Basel III won't materially alter bank ratings - S&P

LONDON Thu Mar 4, 2010 8:16pm IST

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LONDON (Reuters) - Proposed new rules on capital that could force banks to raise funds or cut capital ratios should not have a material impact on credit ratings for banks, Standard & Poor's said on Thursday.

The proposals, dubbed Basel III, are aimed at increasing the quantity, quality and transparency of capital held by banks, and will come into effect by the end of 2012.

"At this early stage, we do not expect that Basel III, once implemented, would likely have a material impact on our bank ratings, which are partly predicated on capitalization being strengthened before governments reduce their support of the banking system," said S&P's credit analyst Richard Barnes.

Banks may need to conserve capital, perhaps by constraining dividends, or adapt their business models with selected disposals in response to the new rules, S&P said in a report.

S&P said it was supportive of the proposals, which were "a sensible response to shortcomings in the current regulatory approach". It has also been critical of inconsistencies in application by national regulators.

Among the reforms, a proposal that various items should be deducted from common equity would probably have a "significant impact on most banks". This includes a requirement to fully deduct pension fund deficits.

S&P said the effectiveness of the Basel III reforms will crucially depend on the final definition of a leverage ratio. The proposals set out a number of options for calculating the ratio, which S&P said appeared relatively conservative.

Barnes said over time, Basel III might positively influence its ratings, "if it contributes to greater resilience to future shocks and the industry is able to transition smoothly to the strengthened capital and liquidity requirements."

(Reporting by Steve Slater, editing by Will Waterman)

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