Fitch: Basel Proposal Could Reduce Bank Funding for Aviation NEW YORK & LONDON--(BUSINESS WIRE)--The Basel Committee on Banking Supervision's (Basel) proposal to eliminate the use of internal models for specialized lending could reduce bank funding as a financing source for aircraft lessors, unrated/lower-rated airlines and other secured borrowers, says Fitch Ratings. That said, the long lead time before implementation, opportunity for market participants to respond to the proposal, and diversity of aircraft financing sources offer multiple avenues to manage the potential impact.
The proposal is part of broad reforms to the risk-weighted asset (RWA) framework, commonly referred to as the "Basel IV" reforms. These proposals would require banks to adopt either a revised standardized approach or supervisory slotting approach for object finance, which includes aircraft/shipping finance and commodities finance. Specialized lending describes forms of financing where the repayment of the bank loan depends on the cash flows generated by specific assets that are financed and pledged or assigned to the lender. Aircraft lessors, unrated/low-rated airlines and other secured borrowers could be more adversely affected than more highly rated unsecured borrowers under the current revised standardized approach proposals. An airline operator without security on an aircraft would get a lower risk