FDSeminar Financiering na Basel III - Peter Vermeiren en Nico De Muijnck

FINANCIERINGSMARKT INGEVOLGE
BASEL III ONDER SPANNING,
FABEL OF WERKELIJKHEID?
Oorzaken, gevolgen en oplossingen
27 november 2014
P. Vermeiren – Nico De Muijnck

Agenda
 Hoe zijn we tot hier geraakt?
 Welke zijn de gevolgen?
 Focus op de nieuwe regels voor de financiële sector en
de gevolgen
 Financiering: opportuniteiten & alternatieven
3

Hoe zijn we tot hier geraakt?
Subprime Effectisering
Sterke stijging rentevoeten
Immo markt stort in
4
Header Title
Ontstaan van toxische assets
Liquiditeitscrisis
Bank crisis
Economische & schuldcrisis


Zoektocht naar rendement
Lage rentevoeten
Verwachte verdere stijging van Immo markt
Impact op de balans beperken
Leverage effect gebruiken

Agenda
de gevolgen
5

Welke zijn de gevolgen?
6
Moeilijke economische situatie
Rentevoeten historisch laag
Nieuwe regels voor de financiële sector

14000
12000
10000
8000
6000
4000
2000
7
Moeilijke economische situatie
Faillissementen Ondernemersvertrouwen
15.00
10.00
5.00
0.00
-5.00
-10.00
-15.00
-20.00
-25.00
-30.00
Import / Export Schuld België
7680 8476
Bron : NBB
9420 9570 10224 10493
11897
9097
0
2007 2008 2009 2010 2011 2012 2013 2014(10m)
115
110
105
100
95
90
85
80
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
-35.00
jan 07
jul 07
jan 08
jul 08
jan 09
jul 09
jan 10
jul 10
jan 11
jul 11
jan 12
jul 12
jan 13
jul 13
jan 14
jul 14
In %

8
Rentevoeten historisch laag
0.00
1.00
2.00
3.00
4.00
5.00
6.00
jan 01
mei 01
sep 01
jan 02
mei 02
sep 02
jan 03
mei 03
sep 03
jan 04
mei 04
sep 04
jan 05
mei 05
sep 05
jan 06
mei 06
sep 06
jan 07
mei 07
sep 07
jan 08
mei 08
sep 08
jan 09
mei 09
sep 09
jan 10
mei 10
sep 10
jan 11
mei 11
sep 11
jan 12
mei 12
sep 12
jan 13
mei 13
sep 13
jan 14
mei 14
sep 14
EUR3M IRS10Y ECB Repo

9
Nieuwe regels voor de financiële sector
Principes:
1. Beschikbaar kapitaal 2. Verbruik in kapitaal
Impact:
(RWA*)
BASEL lll
3. Leverage ratio 4. Liquiditeit
Hogere kost van de kredieten, afhankelijk van het type
Ook voor niet-gebruikte lijnen en liquiditeitslijnen
Belang van de operationele relatie
Betere waardering van de stabiele deposito’s
Meer aandacht voor alternatieve financieringsvormen
(*) RWA : Risk Weighted Assets

Agenda
de gevolgen
10

Required Capital
=
Exposures x Weighting x 8%
Weighting :
Sovereigns and Regions : 0 %
Local Authorities : 20 %
Corporates : 100 %
Required Capital
=
Exposures x Weighting x 8%
Weighting :
Based on external rating
(standardized approach)
or
Based on internal data
(internal rating based
approach)
From Basel I to Basel II
Basel I: Required capital for credit risk depends on f ixed weights
Basel II: Required capital for credit risk becomes risk sensit ive (based on rat ings)
11
Evolution regulation

