzekeringen
Nederland and Fortis Corporate Insurance, including the part of ABN Amro held by Fortis. BNP
Paribas, a French bank, took a majority stake in Fortis, while Belgian and Luxembourg
governments became minority shareholders with blocking power in exchange for shares in BNP
Paribas. The deal does not include the main holding company, but does include the insurance and
banking subsidiaries, except for Fortis Insurance International. Dutch and Belgian shareholders'
associations have requested a review of the takeover. On October 6 CBFA, the financial services
regulatory authority for Belgium, announced that trade in Fortis shares was put on hold and
permission the resume trading will be given after Fortis has published enough information about
the remaining assets within Fortis.

29
KBC:
On Saturday 25 October, KBC, another large Belgian bank is reported to be in talks with the
Belgian government, hoping to obtain a €3.5 billion cash injection. The company, which is also
active in Central Europe, fears the adverse impact of the financial woes hitting that region. The
extra cash would be used to increase its risk buffer. Since the beginning of October, the share
value of KBC dropped by more than half as well.

Government reaction
Besides the bail-outs of both Fortis and Dexia, the government also guaranteed all bank savings
up to €20,000. On Saturday 11 October, the government announced that all banks, including the
smaller ones, could obtain a similar guarantee on the condition that they are solvent and pay a
fee. Didier Reynders, minister of finance, also said that the government is drawing up plans to
guarantee all savings up to €100,000.

Stock market reaction

The BEL-20 stock market lost more than 20% of its value during the week of 6-10 October,
making it the largest weekly decline in the country stock exchange history By 25 October, the
BEL-20 index lost more than 60% of its value.

Financial crisis: Belgium seeks India's help:

Belgium alongwith the European Union have sought India's help assistance in resolving the
current financial crisis by helping to build „a new global financial architecture‟.
The visiting Belgian minister for foreign affairs and foreign trade, Karel De Gucht speaking at a
luncheon session hosted by three apex industry bodies – FICCI, CII and Assocham – in Capital
on Tuesday said ; "It is the duty of the policymakers, our duty, to create a better functioning and
a more equitable financial governance structure. Belgium and the European Union are ready to
cooperate with India in this essential and urgent task."
He informed that the European Council in Brussels agreed to the proposal that "the reforms
necessary to create a global financial system for the future must be developed and agreed
internationally through a process involving all of the key actors" and he qualified that India was
a key actor.
The King of Belgians, Albert II is leading a high level delegation to India to work out areas for
bilateral cooperation in trade, investment and economic delegation. Three contracts and MoUs
were signed between Belgian and Indian companies. One contract was signed by Universite libre
de Bruxelles and India Institute of Management, Ahmedabad for cooperation in microfinance.
The Indian commerce minister, Kamal Nath in response said "International Monetary Fund
needs to re-invent its role in the global financial order."
Gucht said that the world has changed much aftermath Second World War with market economy
now prevailing and state-run economies not just endangered species, but actually on the verge of
extinction. "As we witness wave after wave of globalization, we see in the rise of Asia a
tremendous shift in the balance of economic power in the world," he said and added that

30
Belgium would support India's bid for a permanent seat in the enlarged United Nations Security
Council which was long overdue.
"Our new governance structures must reflect the present day political, economic and social
realities. At the same time they must be efficient to tackle the challenges ahead," he said.
He vowed to join hands with India in fighting poverty, combating climate change and fight
against terrorism. Belgium, he said had committed to spend 0.7% of its GDP as public
development assistance. "India's National Action Plan on Climate Change and the EU's
emissions reduction target of at least 20% by 2020 are ambitious but reachable goals we have set
for ourselves," he said

SECTORS
The Diamond City:
Antwerp's Diamond Industry
Antwerp, located on the Scheldt river in Belgium, has been the on-again, off-again center of
diamond trade (diamanthandel) for over 500 years, being temporarily displaced by Bruges and
Amsterdam in the 17th through 18th centuries. The history of diamond cutting in Antwerp dates
back to the early 1500s, but when the Spanish took control of the city in 1585, most of Antwerp's
Jewish diamond cutters fled to Amsterdam, halting diamond production.

The 'Peace of Westphalia' (Münster and Osnabrück) in 1648 ended the Thirty Years' War, and
made it possible for some of the Jews to return to Antwerp, but they were still potential targets of
the Inquisition [2]. During the 1700s, Amsterdam still supplied Antwerp with rough diamonds
from India, but the Dutch kept the better stones for their own cutters, leaving the craftsmen of
Antwerp to work with second-rate raw material. This led to new cutting and polishing
innovations, in order to extract the most beauty out of the inferior rough diamonds.

