Basel III to raise credit cost

The price of credit offered by banks to small businesses will rise owing to Basel III, according to the British Bankers’ Association (BBA).

Simon Hills, the executive director of prudential capital and risk at the BBA, says the changes will further the correction of credit-pricing already under way.

He says a combination of the current correction in pricing and the risk-weighted capital reserve requirements in Basel III will see the cost of credit for different areas increase in line with the risks they pose. (article continues below)

Hills, who is the chair of the International Banking Federation’s Basel working party, says lending to an SME is riskier and requires twice as much regulatory capital as lending to bigger businesses. He says: “The price of credit will go up. As to the extent it rises for mortgage lending versus credit cards versus small and medium enterprises, we will have to wait and see.”

He is calling for the Consumer Protection and Markets Authority and Prudential Regulation Authority to have a central information repository on firms to cut costs. He says: “I do not want to have to submit the same types of data to both authorities.”