What does Basel III mean for your company?

The finalization of Basel III is reshaping the economics of bank lending by forcing banks to hold more capital against their credit risks. At the center of this shift lies one metric: Risk‑Weighted Assets (RWA). RWAs measures the underlying risk of bank loans. As regulators tighten how RWAs are calculated, the cost of providing credit is rising. This will have direct implications that will affect companies relying on bank financing (the vast majority).

What is Basel III?

A healthy banking system is essential for the stability and prosperity of the European economy and its citizens. Since the 2007-2008 financial crisis, international standards have been implemented to ensure that banks are sound and can weather potential future crisis.

Basel III has been phased in over several years, and large parts of the accord are now in force across the EU.

The new reality: higher RWAs, tighter capital

The Basel reforms introduce the “output floor”, a safeguard ensuring that internally modelled RWAs cannot fall too far below standardized calculations.

Once fully phased in, banks’ RWAs are expected to rise by average around 15%. This means lenders must allocate more capital, and incur higher costs, for the same exposures.

Banks typically respond in three ways:

➡️ Reducing their appetite for capital‑intensive lending. In practice this will mean becoming more selective with clients.
➡️ Maintaining exposure while accepting lower profitability (unlikely in the long term).
➡️ Repricing credit, seeking more ancillary business, or steering clients toward more profitable products.

For treasurers and CFOs, traditional assumptions about bank lending capacity and pricing are shifting.

What this means for corporate borrowing

The impact will vary across the sector. Banks already close to standardized risk weights will feel less pressure; others will adjust more significantly. Consequently, companies may experience uneven pricing, terms and appetite across their banking groups.

Certain facilities will remain attractive, such as undrawn revolving credit lines for strong corporates, while previously inexpensive commitments, such as unused overdrafts for midsize clients, may become costlier under revised prudential treatment.

The core message: bank capital consumption is reinforced as key driver of the lending relationship.

The new playbook for treasurers and CFOs

Bank incentives can no longer be taken for granted. To navigate this environment effectively, consider the following strategies:

1. Understand how banks view your company risk

Request your internal rating from each bank and understand the factors driving it. This rating directly influences RWA consumption and, consequently, your pricing.

2. Ask banks to explain the Basel III impact

Inquire how the new rules will affect:

🔹Lending capacity and required margins
🔹Securities, financial covenants and ancillary revenue expectations
🔹Maturities and product mix

Some corporates are already requesting scenario analyses from banks, a practice that will become increasingly valuable.

3. Rethink the financing mix

As certain instruments will become more expensive, funding diversification matters more.

🔹Consider whether private debt, Family Offices, or specialized instruments like leasing can complement bank credit.
🔹Evaluate factoring or other working capital tools that reduce reliance on balance‑sheet‑intensive lending.

4. Prepare for the medium term

As Basel III phases in through 2033, companies should integrate the expected rise in capital costs into their 3‑ to 5‑year funding strategy, including rating targets and alternative sources of liquidity.