31
By the end of the Napoleonic wars in 1815, Antwerp was incorporated into the Netherlands. All
religious groups were granted equality, and the Jewish community of Antwerp was officially re-
established in 1816. Antwerp's Hasidim diamantairs opened their first 'formal' diamond trading
exchange (bourses) in 1863
By the mid 19th century, the diamond trade was expanding rapidly, and with the discovery of the
South African Kimberley diamond fields in 1871 (the Cape Period), Antwerp was able to
reclaim its leadership role in the world diamond market after its 300 year hiatus.

Diamond Cutters c.1906 (left), Bourse (right)

During WWI's 'Siege of Antwerp' in 1914, war took its toll yet again, when the "Fort of
Antwerp" consisting of the outer and inner ring of the city were breeched (map, above) and the
German army occupied the city until its liberation 1918.

Again Antwerp's future seemed bright, hosting both the 1920 Summer Olympics (poster, above),
and at the 1930 World Expo, the diamond industry figured prominently. Famous architects such
as Henry van de Velde and Le Corbusier were commissioned to transform Antwerp's skyline into
a gleaming postmodernist metropolis.

Antwerp's Diamond Depression of the 1930s

Antwerp's diamond industry flourished until the American great-depression began to wash over
Europe in the early 1930s. As the depression deepened, demand for diamonds and other luxury
goods went into a free-fall, and by 1934 De Beers began to stockpile diamonds, restricting
supply in order to stabilize pricing. As the situation worsened, the Antwerp and Amsterdam
diamond exchanges cut production by 50% to limit overcapacity. Factories and trading centers
were forced to severely limit operations, cutting work-hours or eliminating jobs for some 25,000
workers.

1920 Summer Olympics, Antwerp City Map c.1814

32
By the end of the 1930s, the diamond industry saw a modest resurgence due to speculators
looking for 'safe' investments in tangible commodities with a fairly stable value. However,
Antwerp's good fortunes would be short lived.

Antwerp during World War II

By 1940, up to 80% of Antwerp's Jews were involved in the diamond trade. With the onset of
World War II in 1939, Antwerp's diamantairs could see the writing on the wall, and many took
the opportunity to flee to Cuba, England, Palestine, Portugal, and the USA, taking as many
stones as they could (up to 90% by German estimates), to prevent them from falling into German
hands.

The 'Correspondence Office for (the) Diamond Industry' (COFDI) was created by two intrepid
diamantairs, Romi Goldmuntz and Herman Schamisso, along with the help of Antwerp's mayor,
Camille Huysmans, and the British government. The COFDI registered and stored the transfered
diamonds until the war ended. Jewish diamond cutters and merchants that did not flee met their
fates at the hands of the Nazis.

Expatriate Jewish diamantairs set up Bourses (bourse van de diamant) in Tel Aviv and Ramat
Gan, Palestine (Israel Diamond Exchange est. in 1930), and in New York city (Diamond Dealers
Club est. in 1931)

Diamantmuseum Antwerpen (right)

De Beers' New York advertising agency, N.W. Ayer & Son (founder of the "A diamond is
forever" slogan) launched a series of advertising press releases like "Diamond, King of Gems,
Reigns Supreme Despite War" and "Diamond Supply Unhurt by War," to ward off panic selling.

Antwerp's Rebirth, Again

When Antwerp was finally liberated on September 4th 1944, fewer than 5,000 of its original
35,000+ Jewish inhabitants survived. As Antwerp was slowly repatriated, the 'Correspondence
Office for the Diamond Industry' began to return the hidden diamonds to their rightful owners,
and Antwerp's diamond industry started to rebuild itself from the ashes of WWII.

Antwerp, The 'Diamond City'

Today, Antwerp remains a global powerhouse in the diamond trade. With the thriving diamond
Bourses containing some 1500 diamantairs, almost 85% of the world's rough diamonds, and

33
about half of the polished diamonds (est. $16 billion US), pass through Antwerp every year.
There are approximately 4,000 people working in Antwerp's diamond-cutting industry.

The 'Belgian Polished Diamond Dealers Association' (BVGD) was set up as an industry
association, and to lobby to facilitate and promote the Belgian diamond trade. The BVGD works
in conjunction with the Diamond High Council (HRD or Hoge Raad voor Diamant).

Recent News from Antwerp

On October 9, 2006, the "Lesotho Promise," the largest raw diamond found in the last thirteen
years (603 carats), sold for $12.36 million at the Antwerp Diamond Center

Agriculture:
Although only 3% of the active population work in agriculture, it is still an important economic
sector whose activities are spread across about half of Belgium’s surface area. There is no doubt
that agriculture has a very real impact on the country’s rural landscape.

