As a result of the financial crisis, risk requirements for banks have been further tightened. Under "Basel III" financial institutions are now required to meet higher equity ratios and improve their equity structure. Whoever believes that the new rules only impact banks is obviously misinformed. Corporates are already feeling the initial effects of Basel III and further challenges are on the horizon.
Due to higher capital requirements, interest rates for loans have already risen and those for short-term investments have fallen. In this regard, long-term financing has become more expensive, particularly for corporates with poor ratings. It is conceivable that the banks will change their service range for corporates. New products such as 31 (or more) day investments or bonus programs are being discussed with a view to increasing transaction volume. And, ultimately, banks will take a holistic approach in dealings with customers in order to cross-finance weaker products, but also to single out those customers offering the greatest profit potential.
In view of the changes associated with Basel III, treasurers will most likely have to grapple with the following issues:
As is evident, the effects of Basel III on bank relations are already considerable. At the same time, regulation has the potential to fundamentally change the overall market environment through consolidation on the part of banks and companies. It thus critical that each partner understands the other, both today and in the future.
Guest Author: Guenther Peer, Director, Reval Austria GmbH, Guenther.Peer@reval.com
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