Capital requirements ‘no threat’ to banks

DUBLIN stockbrokers said yesterday the new Basel III capital requirements being introduced to prevent another global banking collapse will post no serious challenges for Irish banks.

Earlier this year the Financial Regulator set out a basic Tier 1 requirement for Irish banks of 7%, which the banks have to meet by the end of December 2011.

The new requirements, known as Basel III, will demand that in the future banks hold capital totalling at least 7% of their risk-bearing assets, but a long lead-in time eased fears that lenders will have to rush to raise capital.

The new capital ratio will be a substantial increase from the current requirement of 2%, but it is significantly lower than what banks had feared earlier this year and comes with a phase-in period, extending in some cases to January 2019.

Stock markets responded well to the news with bank shares making good gains.

Responding to the new global guidelines, Emer Lang, banking analyst with Davy, said: “We don’t see these new hurdles raising any incremental challenges for Irish banks,.”

The new 7% equity hurdle “is bang in line” with the minimum level set by the Irish Regulator, she said.

But the short timeframe for its introduction contrasts with the much longer phase-in timeframe set by Basel, which expects banks to gradually reach that target, she said.

Basel III is allowing for a gradual build up to the 7% requirement and has set a deadline of January 2019 for the new regulations to be complied with.

Goodbody’s Eamonn Hughes said the impact on Ireland would be negligible because of the stance already adopted by Mathew Elderfield, the Financial Regulator who several months ago laid down tough new capital guidelines for the country’s seriously distressed banks.

Elderfield insisted Irish lenders, crippled by bad debts following the collapse of the property market, restore their balance sheets by selling non-essential businesses.

On Friday AIB said it will raise €2.94 billion in fresh capital from the sale of its Polish unit Bank Zachodni WBK SA.

AIB needs to raise €7.4bn to reach the new capital guidelines. Failure to reach that target could leave the Government with majority control of the bank.

Under the Basel regime banks will not be required to meet the minimum core Tier 1 capital requirement, which consists of shares and retained earnings worth at least 4.5% of assets, until 2015. An additional 2.5% “capital conservation buffer” will not need to be in place until 2019.

The head of the European Central Bank, Jean Claude Trichet, said an agreement on the new global bank capital rules would help remove uncertainty in global markets and underpin the current economic recovery.

“It will be hundreds of billions of euro,” European Central Bank Governing Council member and head of the Basel Committee on Banking Supervision, Nout Wellink said.