Jan 29 (The following statement was released by the rating agency)
Fitch Ratings analysis shows that the global systemically important banks (G-SIBs) have
essentially met their Basel III capital requirements early, with an average Basel III Tier 1
common equity (CET1) ratio of 10.1% at the end of Q313, according to a new report based on
data available for 27 of the 29 banks. The Basel III requirements will not
formally take effect until the beginning of 2019.
For the G-SIBs as a whole, the average minimum CET1 ratio requirement was 8.4%,
depending on their firm-specific required capital buffers, with an average
additional capital buffer of 1.7%. The average Basel III CET1 ratio was
comparable across Europe, Asia and the U.S., at 10.2% for European G-SIBs, 10.1%
for Asian G-SIBs and 10.0% for the U.S. institutions.
In a previously published study, Fitch estimated that the G-SIBs, as of
end-2011, faced a cumulative capital shortfall of approximately $566 billion for
each institution to reach a 10% CET1 Basel III ratio.
a€˜For the G-SIBs, reaching an average Basel III CET1 ratio of 10% has been a
multi-year effort focused on bolstering equity capital, primarily through
retained earnings, and reducing risk-weighted assets,a€™ said Martin Hansen,
Senior Director of Fitcha€™s Macro Credit Research team. a€˜An important question is
whether the G-SIBa€™s ratio bolstering efforts will continue or if current levels
represent a new equilibrium.a€™
Several factors could affect these ratios going forward. Scepticism around
risk-weightings could have consequences, with the European Central Banka€™s asset
quality review potentially resulting in adjustments to risk-based capital
ratios. Additionally, some G-SIBs have already announced higher target ratios
well above 10%, and the implementation of the leverage ratio, if acting as a
binding constraint rather than as a backstop, could also push Basel III CET1
ratios even higher. On the other hand, a potential limiting factor is the
pressure for banks to satisfy investorsa€™ return on equity (ROE) expectations, as
the hurdle rate ROE for newly originated credits becomes tougher to achieve amid
stricter capital requirements.
The report is entitled a€˜Basel III Common Equity Tier 1: Early Deliverya€™ and is
available on www.fitchratings.com.
Link to Fitch Ratings' Report: Basel III Common Equity Tier 1: Early Delivery