VIEWPOINT: Why Basel IV makes syndication more critical than ever
Basel IV (aka Basel 3.1 or Basel III Endgame in some regions) introduces tougher capital and risk-weighting standards. As banks and specialist finance companies face steeper capital charges, constrained balance sheets and more rigorous regulatory oversight, every way to manage, share or shift risk - while maintaining client relationships - becomes valuable. Loan syndication is emerging not just as a financing tool, but also as a strategic lever - benefiting banks, private credit funds and specialist finance sectors such as auto and equipment leasing.
"Against a backdrop of impactful changes, syndication becomes central to many institutions’ financial strategy."
The key Basel IV pressures
Basel IV tightens the framework around credit risk, operational risk and leverage. One of the most impactful changes is the recalibration around risk weights, especially for exposure to corporates and SMEs.
- Basel IV introduces higher risk weights under standardised approaches for many types of corporate, SME, project and off-balance exposures. This is especially the case in project finance in the pre-operational phase, and with income dependent commercial real estate. In many jurisdictions, exposures that had favourable risk‐weight treatment will face materially more onerous capital charges. In some jurisdictions, SME exposures continue to benefit from supporting factors, but overall capital charges are rising for many asset types compared with Basel III.
- Reduced flexibility in internal ratings-based (IRB) models signifies more reliance on standardised approaches, meaning less room for banks to rely on favourable historical loss/risk experience.
- Significant Risk Transfer (SRT) and other risk‐mitigating transactions (syndications, securitisations, portfolio sales) become more economically attractive, because they allow financial companies to reduce the amount of capital tied up in certain exposures. SRTs are primarily tools for banks, while other originators (such as equipment and auto finance lessors) will rely on syndication, securitisation or whole-loan sales.
Against this backdrop, syndication (in its many forms - loan syndication, portfolio sales, risk transfer and more) becomes central to many institutions’ financial strategy.
"The potential for additional fee income from syndication, as well as redeploying capital into additional lending, gives an advantage to those lenders who can manage this process effectively."
How syndication creates value for all parties
Although the primary impact of Basel IV is on banks who rely on their own IRB models, the benefits will extend to private credit investors, independents, and equipment and auto finance companies.
Banks and traditional lenders will benefit from syndicating all or part of their large loans, selling down portfolios, or using SRTs to reduce their risk-weighted asset burden. Syndication can also be profitable; the potential for additional fee income from syndication, as well as redeploying capital into additional lending, gives an advantage to those lenders who can manage this process effectively.
Private credit funds and other participants in this market can also benefit from syndication. Purchasing portfolios or participating in loans can provide scale without the complexity of needing to originate business, making growth relatively simple to achieve. Private credit funds in particular, who aren’t subject to Basel IV rules, can take on exposures that banks are less willing to hold - representing riskier but higher-return opportunities. As banks and smaller originators look to shed exposure, private credit funds and other buyers have an opportunity to take on whole portfolios or carve-outs. Signs of consolidation are evident within the asset finance industry, with some smaller players rationalising or exiting portfolios. This creates a strategic opportunity for well capitalised private credit firms and independent players to grow their loan books quickly, especially as digital platforms and more standardisation in documentation increase the ease of participation.
"Private credit funds, who aren’t subject to Basel IV rules, can take on exposures that banks are less willing to hold - representing riskier but higher-return opportunities."
Equipment and auto finance companies face indirect pressure from Basel IV. While they are not themselves regulated under Basel IV (unless bank-owned), the rules still affect them through funding costs and bank appetite. This makes it an opportune moment to build partnerships with banks or funds to jointly finance portfolios and share risk. Securitising portfolios - whether through asset-backed securities (ABS) or newer risk transfer structures - has been commonplace in auto finance for some time, but with Basel IV driving up capital costs for certain asset types, auto and equipment finance companies who establish partnerships with banks or funds to jointly finance from origination will be able to grow more quickly. ABS issuance in particular provides a well tested route to offload risk; and under Basel IV rules the demand from banks and investors for clean, high quality structures is expected to increase. Tapping into the capital pools of private credit funds and institutional investors can help lower the cost of funding and provide lessors with a competitive advantage over their peers who don’t hold these relationships.
"Global private credit AUM exceeded $1.7 trillion in 2024, and is forecast to expand further."
Why this moment is a unique opportunity
Putting these factors together, the timing is right for lenders and institutions to push into the syndicated market.
Banks are facing near-term deadlines (2025 onwards, for many jurisdictions) for implementing Basel IV’s more onerous capital rules. The cost of holding certain loans on the balance sheet is increasing, and this accelerates the need for syndication, portfolio sales and SRTs to reduce capital drag. The European Banking Authority estimates Basel IV will increase EU banks' minimum capital requirements by around 15% on average.
Private credit is large, growing, and seeking yield. Global private credit AUM exceeded $1.7 trillion in 2024 and is forecast to expand further. They can act quickly, often more flexibly than banks. As demand increases, the competition for acquiring portfolios or syndicating deals strengthens private credit’s role.
They hold assets that may attract higher capital charges under changing regulatory definitions of risk, or which banks are less willing to retain. Syndication or sale of assets frees up capital for originators to keep growing or to refocus on core originations, rather than balance sheet storage. This allows them to maintain the relationships with end borrowers and introduce new business, whilst managing their capital efficiently.
As more syndications, sales or portfolio transfers happen, the roles of arranger, agent and servicer are more in demand. These are steady, lower-risk revenues relative to lending spreads and, for many institutions, this helps diversify income sources.
How companies can respond
To capture these opportunities, institutions in each sector should consider the following:
- Banks can explore building internal capabilities (or partnerships) for syndication, risk transfer, and portfolio sales. Next, establishing relationships with private credit funds, and introducing standardised documentation and reporting so that risk transfer is efficient, will help them scale.
- Private credit firms can look to ensure they are ready to scale up underwriting, servicing and portfolio acquisition activities and allow speedy execution. This may require the abilities to evaluate risk appropriately and quickly over a portfolio, and to structure agency/servicing roles reliably.
- Equipment and auto finance companies, especially those with large portfolios, can evaluate which pools could be syndicated or sold; explore securitisation; and ensure they have partnerships with investors who can take risk. They can also design new products to align with what syndicators or portfolio buyers find ‘clean’ (good documentation, credit quality, predictable cash flows, and so on).
Conclusion
Basel IV is more than a regulatory burden; it’s a catalyst for change in the market. It forces banks and originators to rethink how they handle risk and capital, and gives private credit and portfolio buyers a huge runway of opportunity. Syndication, as well as related mechanisms like portfolio sales, securitisation and risk transfer, is not optional; it is central to how the credit ecosystem will adapt and thrive in the coming years.
As these forces intensify, those who move early - structuring syndication deals, building agency and servicing capacity, forging partnerships - will be the ones who capture a greater share of the benefits.
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