ABN AMRO Group NV will see a smaller-than-expected impact from the final Basel III capital rules, though a hit of 450 basis points is still significant, CFO Clifford Abrahams told journalists after the release of the Dutch lender's fourth-quarter 2017 results.
Previously, the bank had expected its common equity Tier 1 ratio to decline by 500 basis points to 600 basis points as a result of higher capital requirements finalized by the Basel Committee on Banking Supervision in December 2017.
"The rules were somewhat more favorable than early consultation papers in various respects — how they treated mortgages, some of the specific ratios were somewhat better," Abrahams said. "[However], it is still a material impact."
ABN AMRO expects an increase of around 35% in risk-weighted assets as a result of the new Basel III output floor of 72.5%, which indicates the percentage to which banks' internal models to calculate risk have to meet standard requirements. For ABN AMRO, the new rules mean it will require greater risk cover for its large mortgage portfolio, among others. RWAs are a key component to calculate the CET1 ratio, which is a measure of a bank's capital strength.
In preparation for the start of the phased-in implementation of the Basel III rules in 2022, ABN AMRO has significantly increased its previous CET1 ratio target, aiming for 17.5% to 18.5% in 2018, compared to 13.5% previously. CEO Kees van Dijkhuizen said the bank had been waiting for clarity on Basel III to adjust its future CET1 ratio targets.
Given that the lender's CET1 ratio was already at 17.7% at the end of 2017, the CEO and CFO expressed confidence about its future capital position.
"Even today, we are well positioned for Basel," Van Dijkhuizen told journalists.
Higher dividend payout ratio
Having more clarity on the capital position and necessary Basel III buffers has enabled ABN AMRO to set a clear dividend policy, Van Dijkhuizen said. Starting with the dividend payout for the bank's 2017 earnings, dividend payments will consist of 50% of sustainable profit, with potential additional distributions depending on capital strength.
Additional distributions may include special dividends or share buybacks, while sustainable profit excludes one-off items that significantly distort profitability, ABN AMRO said. The dividend payout ratio for full-year 2016 earnings was 45%, while in 2015, it stood at 40%.
ABN AMRO proposed a total dividend of €1.45 per share for 2017, up from 84 cents per share a year earlier.
ABN AMRO's full-year profit attributable to shareholders rose to €2.72 billion in 2017 from €1.76 billion a year earlier. The bank's underlying return on equity increased to 14.5% in 2017 from 11.8% in 2016.
