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

Martin Svítil
Published: 31 December 2019

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.
Keywords: equity / Capital Adequacy / Basel / Czech Market / Leasing Companies

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