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Published on January 31, 2008

Sorasit Soontornkes, the central bank's assistant governor, said every bank should set aside reserves in line with the new International Accounting Standard 39, known as Basel II.

Banks are expected to report improved bottom lines this year due to the improving economic outlook compared to last year, when they had to set aside higher reserves to meet the new requirement.

Each bank is required to present its business plan to the BOT by March. The central bank will then hold discussions with each bank about how it intends to implement the proposals and whether it needs to recapitalise, he said.

All banks are required to follow Basel II standards by the end of this year. They have to set aside minimum reserves for market and operational risks and also allocate resources for possible higher exposure from reweighted risk from various financial instruments.

"We project that they [banks] do not need to recapitalise and profits should rise, if the situation does not deteriorate," the assistant governor said.

The BOT has been drafting guidelines for its Financial Sector Master Plan Phase II to strengthen the banking system and liberalise the industry.

Sorasit said the BOT would not force any bank, particularly the smaller ones, to merge with other banks. Instead, it would encourage them to merge willingly and circumvent any possible obstacles such as some parts of the Securities and Exchange Act.

"It is not easy for Thai banks to merge due to different management and organisational cultures. We will help them to come to terms with these obstacles and facilitate the merger process," he said.

Sorasit is optimistic that smaller banks can continue to operate successfully amid fierce competition because most have opened up niche markets.

Anoma Srisukkasem

The Nation