S&P Global Market Intelligence: Basel mortgage floors could slash capital ratios at Dutch banks

Dutch banks could see their capital ratios significantly eroded under proposed new global rules on estimating the riskiness of mortgage loans, S&P Global Market Intelligence calculations show.

ABN AMRO Group NV would lose more than 450 basis points from its common equity Tier 1 ratio, and ING Groep NV more than 220 basis points, if they are forced to adopt minimum risk weights of at least 40% for their mortgage loan books, according to calculations based on publicly available data. Their ratios would fall to 11.02% and 10.67%, respectively, from 15.53% and 12.94% as at Dec. 31, 2015. Rabobank's would slide to 10.43% from 13.49% in the same scenario. In the case of SNS Bank NV, a much smaller lender, the effect is more dramatic, with its CET1 ratio plummeting to 13.33% from 25.33%.

With the highest loan-to-value ratios in the eurozone, thanks partly to laws making mortgage interest payments fully tax-deductible, Dutch banks are among the most exposed to proposed rule changes by the Basel Committee on Banking Supervision. The top global source of banking standards wants to make mortgage loan-to-value ratios a key part of its standardized models for calculating risk weights — the adjustment made to assets based on the likelihood of potential losses. It also intends to limit the deviation of banks' own in-house models from its standardized approach by imposing capital floors.