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Published on March 31, 2008

Last year, the Bank of Thailand graded most banks with a '3', or fine, out of a range from '1' (excellent) to '5' (weakest). The rest were given every grade except 'excellent'.

They were not blamed much for their recent poor performance as they have struggled to survive for years amid risk factors including political uncertainty, oil price rises and the economic slowdown, as well as new regulation requirements - international accounting standards and Basel II.

However, the central bank has had to make routine bank examinations more frequently than before. The weaker the banks are, the more often it probes their financial condition. The central bank visits well-performing banks only once every one or two years.

When the dust settles, they tend to be able to improve their performance. The expectation increases as Bank of Thailand Deputy Governor Bandid Nijathaworn jumps into the field himself for off-site examinations. Bandid wants the system to free itself from the 'D' grade given it by Moody's, which is lower than those of other countries.

He plans to introduce many measures to strengthen banks' balance sheets and boost their profits. This includes reducing non-performing loans to 2 per cent during implementation of the second phase of the financial sector master plan.

Phong-adul Kristnaraj, senior director of the Financial Institutions Monitoring and Analysis Department, expects the banking system's outlook to brighten this year despite the global economic slowdown and oil price hikes.

He projects that most '4'-rated banks can lift themselves up to '3', and '3'-rated banks will climb up to '2'. Even the weakest bank in grade 5 has already solved its problems.

Any bank that can make significant improvement has a good possibility of being upgraded, based on four criteria - financial status, asset quality, capital-adequacy ratio and management efficiency.

The stronger banks would help not only lift the whole system's international credit rating, but also ease the central bank's examination workload.

According to the Financial Institution Business Act, to be enforced in August, the central bank would distance itself from its supervisory role, while banks would manage their affairs more independently.

Anoma@nationgroup.com

The Nation