Key Changes and Implications
SME Lending
Removal of SME Support Factor: The removal of this factor will increase capital requirements for SME lending.
Preferential Risk Rates: The introduction of preferential risk rates for unrated SMEs and qualifying retail SME exposures aims to mitigate this impact.
Structural Adjustment: The Pillar 2 structural adjustment is intended to further offset the capital increase.
Potential Impact: While the changes aim to balance the impact, there may be short-term challenges for banks, especially in terms of capital adequacy and lending decisions.
Real Estate Lending
Revised Definition of Residential Real Estate: The definition has been broadened to include care homes, student accommodation, and holiday lets.
Revaluation Requirements: The introduction of a backstop requiring revaluation every 5 years (or 3 years under certain conditions) could increase operational costs and potentially lead to changes in lending practices.
Impact on Risk Weightings: The changes to real estate lending could affect the risk weightings associated with these exposures, impacting capital requirements.
Unrated Corporates
Risk-Sensitive Approach: The PRA has maintained the risk-sensitive approach for unrated corporates, allowing for differentiation between investment grade and non-investment grade exposures.
Regulatory Permission: Banks must obtain permission to use the risk-sensitive approach, and the alternative is a 100% risk weight.
Output Floor
Transitional Period Shortened: The shortened transitional period to December 31, 2029, could increase the pressure on banks to comply.
Starting Point Adjusted: The increased starting point of 55% could have a significant impact on capital requirements for banks with high-risk portfolios.
Overall Implications:
Increased Capital Requirements: Many of the changes in Basel 3.1 will lead to increased capital requirements for banks.
Operational Challenges: Implementing these changes will require significant operational adjustments and investments in technology and risk management.
Impact on Lending: The changes could affect lending practices, particularly for SMEs and real estate exposures. Banks may need to re-evaluate their risk appetite and pricing strategies.
Competitive Landscape: The impact of Basel 3.1 will vary across banks, potentially affecting the competitive landscape.
27 окт 2024