Lots of small farms, but their numbers are constantly dropping.

According to the figures from the agricultural census in 2000, Belgium had 41,047 farms. Since
most farms are family-owned, they have few employees. Often there is no-one to take over the
business, which is one of the reasons behind the considerable decline in the number of farms.

Regional differences
Production conditions in the agricultural sector vary greatly from one region to the next. They
are influenced both by the physical environment and the area of land used by farms.
The north of the country (Campine, sandy region of Flanders) has predominantly sandy soil. Due
to the nature of the soil, meadows tend to dominate in these areas. However a significant amount
of land is also used for growing fodder maize.
In southern Flanders, where there is clayey-sandy soil, cultivation is the main land use. As the
average area of farms is very small in Flanders, this necessitates intensive farming. For this
reason, there are many intensive cattle breeding businesses in this clayey-sandy region.
Consequently, there is a wide variety of agricultural production in Flanders, including the
breeding of dairy cows and pigs in Campine and the sandy area of Flanders, along with
specialised market gardening areas.
The production structure is much more uniform in Wallonia. In the loamy area, the average
surface areas of farms are large and the soil is fertile which is why there is large-scale farming
(wheat and sugar beets). In the southwest, the altitude, shallow, stony soil and more marked
relief make conditions less favourable for production. In this region, agriculture is largely
centred on cattle breeding.

Farmers‟ incomes are, on average, lower in Flanders than in central Belgium and the southeast of
the country. The different production conditions which vary from region to region are the reason
for the high level of diversity in Belgian agriculture.

34
Modern agriculture
The modern nature of Belgian agriculture can be seen in various ways, beginning with the
increased consumption of intermediate goods and the sizeable contribution of capital.
Given the need for specific investments and the knowledge required, there is a high degree of
specialisation in farms; this trend is on the rise.

High productivity leads to problems

As is the case in the European Union, Belgian farmers face many problems. The average income
of a farmer is still less than that of workers in other sectors.
Intensification and mechanisation require higher investments, putting some farmers in
difficulties when prices drop.

Belgium and coal:

The International Energy Agency (IEA) notes in its 2005 review of energy policy in Belgium
that coal provides approximately 11% of the electricity generated and that, while the country has
domestic coal resources, the last coal mine closed in 1993 due to high costs of production.
The IEA notes that in terms of energy supply "apart from the introduction and growth of nuclear,
the most significant trend has been a reduction in the use of coal". It also notes that "over the last
30 years, coal consumption has dropped by nearly 70%, from 5.7 to 1.8 Mtoe". (Mtoe is the
acronym for 'million tonnes of oil equivalent', a measure that seeks to standardise the energy
content of different fuels based on the amount of energy released by burning one tonne of crude
oil).

Coal in the Energy Generation Sector

In the decade from 1994 to 2004, there was a dramatic growth in gas-fired power generation at
the expense of coal-fired generation. The IEA notes that "electricity generated from coal has
fallen by nearly 50%" over the decade and dropped from providing 27% of total generation in
1994 to just over 12% in 2004. As of April 2009, there were 5 operating coal-fired power
stations: Amercoeur, Langerlo, Mol, Rodenhuize and Ruien, all of which are operated by
Electable. In 2005, the Les Awirs power plant was converted to run on 100 percent biomass, still
being able to run on coal as well. In 2007, the coal-fired power station of Monceau was closed.
By 2014, the closure of the power station of Mol is planned.

Nuclear Phase-Out

While coal currently plays a relatively minor role in energy supply, there could be an increase in
coal consumption in the medium to longer term. In 2003, Belgium passed legislation requiring
the phase-out of nuclear power stations when they turn 40 years old. As a result, the existing
nuclear power stations, which generate approximately 55% of the country's electricity, will be
phased out between 2015 and 2025. Whether the role of coal in the generation sector expands or
not depends on the degree to which the replacement of nuclear capacity is met by energy
efficiency, power imports and an expanded role for gas.

35
The IEA also notes that while national CO2 emissions have grown by 11% since 1990,
"emissions from coal dropped by more than 40 percent due to fuel switching from coal to natural
gas for electricity generation, as well as to restructuring in the iron and steel industry...
Emissions from coal now account for a fifth of CO2 emissions."