Basel II: Ratings, PD’s, LGD’s, …
Each cl ient is at t r ibuted a Rat ing and a cor responding Probabi l i ty of Defaul t (PD)
PD: Probability of Default LGD: Loss Given Default
• Estimate of the likelihood that a client will be unable to
pay its debt obligations over a time horizon of 1 year.
Financial score
Based on various financial
ratios, a.o. EBIT / Turnover.
Each transact ion a cor responding Loss Given Defaul t (LGD)
Risk Weighted Assets based on PD & LGD !!
Qualitative score
Based on different topics, a.o.
business profile, sectorial profile, etc.
Model Rat ing
• The percentage of the exposure at default which a bank
expects to lose if a client goes into default.
- Override by analyst possible
- Branch Equivalency
- Country Ceiling
Final Rat ing
Mapping to
Probabi l i ty of Defaul t
Important for companies:
- Stability and quality of the revenues / cash flows
- Profitability (historical and forecasted)
- liquidity (current ratio,acid test,etc)
- Repayment capacity
- Assets structure / solvency
- Off-balance commitments
- Dependence of a limited number of suppliers/clients
- Competitive position
- Growth perspectives (Market / Sector)
- Quality and risk attitude of the management
- Intensity of the support of the Mother Company
- ….
Step 1 : Calculat ion of the PRELIMINARY LGD
The preliminary LGD is the estimated Loss Given Default parameter
before taking into account the recovery flows coming from collaterals
evaluated individually (e.g. statistical model).
Step 2 : Calculat ion of the LGD*
An LGD* is calculated for each exposure by correcting the preliminary
LGD by the effect of the expected recoveries coming form Credit Risk
Mitigants (CRMs).
Important for companies:
- Financial health (rating)
- Seniority of the debt / degree of subordination
- Amount and quality of the collateral
- Jurisdiction
- Netting
- ….
12

… and Basel III – the main building blocks
Basel III: New requirements on 4 levels ( instead of only on RWA)
Basel I & Basel II only working on RWA whereas Basel III …
1. Raising the quality of
the regulatory capital
& Introduction of
capital buffers
2. Tougher approach of
the risk: additional
RWA (Risk Weighted
Assets)
3. New liquidity ratios 4. Limitation of
overall Leverage
13

…and so much more other new regulations…
The cumulat ive impact of regulat ion on the banking sector
14

Basel III: Capital & RWA Impact
Less available capital
A key driver of the 2007 credit crisis, was a lack of
appropriate assessment of credit exposures and default
probabilities.
However, Europe recognizes the importance of :
8.5%
• Through stricter definition of capital with greater
Tier 1 Capital
+ 450 bps
6%
4%
deductions that emphasize stronger quality.
Common Tier 1*
Capital add-on for CVA volatility (RWA CVA).
Capital add on for exposures to large financial entity and
to non-regulated financial counterparty (RWA AVC).
Incentive to use Central Counterparties for the clearing
of derivatives.
SME: application of a supporting factor allowing to
reduce RWA.
Non-financial counterparties: exempted of CVA
capital charge.
Trade Finance: reduction of the exposure value for
certain trade finance instruments.
* Includes conservation buffer, but does not include a 0%–2.5% countercyclical buffer.
Total Capital
10.5%
+ 250 bps
8%
10%
+ 500 bps
Basel III
Basel I 2%
3%
7%
Basel II
Higher RWA requirements
• In order to better capture risks related to trading,
securitization, and counterparty exposures.
Signif icant increase in minimum required levels of capital (capital ra t io ’s = Ca p it a l / RWA)
15
Strengthening the banking industry by an increase
of the minimum regulatory ratios with a
grandfathering period until 2019.
Tier 1 & Tier 2 Capital :
Improvement of Tier 1 quality.
Tier 2 capital will be harmonized and
simplified.
Tier 3 eliminated.
Introduce additional capital conservation buffer.
And buffer to protect the banking sector from
periods of excess credit growth (countercyclical
buffer)
Additional deductions from Capital (under
grandfathering : eg. AFS reserve, DTA)
Basel III Building Blocks

