The New Rules of Capital Adequacy Basel III from the Perspective of Leasing Companies in Europe and Czech Republic

Martin Svítil

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.

Bibliographic citation

Svítil, M. (2019). The New Rules of Capital Adequacy Basel III from the Perspective of Leasing Companies in Europe and Czech Republic. Financial Assets and Investing, 10(2), pp. 21-41.

Keywords

leasing; Basel III; capital; regulatory capital

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References

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Annual reports 2017 of selected leasing companies:

ČSOB Leasing (2018). Retrieved from: https://or.justice.cz/ias/ui/vypis-sl-detail?dokument=53251887&subjektId=124976&spis=76009

ESSOX (2018). Retrieved from: https://or.justice.cz/ias/ui/vypis-sl-detail?dokument=53528532&subjektId=709228&spis=424824

Mercedes-Benz Financial Services (2018). Retrieved from: https://or.justice.cz/ias/ui/vypis-sl-detail?dokument=53935046&subjektId=472665&spis=127742

MONETA Auto (2018). Retrieved from: https://or.justice.cz/ias/ui/vypis-sl-detail?dokument=56523407&subjektId=78493&spis=248358

Raiffeisen - Leasing (2018). Retrieved from: https://or.justice.cz/ias/ui/vypis-sl-detail?dokument=53548913&subjektId=671627&spis=118285

s Autoleasing (2018). Retrieved from: https://or.justice.cz/ias/ui/vypis-sl-detail?dokument=53424314&subjektId=76121&spis=80377

SG Equipment Finance Czech Republic (2018). Retrieved from: https://or.justice.cz/ias/ui/vypis-sl-detail?dokument=53379675&subjektId=158110&spis=130897

ŠkoFIN (2018). Retrieved from: https://or.justice.cz/ias/ui/vypis-sl-detail?dokument=53671227&subjektId=710387&spis=101608

UniCredit Leasing CZ (2018). Retrieved from: https://or.justice.cz/ias/ui/vypis-sl-detail?dokument=52783816&subjektId=68377&spis=73360

Annual reports 2017 of selected banks:

Raiffeisenbank (2018). Retrieved from: https://or.justice.cz/ias/ui/vypis-sl-detail?dokument=55049297&subjektId=445917&spis=74749

Unicredit Bank (2018). Retrieved from: https://or.justice.cz/ias/ui/vypis-sl-detail?dokument=55061306&subjektId=47976&spis=76109

Other references:

ČLFA (2019a). Zpráva o stavu a vývoji nebankovního leasingového, úvěrového a factoringového trhu v ČR v roce 2018. Retrieved from: https://www.clfa.cz/data/dokumenty/830-2018zprava.doc

ČLFA (2019b). Kdo jsme. Retrieved from: https://www.clfa.cz/o-nas/kdo-jsme

ČNB (2018). Zpráva o finanční stabilitě 2017/2018. Retrieved from: https://www.cnb.cz/cs/financni-stabilita/zpravy-fs/zprava-o-financni-stabilite-2017-2018/index.html

Fleuret N. and Phaure H. for Deloitte (2012). The impacts of Basel 3 on the European leasing industry - A Leaseurope research project. Leaseurope Annual Convention Presentation 2012. Retrieved from: http://www.leasing.org.pl/files/uploaded/Cannes2012/3.%20Fleuret.pdf

Hartmann-Wendels, T. and Honal, M. (2010). Do economic downturns have an impact on the loss given default of mobile lease contracts? An empirical study for the german leasing market. Kredit und Kapital, vol. 43, pp. 65–96. https://doi.org/10.3790/kuk.43.1.65

Leaseurope (2013a). The Risk Profile of Leasing in Europe - The role of the leased asset. Retreived from: http://www.leaseurope.org/uploads/documents/Basel%203/Risk%20Profile%20of%20Leasing%20-%20Key%20Findings.pdf

Leaseurope (2013b). Implicit Risk Weights for SME Leasing in Europe. Retreived from: http://www.leaseurope.org/uploads/documents/Basel%203/Implicit%20Risk%20Weights%20for%20SME%20Leasing%20in%20Europe%20-%20Key%20Findings.pdf

Leaseurope (2018a). Leaseurope response to the European Commission consultation on the finalisation of Basel III. Retreived from: http://www.leaseurope.org/uploads/documents/PSC/pp180412_LEA_Basel%20IV.pdf

Leaseurope (2018b). Prudential Treament of Leasing. Retreived from: https://nvl-lease.nl/wp-content/uploads/2018/11/Leaseurope-Leaflet-Prudential-Treament-of-Leasing-Proposal.pdf

Leaseurope (2019). Leaseurope Key Facts and Figures 2017. Retrieved from: http://http://www.leaseurope.org/uploads/documents/LeaseuropeFF_17_PRINT.pdf.

Phaure, H. for Deloitte (2013). Basel III Regulation and effect on leasing market. Working paper presented at Eurolease forum 2013 Milan.

Salonen, J.M.S. (2011). Basel III potential impacts to bank owned leasing company foundation and strategy. Retrieved from: http://www.leaseurope.org/uploads/documents/events/seminar_for_lessors/2011/Jukka%20Salonen.pdf

Schmit, M., Degouys, C., Delzelle, D., Stuyck, J., Wautelet, F. (2003). Credit risk in the leasing business – a case study of low probability of default. Retrieved from: https://pdfs.semanticscholar.org/c9cf/e83252673341f6fb121213fba8c83dbe2eac.pdf?_ga=2.261124363.721889384.1556884783-770817054.1556884783

Svítil, M. (2011). Řízení finančního rizika při financování investic leasingem. Doctoral thesis. Brno: Ekonomicko-správní fakulta MU.

Svítil, M. (2019). Leasing companies in Czech Republic from the perspective of Basel III regulation. In: European Financial systems 2019. Proceedings of the International scientific conference European Financial systems 2019, Brno. ISBN 978-80-210-9337-9 resp. ISBN 978-80-210-9338-6 (online).

https://doi.org/10.5817/FAI2019-2-2

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