Easier regulations on bank lending

The new regulations are part of several rule revisions for financial institutions indicated in the new Financial Institutions Business Act, to be implemented on August 3.

According to one new rule, the banks' single lending limit will be expanded from 25 per cent of their first-tier capital to 25 per cent of their entire capital, which includes second-tier capital. The lending limit per customer is enlarged due to the larger base of the capital allowed.

Under another new rule, the BOT allows retail banks to extend more clean loans, such as personal loans, to individual investors - at not more than 1 per cent of a bank's capital, equal to that for collateralised loans. Non-collateralised lending is currently limited to 0.05 per cent of capital.

The BOT does not think that higher lending per customer allowed by the new rule will be riskier than under current criteria.

"The new rules won't make it riskier for banks," said BOT senior director Paiboon Kittisrikangwan. "They have a duty to look after their own risk management.

"Mostly, banks won't lend up to the limit of 25 per cent. Besides, if there is any problem with this new rule, there's a chance of further revision."

A source from Siam City Bank said the relaxation would benefit not only commercial banks but also the overall economy, as the banks can contribute an increasing amount to the real sector.

"It is good for the banks because we do not need to ask for permission if we want to lend more than the ceiling," said the source.

He said retail banks' lending to small and medium-sized enterprises remained unchanged, not exceeding 10 per cent of capital.

The changes in the two rules are among regulations that are to be revised at the same time as the new Financial Institutions Business Act is implemented on August 3. While some rules are relaxed, others are tightened.

The central bank is reorganising all rules and regulations to comply with the changing economic environment and the new law. More than 500 rules are being reorganised and clarified, resulting in a net reduction to more than 100.

All financial institutions gathered at the BOT headquarters yesterday to be informed about these moves. They are required to give any feedback via their associations by June 23.

The source said that lowering the number of regulations would facilitate the banks in their financial practices, as they are easy to reference.