Basel III: Liquidity – LCR & NSFR
LCR: Liquidity Coverage Rat io
• Aim : strengthen short-term liquidity profile.
• Level of liquidity buffer to be held to cover short-term
funding gaps under severe liquidity stress.
• Time horizon : 30 days.
NSFR: net Stable Funding Rat io
• Aim : to survive an extended closure of wholesale
unsecured funding markets.
• Minimum acceptable amount of stable funding in an
extended firm-specific stress scenario.
• Time horizon: 1 year.
Available stable funding factors define amount of assets that
would be expected to stay with the institution for an extended
period in an institution specific stress event.
 Long term assets (such as Corporates loans) will need to be
matched by long term funding.
LCR
Stock of high quality
liquid assets
Net cash outflows over
30-day horizon
≥ 100% NSFR
Available amount of
stable funding
Required amount of
stable funding
> 100%
Bank will favor unencumbered, high quality liquid assets
that can easily be converted into cash to meet its liquidity
needs for a 30 day time horizon under a severe liquidity
stress scenario.
Outflows according to type of instruments, counterparts,
stability and collateral :
Deposit run-off ranging from 25% (deposits for operational
purposes) to 40% for non-financial corporates.
10% outflow for credit facilities with non-financial
Corporates.
30% outflow for liquidity facilities with non-financial
Corporates.
 The bank will need to hold high liquid assets (eg OLO)
against stressed outflows.
16

It is a simple, transparent, non-risk based ratio:
The capital is the Tier 1 Capital.
The total exposure is composed of on and off balance sheet assets.
On-balance sheet: all assets, no netting, no reduction from e.g. collateral, guarantees.
Off-balance sheet: 10% CCF for unconditionally cancellable lines and 20% - 50% 100 % for other off-balance
sheet items , depending of their riskiness ( low- medium – high)
Volumes of assets are limited to 3% of Capital.
Capital
Exposures
≥ 3%
Basel III: Leverage
Leverage Rat io
• Is intended to constrain the build-up of leverage in the banking sector.
17

Basel III: Potential impact on pricing - RWA & Leverage
Scarcity of Capital
 More strict criteria for credits.
 Adequate charge of risk costs.
 Importance of an active credit risk management of debtors (selection will be sharper).
 Even more importance of collateral, guarantee and other mitigants to reduce
counterparty exposure.
Required Capital for RWA and Leverage
 Required Capital for RWA and Leverage is not cumulative, one of the two will be
constraining, the highest will need to be considered :
Capital requirement for leverage: 3% of unweighted exposures, including undrawn facilities.
Capital requirement for RWA: 8% of RWA.
Hence, RWA will be constraining starting from an RWA level of 37,5% (= 3% / 8%).
Given their RWA-levels, in most cases Leverage will not be constraining for corporates.
 Undrawn facilities which « can be cancelled unconditionally at any time » have beneficial
treatment for the calculation of leverage (10% weighting instead of 100%).
18

Basel III: Potential impact on pricing - Liquidity
Drawn facilit ies
 When granting a loan, there’s a choice to make for the bank between LCR eligible (liquid)
assets and other loans (such as a loan to a corporate).
 The bank needs to foresee maturity matched funding for each drawn credit facility sheet.
 Since funding is more expensive for longer maturities, there will be a trend to facilities with
shorter tenor.
Undrawn facilit ies
 For each undrawn facility, the bank needs to consider an outflow. The outflow rate depends
on the type of facility :
10% on undrawn credit facilities for non-financial corporates.
30% on undrawn liquidity facilities for non-financial corporates.
 For these, the bank needs to have the funds available at all time (just as for a drawn facility).
 This will result in an increased cost for undrawn facilities.
19

Basel III: Impact and solutions
 Banks will need to raise new capital or re-organise their balance sheet activities.
 Liquidity will be a key driver in the LT strategic choices of banks.
 Through leverage ratio, volumes are limited to 3% of Capital : profitability will be under pressure.
 Pricing will be adapted taking into account these new constraints / costs. Basel III
favourable products will get a more attractive pricing than less favourable products:
 LT loans become less obvious (very few are considered as liquid assets).
 Pricing will be more based on collateral as well.
 Active management of off-balance sheet will be necessary:
o Non-used credit lines and facilities are to be limited.
o For derivatives, existence of collateral agreements will be important.
 Banks will favour stable funding products with outstanding maturities > 1month.
 Importance of operational relationship
 New products will be developed to better align clients needs with regulatory constraints.
 E.g. other forms of financing: asset finance, disintermediation.
20
Key messages
Focus on real needs
Increase dialogue between banks and
clients
“MUTUAL BENEFICIAL PARTNERSHIP“

