Basel III redux could see banks lending more

Published 08 January 2013 12:15, Updated 14 January 2013 07:17

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The revised liquidity rules for banks is positive for businesses seeking financing globally, but it remains to be seen whether Australian businesses will reap the benefits, according to lending experts.

A committee of central bank chiefs agreed on the weekend to delay the Basel III reforms that set tough new liquidity requirements for banks.

The Basel Committee on Banking regulation agreed to delay the full implementation of new liquidity rules for four years until 2019 that would have held banks tough new liquidity requirements. It’s now up to the Australian Prudential Regulation Authority to pass on the reprieve to local institutions.

The longer time frame and broader asset definition the Basel committee agreed to – which gives banks globally some breathing room to adhere to liquidity coverage ratios – would indeed make the cost of financing for banks cheaper, according to Stuart Scoular, a partner and banking and capital markets leader at PricewaterhouseCoopers.

“Banks that don’t have to carry the high cost of liquid assets means there is potential for lower cost funding for businesses on the margins,” Scoular says.

However, Scoular points out that APRA has been progressive in the past in terms of its adoption of stringent capital adequacy and liquidity rules for the banks, and it is not clear yet whether the Australian regulator will adopt the relaxed global stance.

Scoular also raises the possibility that Australian banks may want to hold themselves to higher standards than expected by the Basel committee, meaning they could choose to carry higher levels of liquid assets. As part of the reprieve agreed to this weekend, the Basel III rules have also been broadened to include previously exempt asset such as mortgage-backed securities and corporate bonds.

While Sebastian Paphitis, leader of Ernst & Young’s debt financing team, believes that changes to the phase-in time and the broadening the definition of liquid assets under Basel III would have a positive impact on banks’ cost of financing globally, he adds that appetite for financing among small and medium enterprises is dictated as much by non-bank institutions that are not governed by global standards such as Basel III.

“There is already a strong appetite to lend if you find the right institution that has less to do with cost of funding and more to do with the credit appetite for a particular business,” Paphitis says.

Overall, Paphitis expects the revised rules will have a positive effect on the global cost of funding for banks, but he agrees with Scoular’s sentiment that its impact on businesses in Australia will depend on application of the rules by local regulators and institutions.

Under the changes agreed to by the global regulators in Switzerland on the weekend, banks will only have to meet 60 per cent of the required Basel III liquidity buffer by 2015, phasing up to 100 per cent by 2019.

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