SME-targeted Implementation of Basel III

Transcription

1 SME-targeted Implementation of Basel III Study commissioned by the Austrian Federal Ministry of Economy, Family and Youth and the Austrian Federal Economic Chamber Bernhard Felderer, Ines Fortin (IHS) & Luise Breinlinger (LBMS) October 28, 2011

2 SME-Financing in the euro area Source: ECB (percentage of respondents) Q: For each of the following sources of financing, could you please indicate whether you used them during the past 6 months? Survey end of

3 SME-Financing in the US Source: National Small Business Association (percentage of respondents) Q: What types of financing has your company used within the last 12 months to meet your capital needs? Survey end of

4 Costs in percent of credit claims Costs in percent of credit claims Costs of SME loans Standardised-approach Banks large SMEs/LEs < IRB Banks small SMEs/private customers large SMEs/LEs < small SMEs Costs of loans to small SMEs are larger! Notes: Ranking for the weighted average of banks using the standardised approach and banks using IRB. LEs = large enterprises. Costs include personnel, material, administrative and standard risk costs; costs for IRB banks do not include company overhead. The ranking presented here is valid for all data providing banks. Data have been kindly provided by some selected Austrian banks and refer to Source: Austrian banks, own calculations. 4

5 Coverage of SME-exposures Exposures to SMEs fall into the exposure categories retail or corporates This holds for banks in the IRB as well as in the Standardised Approach IRB-banks (IRB: Internal Ratings-Based Approach) use own models, approved by banking supervision, for credit risk quantification and deriving minimum capital requirements Basically, loans with a volume of < EUR 1 million can be categorised in the retail segment (preferential treatment) Within the corporate segment in IRB, there is a subcategory SME: SMEs with annual sales < EUR 50 m are given preferential treatment over regular corporate capital requirements (relief with increasing sales) 5

6 Availability of aggregated data on SMEexposures (1) The data used were kindly provided by the Austrian Central Bank (OeNB). Retail: SMEs not recorded separately Made necessary an approximation of the proportion of SMEs in the whole retail segment Despite approximation vagueness: Share of SME exposures in the total retail segment significant rating development of the retail segment also considerably influenced by SMEs Total retail exposures (on- plus off-balance, end 2010, unconsolidated): ca. EUR 133 bn (EUR 71 bn SA, EUR 62 bn IRB) 6

7 Availability of aggregated data on SMEexposures (2) Corporates: SMEs separately reported only for IRBbanks (figures on- plus off-balance, end 2010, unconsolidated) SMEs in IRB: EUR 27.7 bn Total corporate exposures IRB: EUR 153 bn 18% of IRB corporate volume accounted for by SMEs SMEs in Standardised Approach: not reported separately Corporate exposures SA: EUR 183 bn SME-volume in corporates (IRB + SA): considerable 7

8 Rating structure retail (IRB): ƩRC 3+4 stable Rating category classification according to OeNB master scale (RC1: very good,, RC8: default) 8

9 Note: The data comes from a statistical analysis of the OeNB- Großkreditevidenz (carried out and provided by OeNB; basis: overall utilisation with derivatives). This figure basically excludes SME loans under EUR 350,000. From the approximately 60% of loans that fall here below the one-million euro threshold, no conclusions can therefore be made on the overall distribution including loans of up to EUR 350,000. 9

10 Regulatory limits and minima Minimum ratios so far and according to Basel III (Basel III figures for end of transition period beginning of 2019, incl. Capital Conservation Buffer) So far Basel III Multiple Common Equity (CT1) -* 7% -* Tier 1 4% 8.5% 2.13 Total Capital 8% 10.5% 1.31 In fact, ratios of only 2% Common Equity were possible under Basel II. If one related the 7% minimum Common Equity according to Basel III (incl. Capital Conservation Buffer) to this figure, the new ratio would result as the 3.5-fold. 10

11 Effects on SME capital requirements Risk weights Standardised IRB 1 approach 3 PD: 0.5% 1.0% 1.5% Retail 75% 34% 49% 57% Mid-Corporates 2 100% 58% 77% 87% Capital requirements Retail 6% 2.7% 3.9% 4.5% MQ: so far Mid-Corporates 8% 4.7% 6.1% 6.9% Retail 7.9% 3.6% 5.1% 5.9% MQ: Basel III Mid-Corporates 10.5% 6.1% 8.1% 9.1% 1 Assumptions: The presented one-year default probabilities do not aim at reflecting a portfolio average, but should rather be representative to some extent and reflect risk sensitivity of the IRB; LGD: 0.45 (to be comparable, for the retail sector as well). 2 Assumed amount of sales for SMEs in the IRB corporate segment: EUR 5 million (to demonstrate the threshold effect if the one-million-euro limit is exceeded). 3 For the sake of clarity and due to minor effects in this context: Provisioning not accounted for. 11

12 Conclusions Retail exposures IRB: Development of the good rating classes tended to remain stable during the economically difficult times since Q42008 (contrary to, e.g., the overall portfolio) Basel III cost increases for SMEs necessary from a risk perspective? Potential ways for cushioning: Reevaluating risk weights, 1m-euro threshold Distribution of medium-to-large SME loans according to size: Raising the 1m-euro threshold for retail to, e.g., 2m-euro would the number of affected SME loans significantly (without according risk concentrations) Basically: Effect of higher minimum ratios increases in absolute terms with risk weights on tendency below-average ratings (like SMEs) confronted with higher cost than better ratings 12

13 Thank you!