Banks’ Dividends to Decline on Basel Capital Rules, KPMG Says

The ability of European banks to pay dividends will weaken as they seek to comply with stricter capital requirements, accounting firm KPMG LLP said.

“Currently many subsidiaries of banks do not need to hold capital in various countries, but this will change,” Klaus Ott, a partner at KPMG in Frankfurt, said at a news conference in the city today. “In the future those subsidiaries will keep their profits to accumulate capital, which will reduce the dividend-paying ability of their owners.”

The European Union is introducing a wide-ranging plan on how to apply Basel III rules, including restricting bonuses to twice salaries and more than tripling the core reserves that banks must hold against losses. While Basel III was meant to be a single rule book, national regulators are set to apply the standards in various ways, Ott said.

“For big international lenders, the situation will get more complex than before the regulation as they have to look at all sorts of different capital buffers which might apply to them,” he said.

National regulators may levy an additional systemic risk buffer of as much as 5 percent from 2015 onwards for certain bank groups or assets classes, such as Spanish real estate or ship lending, he said.

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