May 24, 2017 / 10:23 AM / 2 months ago

Fitch: Basel Floors Won't Force Swedish Banks to Issue Capital

11 Min Read

(The following statement was released by the rating agency) LONDON, May 24 (Fitch) Swedish banks would not have to raise new capital as a result of proposed floors on the risk weights that banks use to calculate capital requirements, Fitch Ratings says. Capital floors would increase banks' modelled Pillar 1 capital requirements under the international Basel regulatory framework. But we believe reductions in the Swedish regulator's Pillar 2 requirements, which are conservative relative to other European jurisdictions, would largely offset the impact, and that any remaining capital needs could be met from Swedish banks' strong internal capital generation. We expect Basel capital floors would be phased in gradually, giving banks time to transition to the new requirements. We do not expect that the proposals would trigger changes in our ratings of Swedish banks. The Swedish regulator, the Financial Supervisory Authority (FSA), requires banks to hold significant buffers for systemic risks as the country's banking system is concentrated and large relative to the Swedish economy. Banks have to apply a 25% risk-weight floor in Pillar 2 for Swedish mortgages, reflecting high household debt, a risk which the Swedish central bank highlighted again today as a serious threat to financial and macroeconomic stability. All banks must hold a countercyclical capital buffer of 2% of risk-weighted assets, compared with zero elsewhere in the EU. The four domestic systemically important banks, Nordea Bank, Svenska Handelsbanken, Skandinaviska Enskilda Banken and Swedbank, must hold an additional systemic risk buffer of 5% of risk-weighted assets (of which 2% is Pillar 2), compared with the EU norm of 1%. We think the FSA will reduce these Pillar 2 requirements if the Basel framework adopted by the EU includes significantly higher Pillar 1 capital requirements. The FSA may have to reduce Pillar 2 requirements anyway if a proposal to limit Pillar 2 to a purely micro-prudential regulatory function is passed by the European Parliament. In November 2016 the European Commission proposed that Pillar 2 should no longer take account of systemic or macro-prudential risks, to avoid undermining approaches at the EU level to these risks. The Swedish parliament has opposed this, saying it would limit flexibility to act at a national level to protect financial stability. We expect banks to pass the cost of the extra capital requirements to customers if the capital impact of Basel floors is not fully offset by a reduction in Swedish Pillar 2 requirements, although any significant increase may dampen borrower demand. A capital floor for low-risk lending might drive some banks to take on higher risks where capital requirements are not increased by a floor. However, the Swedish banks we rate have a low risk appetite and we expect them to maintain this approach. The Basel Committee on Banking Supervision has proposed that banks using their own models to calculate capital requirements should apply risk weights no lower than 60%-90% of those defined in the standardised approach. The Committee will discuss this at its next meeting on 14-15 June in Sweden but we do not expect consensus to emerge yet, given differences of opinion on the calibration and the absence of a lead US representative, following the resignation of Daniel Tarullo from the Fed's board of governors in February. Fitch analysts will be in Stockholm on 2 June to present our latest views on credit themes and trends across all major sectors. To register for this event, visit: here Contact: Bjorn Norrman Senior Director, Financial Institutions +44 20 3530 1330 Fitch Ratings Limited 30 North Colonnade London E14 5GN Monsur Hussain Senior Director, Financial Institutions +44 20 3530 1793 David Prowse Senior Analyst, Fitch Wire +44 20 3530 1250 The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below