London (S&P Global Market Intelligence) 10 May 2016 - Dutch banks could see their capital ratios significantly eroded under proposed new global rules on estimating the riskiness of mortgage loans, S&P Global Market Intelligence calculations show.
ABN AMRO Group NV would lose more than 450 basis points from its common equity Tier 1 ratio, and ING Groep NV more than 220 basis points, if they are forced to adopt minimum risk weights of at least 40% for their mortgage loan books, according to calculations based on publicly available data. Their ratios would fall to 11.02% and 10.67%, respectively, from 15.53% and 12.94% as at Dec. 31, 2015. Rabobank’s would slide to 10.43% from 13.49% in the same scenario. In the case of SNS Bank NV, a much smaller lender, the effect is more dramatic, with its CET1 ratio plummeting to 13.33% from 25.33%.
With the highest loan-to-value ratios in the eurozone, thanks partly to laws making mortgage interest payments fully tax-deductible, Dutch banks are among the most exposed to proposed rule changes by the Basel Committee on Banking Supervision.
The top global source of banking standards wants to make mortgage loan-to-value ratios a key part of its standardized models for calculating risk weights — the adjustment made to assets based on the likelihood of potential losses. It also intends to limit the deviation of banks’ own in-house models from its standardized approach by imposing capital floors.
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