Banks must plan for failure

The contingency plans will be part of the banks' overall business plans that must be submitted to the central bank during this first quarter, BOT Assistant Governor Sorasit Soontornkes said yesterday.

Sorasit said the "stress test" would help the banks be prepared to react to changes in factors related to their business. Changes in political and economic conditions could affect the implementation of banks' business plans just as much as failure to achieve a loan-growth target.

He said the capital-adequacy ratio of all banks was now above 10 per cent, higher than the required 8.5 per cent. The ratio covers the risks of both parent banks and subsidiaries, in line with consolidated supervision.

"All banks [with their current capital-adequacy ratio] can cover their risks, but whether they need to recapitalise depends on their business plans," he said.

Under the new Financial Institutions Business Act, the BOT will regulate banks in accordance with international-standard consolidated supervision. This will allow the central bank to see the overall picture of any banking group rather than only the details of a single parent bank.

The Act takes effect in August.

Before the 1997 financial crisis, the central bank's inactive supervision allowed relaxed risk management among banks and their subsidiaries. At the time, the BOT was able to examine only the operations of banks and not those of their subsidiaries.

Meanwhile, the BOT is considering whether to allow bank subsidiaries to enter the "car for cash" business.

Sorasit said BOT approval depended on the loan-approval process, evaluation of cars' value and internal audits.

Anoma Srisukkasem

The Nation