Basel II likely to benefit Tisco Bank

Thanks to its large auto-loan portfolio, the bank's capital adequacy ratio should increase by about 1 per cent in compliance with Basel II, as required by the central bank. Currently, the bank's BIS ratio stands at 11.92 per cent, said Tisco CEO Pliu Mongkornkanok.

Under Basel II, the risk weighting of retail loans is 75 per cent of the total loan portfolio, compared with 100 per cent under Basel I.

Tisco's retail loans account for 80 per cent of its loan portfolio, of which 75 per cent are auto loans. Thus, the bank will be able to set less loan loss reserves due to the new standard and, consequently, its capital adequacy ratio will rise.

According to Basel II, the risk weighting of corporate loans is 100 per cent.

The capital base of the country's overall banking system is expected to be affected by Basel II's enforcement by 1.5-2 per cent.

Recently, Siam Commercial Bank announced its capital base would fall by 2.5 per cent, while Kasikornbank said it expected Basel II to impact its BIS ratio by 1 per cent.

Under Basel II, banks need to cover a minimum capital requirement for credit risks, market risks and operational risks.

In terms of credit risks, there are two approaches to cover risk: standardised approach (SA) and internal ratings-based approach (IRB).

SA is a simple method that calculates the solution and risk weighting of debtors based on their credit ratings.

IRB requires a more complicated method of risk analysis with longer customers' credit records in a minimum period of about seven years for Thai banks.

Pliu said the bank would start with SA, though it had earlier planned to employ the IRB method.

The Bank of Thailand has allowed Tisco to start using the former approach.

If the bank uses IRB, its capital base would increase by 2 per cent.

In addition, Pliu said the bank planned to boost its car-loan business by Bt11 billion this year, setting a growth rate of around 19-20 per cent year-on-year.

The bank's total loan growth is put at 14-15 per cent, with new lending of around Bt13billion to Bt14 billion. This is based on the assumption that the growth in car sales this year would be 5 per cent and Thailand's economic growth would reach 4.5 per cent.

Tisco last week announced last year's net profit at Bt1.65 billion, a 6.8-per-cent growth year on year, mainly driven by auto-loan growth of 19.2 per cent.

Somruedi Banchongduang

The Nation