As the date to implement the Basel III capital reserve requirements nears, many European banks are re-evaluating the economics of corporate lending. Tighter capital reserve requirements under Basel III will lead to lower profitability margins on loans for lenders.

According to the 2011 European Corporate Finance Study by Greenwich Associates, European banks have begun to segment corporate clients based on profitability. There is an expectation among analysts that over time the largest corporate clients with substantial investments in banking products (such as treasury services, capital markets and advisory services) will be profitable enough for banks to warrant providing better and more consistent credit. Smaller companies, who use less or less profitable banking services, are expected to face less consistent access to and significantly higher prices for credit.

Basel III is expected to hit the mid-tier banks the hardest. With increased capital reserve requirements, it is unclear whether the smaller national and regional banks will be able to compete for the business of large corporate borrowers or be available to extend additional credit in tough economic times as they did during the financial crisis.

In a similar vein, Société Générale, one of Europe's largest banks, plans to announce the restructuring of its corporate and investment banking business next week. The restructuring is designed to cope with lower profitability expected from these activities caused by the euro zone crisis and more stringent Basel III capital requirements.

For more information on the structure and schedule to implement the various Basel III requirements, see Practice Notes, Basel III: an overview and Basel Committee on Banking Supervision: ongoing initiatives.