Agenda
de gevolgen
21

Financiering: opportuniteiten & alternatieven
Financieringsbehoeften analyseren in functie van de ontwikkelingsstadia van een onderneming
22
VC Seed & Early Stage
Business Angels,
Bancaire kredieten – Alternatieve financiering
Micro-kredieten
Technology Transfer, Accelerator en Seed Funds
VC Funds, Mezzanine Funds,
Co-Investment Funds
PRE-SEED FASE SEED FASE START-UP FASE OPKOMENDE GROEI ONTWIKKELING
HIGHER RISK LOWER RISK
Publieke Stock
Markets
SME ontwikkelingsstadia
HOOG RISICO LAAG RISICO

Financiering: opportuniteiten & alternatieven (*)
Financierings-behoeften
Klassieke
bancaire
kredieten
Bank Asset Finance
Debt Capital
Markets
Equity Capital
Markets
(*) exclusief alternatieve non-bank financiering zoals shadow banking (peer to peer lending, crowdfunding,
micro kredieten, kredietunies)
23
Private Equity &
Mezzanine

Working Capital Management
Beter WCM  minder behoefte aan WC  financieringsbron
24
1
2
3
4
5
CASH &
TREASURY
MANAGEMENT

Klassieke bancaire financiering
25
Bron : NBB (Schema A en conjunctuurenquête), ECB
¹ Toegekend door de ingezeten banken, inclusief geëffectiseerde kredieten.
KLASSIEKE
BANCAIRE
KREDIETEN

Klassieke bancaire financiering
26
KLASSIEKE
BANCAIRE
KREDIETEN

Asset Financing
27
Leasing: ondergebruikte financieringsvorm in België (2013)
België: 8,73 % van investeringen (stijgt niet)
EU: 12,5 % van investeringen
USA : > 20 % van investeringen
ASSET
FINANCE

Asset Financing
28
Factoring: groeiende markt – à fortiori in België
Wereldmarkt 2013: 2.230.479 M€; groei van 4 %
Europese markt 2013: 1.354.192 M€; groei van 4 %
Belgische markt 2013: 47.683 M€; groei van 12 %
ASSET
FINANCE

Asset Financing
Voordelen
11. Additionele bron van financiering
1. Flexibele financieringsformules (ook voor ondernemingen
met een minder sterke balans)
2. Geen algemene zekerheden nodig
3. Bancaire kredietlijnen worden vrijgehouden
4. Lagere RWA
5. 100 % financiering mogelijk bij leasing + prefinanciering BTW
7. Tot 90% en meer financiering (incl BTW) mogelijk bij factoring
29
2
3
4
5
6
7
ASSET
FINANCE

Debt Capital Markets (Obligaties)
30
Obligatie-uitgifte
Korte Termijn Lange Termijn
Programma Programma Stand-Alone
Short Term Treasury
Notes
“COMMERCIAL PAPER”
Medium Term Treasury
Notes
“MEDIUM TERM NOTES”
(MTN)
 Public Retail bond
 Private Placement
 (EMTN) Eurobond
EMTN
“EURO MTN program”
 Meerdere uitgiften per jaar
 Recurrente issuer
Belgian Multi-term Treasury Notes Program (CP + MTN)
DEBT
CAPITAL
MARKETS

Debt Capital Markets (Obligatie-uitgiften)
Belgian Corporates:
Volumes (in -000-) – primary market – Ytd comparison 2014-2012
9,000,000
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
31
Bron : Bloomberg
Belgian Corporates 2014 vs 2012 ytd
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2012 2013 2014
DEBT
CAPITAL
MARKETS
ASSET
FINANCE

Stijgende lange termijn trend (met tijdelijke correcties) gunstig voor kapitaalmarkttransacties
Aandelenindices noteren rond “all time highs” Commentaar
32
De belangrijkste aandelenmarkten bevinden zich reeds meer dan 5
jaar in een positieve lange termijn trend. Deze stijging werd af en
toe onderbroken door tijdelijke gezonde correcties, die gepaard
gaan met een stijging van de volatiliteit.
Dit was ook het geval recent in oktober 2014. Ook deze keer lijkt
het om een tijdelijke correctie te gaan.
Niet alleen de volatiliteit is sindsdien opnieuw afgenomen maar ook
de waarderingen liggen nog steeds op aanvaardbare niveaus zoals
blijkt uit de forward PE en EV / EBITDA ratios van de DJ Stoxx
index.
Toenemende volatiliteit noopt tot voorzichtigheid
1m Volatiliteit Stoxx 600
180.0
160.0
140.0
120.0
100.0
80.0
60.0
11/17/09 11/17/10 11/17/11 11/17/12 11/17/13 11/17/14
BEL-20 MSCI Belgium Stoxx 600 Eurostoxx
Forward PE & EV / EBITDA DJ Stoxx Index
EQUITY
CAPITAL
MARKETS