Proposed Coal-Fired Power Stations

Antwerp Power Station, Flanders: In November 2007 E.ON Kraftwerke announced plans to
build a 1,100 megawatt power station at a cost of 1.5 billion euros. In its announcement, E.ON
stated that it had "started the permitting process by submitting the “MER-Kennisgeving”. In
order to being able to start commercial operation in 2014, E.ON Kraftwerke hopes to receive all
necessary permits in the second half of 2009." E.ON has stated that they aim to begin
construction in 2010. One report on the proposed project stated that "Antwerp was chosen
because the installations on the right bank of the River Scheldt can be supplied with coal ships of
up to 130.000 tonnes. The new power plant will run on 2 million tonnes of coal per year. This
means that coals will be shipped in twice a month."

Industries:
The industrial sector currently accounts for slightly more than a quarter of all jobs and almost
30% of added value. How it is structured and where it is located reflect both the influence of the
past and particularly important recent changes that have taken place since the late 1950s. These
include structural changes, regional changes and also changes in the sites chosen by the rising
number of business parks. The energy sector has also changed a great deal.

Diversified industrial structure

Most branches of activity can be found in Belgium: energy, the manufacturing industry and
construction/civil engineering.
Among the different manufacturing branches, some have been in Belgium since the 19th century
or even before: textiles/leather/shoes/clothing, food/drink/tobacco products, metallurgy,
metalworking, machine manufacture, paper/printing and, to a certain extent, chemicals.
Others developed in the 1960s, ushered in by strong economic growth and the mass arrival of
foreign investments. The positive economic climate was particularly beneficial for the chemicals
industry, wood and furniture, metalworking, electrical machinery and equipment, and the
manufacture of transport equipment.
Major regional contrasts
Employment density in industry is fairly varied. The greatest concentration of jobs is found in
the large urban areas and in two regions: central Flanders and the Northeast. In contrast, the
whole of the south of the country, the entire central Walloon area from Charleroi to Liège and
the eastern extremity (Verviers – Eupen) are not very industrialised at all.

Today, Antwerp is the country‟s leading industrial hub. The province of Antwerp is home to half
of the chemicals sector (refineries, petrochemicals, photographic products, pharmaceutical
products, etc.).
Brussels is the second largest industrial hub; its structure is quite logically geared to consumer
goods. However it has clearly declined since the 1960s as a result of competition from the
tertiary sector for land and workers as well as new requirements from companies in terms of

36
transport and surface area. But the main reason for the decline is the homogenisation of space,
making the proximity of consumer markets less important.
Ghent has a structure divided between light industry, for which it is a traditional centre, and
heavy industry mainly found along the Ghent-Terneuzen canal.
Charleroi and Liège retain an industrial flavour but their structure continues to be influenced by
the traditional sectors of heavy industry.
The two large industrial areas not within an urban area are in central Flanders, the Kortrijk
region and the Northeast. The Kortrijk region specialises in light industries which demonstrate a
dynamic network of SMEs under local management. In contrast, the Northeast is mainly made
up of large foreign companies which have benefited from the sizeable labour force available in
this area.

Structural and regional changes

There have been three periods of major upheaval in industry.
Business activity increased from 1958 to 1974, a period of strong economic growth and mass
influx of foreign capital, developing in particular in the Northeast, central Flanders and the
Antwerp region. There was stagnation in metropolitan areas and the decline in the old Walloon
basins became more pronounced.
The period between 1975 and 1985 was a time of crisis affecting most sectors and most regions.
Since 1985, the economy has been recovering, with selective development particularly favouring
new economic areas: the diamond formed by Antwerp-Ghent-Brussels-Leuven, Walloon Brabant
and some peripheral Walloon areas such as eastern Liège province and southern Luxembourg
province.
There are many reasons for these upheavals but they are all linked to recent technological
developments and increased international competition.
Today, too, companies face many challenges arising from major changes in production methods,
saturation on many markets and restructuring in many sectors.

Changing industrial sites

Industries used to be set up where the raw materials were located, along railway lines or
waterways, even in urban areas. The spaces now used by industries are located along major
transport infrastructures (ports, and especially motorways and roads), most often on the edge of
towns and metropolitan areas. Industrial parks have sprung up everywhere.

For the last ten years or so, many industrial parks have become heavily populated by tertiary
sector businesses, making them truly business parks.

Changes in energy
A former coal-producing country, Belgium shut down 120 coal mines between 1957 and 1992.
As a result, the country is largely dependent (up to around 80%) on external supplies. Its primary
energy sources are oil (approx. 40%), natural gas (approx. 22%), uranium (20%) and coal (17%).
Hydroelectricity accounts for just 1%.
This structure has changed greatly over the years. The share of oil has decreased, while the
shares of natural gas and coal have increased (by reconverting power stations). The share of
nuclear power has been increased.
Since the late 1980s, given relatively low oil prices, oil and gas increased to the detriment of coal

37
(which was also inexpensive but more restrictive). In parallel with this development, the share of
nuclear sources in power generation dropped: the number of stations did not increase and new
CCGT (combined-cycle gas turbine) power stations were commissioned using natural gas. In
addition since 1995, there has been a move towards shutting down the small (between 100 and
125 MW) conventional thermal power stations.

