The recent pledge by Banco Santander SA Chairman Emilio Botin to boost the bank's capital base has spurred debate as to the financial strength of Spain's biggest bank.
With the move, the bank would have a core Tier 1 capital ratio of 8% by the end of 2013 should the Basel III rules be imposed. Botin relates to the annual general meeting of the bank, the 8% ratio is lower than all of eight European banks, like HSBC Holdings Plc.
The requirement to raise capital buffers has forced Santander to give up future earnings in high revenue generating interests such as a Mexican bank stake last year. It also sold its interests in a Colombian bank in 2011 for the price of US$1 billion after selling of its shareholdings in a Brazilian bank and US auto loans business.
The capitalization rules is set to be implemented by 2019 globally sets the minimum capital banks at 4.5 percent weighted risk for assets. Thus it is imperative to maintain capital ratios between 8.5% and 10%.
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