Banks may face extra RM214b capital needs after Brexit

LONDONBanks may need to find US$30 billion to US$50 billion (RM214.24 billion) of additional capital to support new European units in the aftermath of a hard Brexit, and some smaller firms may abandon their operations on the continent altogether as profitability plunges, according to Oliver Wyman Inc.

The extra money is equivalent to 15% to 30% of the capital wholesale banks commit to the region, the management consultant said in a report yesterday. In addition, operating costs could rise by US$1 billion as functions currently handled in London are duplicated on the continent as banks scramble to establish new hubs to ensure prized access to the European Union’s (EU) markets.

A hard Brexit, where banks lose privileges access to the EU’s single market, would “fragment European wholesale banking”, Oliver Wyman partners, including Matt Austen and Lindsey Naylor, said in the report. “It will also make it significantly less profitable. Banks could see two percentage points knocked off their returns on equity.”

The pressure for banks to boost their operations on the continent will likely build as the European Central Bank’s desire for tougher banking supervision across the eurozone forces lenders to show they’re self-sufficient and have strong governance, according to the report. — Bloomberg