Basel III potential impacts to bank owned leasing company foundation and strategy. Jukka M.S. Salonen 15 April 2011

Transcription

1 Basel III potential impacts to bank owned leasing company foundation and strategy Jukka M.S. Salonen 15 April 2011

2 Towards the New Normal 2

3 Towards the New Normal Driving forces Basel III Lease Accounting Recovery Sovereign debt 3

4 Basel III key issues for the Banks Towards the New Normal capital Higher capital levels incl. leverage ratio and systemic risk Higher quality of capital more equity Higher RWAs liquidity Adjustments of buffer sizes and composition required Will lead to additional cost of the liquidity buffer also for undrawn commitments funding Regulation aim at more match-funding however, a real business model constraint the way the funding ratio parameter set today 4

5 Capital requirements expected to be set above 10% Expected Basel III capital requirement Percent Towards the New Normal 2,5 7 9 ~ ~10-12 Core tier 1 level still not determined local FSAs will implement differently 4,5 Core tier 1 minimum 5 Conservation buffer Minimum capital Systemic surcharge "Buffer" buffer Countercyclical buffer Total

6 Towards the New Normal Size and composition of liquidity buffers under Basel III will change Other Government bonds Liquidity buffer size and composition Essence of Liquidity Coverage Ratio (LCR) Larger buffers More government bonds Higher costs What drives size of LCR Expected/planned net outflows Unexpected outflows Deposits run-offs Undrawn commitments Pre Basel III Post Basel III 6

7 Towards the New Normal ROE in the New Normal R o E Cost of match-funding Cost of liquidity buffer More capital More core tier 1 7

8 Leasing in the change Need to focus on the foundation Need to align the strategies with the owner 8

9 Focus on Foundation Impacts on bank owned leasing companies capital Higher capital ratios Investment by the owner needed Negative impact on ROE liquidity Need for the liquidity according to the LCR Additional cost Negative impact on ROE funding Need for the long term funding according to the NSFR Availability of long term funding becomes crucial Additional cost Negative impact on ROE 9

10 Focus on Foundation Impacts on bank owned leasing companies capital liquidity Negative impact on ROE Better productivity Pricing and risk Business model funding Long term funding New Funding Sources Business model 10

11 Need to Align Strategies Banks strategic considerations regarding Basel III What is: The allocation of funding and capital in the business lines and products? Leasing arm s alignment with group s strategy? Value addition to the group s core markets and customers? Profitability in the terms of return on capital and funding? 11

12 Need to Align Strategies What are the alternatives? Independent Independent, stand alone Independent, part of Bank offering Stand alone strategy Integrated with Group strategy Merged with bank, but not aligned Merged with bank, part of Banking Products 12 Merged

13 Independent Need to Align Strategies Main streams for the changes full merger Traditional Positioning for leasing Stand alone strategy - Merger to parent Bank - Closing down business lines - Withdrawing markets Integrated with Group strategy - Focus on The Bank clients -Bank as the main sales channel 13 Merged

14 Independent Need to Align Strategies Main streams for the changes full merger Traditional Positioning for leasing Stand alone strategy Part of the Bank Drivers Cost savings Capital and funding allocation to banks core customers Integrated with Group strategy 14 Merged Challenges Retain leasing industry expertise Merged as one or split to subdivisions economics of scale

15 Independent Need to Align Strategies Main streams for the changes Alignment Stand alone strategy Traditional Positioning for leasing Strategic alignment with the Group market and segmentation Leasing as part of the group offering Value addition with full scale of services vendor finance and full service solutions like Fleet management Integrated with Group strategy 15 Merged

16 Need to Align Strategies Main streams for the changes Alignment Stand alone strategy Traditional Positioning for leasing Independent Integrated but Independent Drivers Asset Finance more than lending Long sustaining customer relationships Cross selling Economics of scale and skills Growth and profitability Challenges Funding and capital Integrated with Group strategy 16 Merged

17 Basel III potential impacts to bank owned leasing company foundation and strategy Jukka M.S. Salonen 14 April 2011