Aandelenkapitaalmarkttransacties in West-Europa Commentaar
159
132 136
87
124
245
162
198
IPO’s in West Europa Aandelenkapitaalmarkttransacties in België
33
2014 is het beste jaar sinds 5 jaar op vlak van aandelenmarkt transacties.
Tot op heden werd al €159 miljard opgehaald via de
aandelenmarkten in West Europa.
Op vlak van nieuwe beursintroducties (IPO’s) is 2014 zelfs het beste jaar
sinds 2007 met een waarde van €47 miljard aan IPO’s (201 IPO’s)
De recente kleine correctie heeft wel gezorgd voor een (tijdelijke)
vertraging in nieuwe dossiers en ook een aantal beslissingen tot uitstel
van de transactie tot volgend jaar (oa SPIE in Frankrijk)
Ook in België waren na er de 3 beursintroducties vorig jaar (na 2 jaar
zonder IPO’s) opnieuw 2 beursintroducties (argen-x en Ontex). De
heropleving van de Belgische markt van aandelentransacties was echter
minder uitgesproken dan in West-Europa.
Bron : Dealogic Bron : Bloomberg
value
EQUITY
CAPITAL
MARKETS

Verschillende initiatieven
Belgisch fonds helpt kmo's met 100 miljoen euro
België heeft met Mezzanine Partners zijn allereerste mezzaninefonds.
Zo'n fonds financiert ondernemingen via achtergestelde leningen en stelt
geen eisen over aandeelhouderschap of dagelijks bestuur. Mezzanine
Partners heeft sinds februari 100 miljoen euro ingezameld. De
initiatiefnemers zijn PMV en Capital@rent.
08 November 2014
Brussels weighs up options for
€300bn investment funds
The European Commission is considering the
creation of investment funds seeded with cash
from either the EU budget or the European
Investment Bank, as the centrepiece of a new
growth plan. The move is aimed at enticing
private investors to finance European
infrastructure.
16 November 2014
34
Marcourt va affecter 121 millions d'euros aux pôles
de compétitivité en 2015
Principal élément du Plan Marshall wallon depuis le début des différentes
mesures initiées en 2005 pour relancer l'économie régionale, les pôles de
compétitivité ne devraient pas souffrir du régime d'austérité du
gouvernement wallon. Selon nos informations, celui-ci devrait réserver
un budget d'engagement important pour financer les projets des 6 pôles
en 2015. Il est doté d'un montant de 121 millions d'euros.
16 Octobre 2014
220 mio EUR have been invested by
TDP for the realisation of projects
totalling more than 2 bio of project
value
23 oktober 2014
PRIVATE
EQUITY &
MEZZANINE

Conclusies
1 Markt van bedrijfsfinanciering in beweging!
Working Capital Management: eerste bron van financiering
35
2
3
4
5
Klassieke bancaire financiering blijft zeer belangrijk
Leasing & Factoring: nog veel onbenutte opportuniteiten
ECM & DCM winnen aan belang

Conclusies
Belfius als gezonde, duurzame Belgische bank-verzekeraar
met het grootste maatschappelijk engagement:
is open for business inzake alternatieve financiering (Asset
Finance, Debt Capital Markets en Equity Capital Markets).
36
2
3
is open for business in Public & Wholesale Banking én vooral
in Corporate Banking rekening houdend met Bazel 3 en andere
regulatoire hervormingsinitiatieven voor de financiële sector.
1
is open for business in Project Finance (Renewable Energy
en Infrastructure) met ook aandacht voor Financial Advisory
en Project Bonds.

FDSeminar Financiering na Basel III - Peter Vermeiren en Nico De Muijnck

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Editor's Notes