LatAm sits pretty as Basel III advances with leverage, liquidity rules
Latin American banks are well positioned to comply with the full scope of Basel III rules outlined on Sunday, analysts say
Latin American banks are likely to comfortably comply with
further details of the Basel III framework that were mandated
by the Bank for International Settlements (BIS) on Sunday.
Under the maximum leverage ratio for banks stipulated by the
BIS, banks in Argentina, Brazil and Mexico - Latin America's
Basel-adherent countries - will have to hold capital equal to
at least 3% of their assets from January 2018.
The new metric, the leverage ratio, measures tier one
capital as a proportion of total assets. It is a second
regulatory capital metric, adding to the rule that came into
force in 2013 which measures bank capital as a proportion of
The incoming rule is unlikely to cause difficulties for
Latin banks, says Franklin Santarelli, managing director at
Fitch Ratings. "All banks in Argentina, Brazil and Mexico have
leverage ratios way above 3%," he tells LatinFinance.
"It's rare to find a bank with less than 5%."
BIS also further specified details on the short term funding
requirements, known as the liquidity coverage ratio. The rule
calls for banks to hold enough liquid assets equal to cover a
30-day funding freeze. Under details released this week, BIS
gave regulators guidance on defining liquid assets. Those are
anyway typically more clear-cut in Latin America than other
parts of the world, where it was hotly debated whether covered
bonds, for example, could qualify.
"Most banks' investment portfolios are 90% government
securities, and the rest of their balance sheet tends to be in
loans," says Santarelli.
Latin American banks have been less affected by tighter
funding and solvency regulations that their global peers,
although they have already taken measures to comply with the
In September last year, Banco do Brasil amended the terms of
its $3.75bn worth of tier one hybrid securities sold in
2013, to make them comply with Basel III rules. And in
Santander Mexico sold Latin America's first Basel-III compliant
tier two bond.
The global rule-setter also presented a consultation
document on the net stable funding ratio, a measure of term
funding in proportion to a bank's assets, on Sunday.
Full details of the new Basel III rules can be found on the
Bank for International Settlements website here.