The Bank of England's regulatory arm has published new capital rules for the UK's major banks, which analysts said "looks like positive news" for the sector.
The Prudential Regulation Authority published a 245-page report today revealing its 'near-final' implementation of the Basel III standards, which led to gains for larger lenders such as Lloyds and Barclays.
As well as the implementation date having been pushed back by another six months to 1 January 2026, the PRA has also kept the core Tier 1 capital thresholds “virtually unchanged”, rising less than 1% rather than its earlier suggestion of 3%, and reduced limits for small business and infrastructure lending.
"These had been a key concern for SME lender banks and would likely have restricted credit supply to the sector and/or pushed up loan pricing had the original proposals been implemented. Consequently, this looks like positive news," said Shore Capital analyst Gary Greenwood.
His overall take is that "there is more to like than not in the paper".
Greenwood and analysts at KBW said the length of the document meant they would caution against knee-jerk reactions.
The KBW analysts agreed that the decision not to force banks to increase capital for SME lending "is positive" for Close Brothers Group PLC (LSE:CBG) in particular, where it estimated that the previous approach would have increased the capital requirement by circa 8%.
Furthermore, lower capital requirements from trade finance activity, it presumed would be a "small positive" for HSBC Holdings PLC (LSE:HSBA) and Standard Chartered PLC (LSE:STAN).
On the negative side, the KBW analysts highlighted that output floors will be adjusted to "improve consistency" between standardised and the IRB (internal ratings-based) approach to the calculation of risk-weighted assets.
They said the benefit of IRB modelling "looks to be largely disappearing, which (i) may well cause tears in a number of finance departments; (ii) but may also imply some further upside risk to IRB mortgages at major banks, for example; and (iii) suggests that challenger banks may be able to compete in vanilla mortgage lending for the first time in c.15 years."
Shares in challenger OSB Group PLC (LSE:OSB) were up over 2.3%, while Close Brothers rose 2.8%.