Basel IV isn't all bad news for European banks

Most large EU banks should be relatively unimpacted by new Basel regime capital reforms, and some are even seeing early benefits.

The bulk of the changes, also known as Basel IV, entered into force Jan. 1, with a five-year phase-in period in the EU. As the new rules require a shift to a standardized calculation of risk, banks relying on internal models stand to face an increase in risk-weighted assets (RWAs), leading to a decline in their core capital ratios.

Quiet on day 1

Larger European banks are expected to bear the brunt of the reforms, but most reported strong capitalization and limited effects from initial implementation. Years of bulking up capital ratios in preparation, portfolio risk management and organic capital generation have positioned banks to manage the regulatory shift while maintaining shareholder distributions and investments.

Spain's third-largest lender, CaixaBank SA, expects the final Basel IV day-one impact to add about 15 basis points to its common equity Tier 1 (CET1) ratio and make no material difference to the fully loaded ratio, CFO Javier Pano Riera said during a Jan. 30 earnings call.

CaixaBank's CET1 ratio fell to 12.2% in 2024 from 12.4% the year prior but remained above its target range of 11% to 12%. Organic capital generation, excluding additional Tier 1 coupons and dividend accrual, ratcheted the CET1 ratio up by 49 basis points, bank filings show.

Rabobank expects its RWAs to decline by at least 5% and does not see the standardized output floor, which is considered the main driver for RWA inflation, being "a constraining factor" in the first years of the reforms' phase-in.

"Our CET1 [ratio] development over the last year has been quite stable, around 17%, and this keeps us widely above our requirement of approximately 11% and well above our [medium-term] ambition level of exceeding 14%," Rabobank CFO Bas Brouwers said during the earnings call.

Banca Monte dei Paschi di Siena SpA anticipates an initial reduction in RWAs from Basel IV of €2 billion in the first quarter, CFO Andrea Maffezzoni said during a Feb. 6 earnings call. Organic capital generation is allowing the bank to grow its CET1 ratio while maintaining high shareholder distributions.

– Access granular Basel III/IV data for CaixaBank.  – Access granular Basel III/IV data for Rabobank. – Access granular Basel III/IV data for Monte dei Paschi.

 

'Marginal' hits

Spain's second-largest bank, Banco Bilbao Vizcaya Argentaria SA, anticipates no negative CET1 ratio ramifications from Basel IV in 2025 and projects its overall impact to be "marginal" in the coming years, CEO Onur Genҫ said during a Jan. 30 earnings call. Given the group's high RWA density of 51%, compared to a 28% average in the European banking system, BBVA would see no material effects from the implementation of the output floor, Genҫ said.

ING Groep NV CEO Steven van Rijswijk said during a Feb. 6 earnings call that the Netherlands' largest lender will take a "negligible" hit from Basel IV in the first quarter and continue to proactively manage capital and RWAs as it moves toward its target CET1 ratio of roughly 12.5%. As part of the RWA reduction measures, ING plans to carry out a significant risk transfer in the second half of this year, Van Rijswijk said.

Carl Cederschiold, CFO of Svenska Handelsbanken AB, spoke of "fairly neutral" effects from Basel IV during a Jan. 23 earnings call. His counterpart at the country's third-largest lender, Swedbank AB (publ), projected a "limited negative impact" for the first quarter.

Fundamental Review of the Trading Book impact

Big banks that outlined more sizeable Basel IV-related RWA increases are confident in their capitalization and ability to navigate the regulatory change, even taking into account Jan. 1, 2026, adoption of Fundamental Review of the Trading Book (FRTB) requirements.

The FRTB was the only part of Basel IV the EU decided to postpone due to the lack of progress in the US. This also prompted UK authorities to push back adoption of the whole Basel IV package to Jan. 1, 2027.

BNP Paribas SA, which expects a roughly 90-basis-point hit from Basel IV in 2025 assuming FRTB adoption from 2026, is still in a "comfortable" capital position with an estimated CET1 ratio of about 12% post-Basel IV impact, CFO Lars Machenil said during a Feb. 4 earnings call.

UniCredit SpA expects to be able to reduce the Basel IV-related hit to its CET1 ratio in 2025 to about 60 basis points through "active portfolio management," CFO Stefano Porro said during a Feb. 11 earnings call.

Some banks expect a further FRTB delay in the EU. There is a "decent likelihood" the FRTB will be delayed again until implementation starts in the US and the UK as certain legislators understand that creating a competitive disadvantage for European banks would be "unnecessarily damaging," CFO James von Moltke said during Deutsche Bank AG's earnings call.