Insurance:
Innovation is considered as the key instrument in the Belgium insurance. A high emphasis is being put
on the non-life insurance in the country in the recent years.
Better services and improved products rendered by the insurance companies in the Belgium from time
to time is largely accepted by the peoples in the country.
The Insurance Supervisory Authority Commission (Bancaire Financiere et des Assurances) has been
acting as the regulatory body in Belgium Insurance.

Belgium Insurance Companies

The list of insurance companies in Belgium including both life and non-life insurance on the basis of their
gross written premiums are as follows:

Belgium Life Insurance Companies

Leading life insurance companies in Belgium are as follows:

 Ethias Life Insurance

 Les Assurances de Fortis Banque Insurance
 AXA Belgium Insurance
 Fortis AG
 ING Insurance
 AGF Belgium Insurance
 Delta Lioyd Life Insurance

Belgium Non-Life Insurance Companies

Major Non-Life Insurance companies in Belgium are as follows:

 AXA Belgium Insurance

 Fortis AG Insurance
 KBC Assurances
 ING Insurance
 AGF Belgium Insurance
 DKV Belgium Insurance

38
Investment opportunities:
Strategically located in the center of Europe, Belgium contains a powerful
infrastructure and serves as residence to the main decisional bodies of the European
Union. Equipped with these outstanding features, Belgium offers prime opportunities
for companies seeking optimal locations for distribution activities or a European
headquarters.
Moreover, it should be stressed that companies seeking locations for high technology
manufacturing or assembly can count on a multilingual, skilled labour force and access
to markets via excellent transportation links.
Belgium's numerous highly developed research parks form a natural environment for
the establishment of high-tech companies.
For companies seeking a greenfield site, Belgium also offers the critical components of
available labour, incentives, proximity to European markets and a quality
infrastructure.

Finally, Belgium is becoming a first-rate international financial marketplace. The

foreign direct investment environment is changing, trending towards financial and
trade-related services, but manufacturing still remains important. Therefore, strategic
alliances, joint ventures and acquisitions are becoming increasingly important.

Perhaps the most important incentive is Belgium's long-standing tradition of

welcoming foreign investment. The general principle is one of global equity: no
discrimination is made between domestic and foreign companies.
All financial investment aid is granted by autonomous regional authorities. The level of
grants available in Brussels, Flanders or Wallonia varies slightly, depending upon

39
factors such as employment stimulus, technological composition and desirability of the
projected investment in the region.

Furthermore, additional financial incentives are available in some areas with the
support of EU structural funds.

As to fiscal measures, they include a.o. exemption from tax prepayment on real
property income, the possibility of accelerated depreciation, investment deduction, etc.

Tax credits and personal tax concessions for expatriate personnel are also granted.

Labour incentives are provided through a reduction in social security contribution,

training and job creation measures on the federal and regional levels.

Sme:
The GDP growth was only 1.2% in 2005 whereas it was 2.9% in 2004. The IMF forecasts a 1.9%
growth in 2006. This moderate growth is the consequence of a limited domestic demand as well
as a weak external demand for Belgian products due to the French, German and Dutch economic
slowdown. The Belgian economy strongly relies on its European trade partners' economical
situation given that it realizes 75% of its exports inside the dollar zone. Furthermore, Belgian
exports competitivity suffers from the strong dollar appreciation. The labour market has been
deteriorating for two years and the unemployment rate has gone up from 8% of the active
population in 2005.

The Belgian agricultural sector provides 1.32% of the country's GDP and plays a much lesser
role in its economy as compared to other European countries. Animal breeding and dairy
production are dominant activities. The agricultural policy comes under the domain of Regions.
The industrial sector provides 26.48% of the GDP. Among the main industrial activities are the
production of semi-processed and semi-finished goods (steel and non-ferrous material, chemical
products) and textile. The biotechnology sector is fast developing. The rest of the economic
activity is widely dominated by the service industry which represents 71.8% of the GDP and
employs 72.19% of the active population.

Belgium has a very open economy, one of the world's first destinations for foreign investments.
The three top investors are Luxemburg, the Nertherlands and France. Belgium's top three import
partners are Germany, the Netherlands and France. The country mainly imports chemical and
pharmaceutical products, machinery and mechanical appliances, and transport material. The top
three export partners were Germany, France and Netherlands. The exportations mainly concern
chemical products, transport material and machinery, and mechanical appliances.

40