Abstract
Some significant changes to the Basel III regulatory framework (called Basel IV) will come into effect during the 2022 to 2027 period. In its first part, this article shows the opinion of the European Federation of Leasing Company Associations Leaseurope on Basel IV. In its second part, this paper evaluates the situation of the largest leasing companies on the Czech market using methods of financial analysis.The results of several studies published by Leaseurope clearly show that the risk associated with the provision of liabilities through leasing is significantly lower than the risk calculated by the capital adequacy calculation for Basel rules. For this reason, the Leaseurope federation prepared concrete proposals for changes in the rules so that the regulation better corresponds to the actual risks taken.The second part of the article analyzes the situation of leasing companies in the Czech Republic in terms of capital, capital adequacy and compliance with Basel rules. It shows the state of the capital adequacy of the largest leasing companies operating on the Czech market using simplified indicators of the ratio of Equity / Balance sheet total and Equity / Receivables. As a complementary indicator, the ratio of Share capital / Balance sheet total is also used. Furthermore, a simplified stress test based on 5% and 10% decline in net receivables and coverage of this decline from equity, respectively, was performed.The results show that leasing companies operating on the Czech market would probably have no problem meeting the considered tightening of capital requirements. Several exceptions are mentioned in the text.
Highlights
The aim of this article is to evaluate the opinions and the position of leasing companies in Europe and the Czech Republic in relation to the newly prepared rules of Basel III regulatory framework, which should enter into force between 2022 and 2027
The results of several studies published by Leaseurope clearly show that the risk associated with the provision of liabilities through leasing is significantly lower than the risk calculated by the capital adequacy calculation for Basel rules
As stated by ČNB (2018, p. 112–114), “at the end of 2017, the Basel Committee on Banking Supervision (BCBS) introduced a package of proposals aimed at strengthening the risk capital framework Basel III. (...) All changes should be implemented by 1 January 2022 with the exception of the binding minimum level of risk weights from internal models, which is subject to a transition period ending on 1 January 2027”
Summary
The aim of this article is to evaluate the opinions and the position of leasing companies in Europe and the Czech Republic in relation to the newly prepared rules of Basel III regulatory framework (sometimes called Basel IV), which should enter into force between 2022 and 2027. The proposed new rules raise two questions: (i) whether they should be and will be approved and implemented and, if so, (ii) whether financial institutions (here leasing companies) are prepared for them. This paper follows and expands last year's work (Svítil 2019), especially in its first part, focusing on the opinion of the European Federation of Leasing Company Associations Leaseurope on the rules of capital adequacy. This article tries to answer the second question (ii) by assessing the situation of the largest leasing companies on the Czech market in terms of capital adequacy and preparedness for the intended new rules using selected methods of financial analysis.
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