IAS 39 certification could raise SFI funding costs

Foreign creditors may not approve loans or could charge specialised financial institutions (SFIs) higher interest rates if they considered their practices to be below the international standard, said Financial Institutions Monitoring and Analysis Department senior director Phong-adul Kristnaraj.

This would affect SFIs' creditworthiness in international eyes because foreign creditors take into account many factors in their credit approval, not only the capital-adequacy ratio, but also accounting standards, Phong-adul said.

This would not, however, bring about advantages or disadvantages between SFIs and commercial banks because they have different customer-target groups. The Finance Ministry could make foreign borrowing on behalf of SFIs to prevent a shortage of funding, he added.

"The ministry will not do anything wrong. It may not want to raise capital for the SFIs right now. The central bank just wants to follow principle," he said.

All Thai companies are subject to the new IAS 39 accounting standard in 2011, which means that SFIs have enough time to get into line with the new practice.

However, BOT assistant governor Krirk Vanikkul said that unlike commercial banks and private firms, SFIs could not apply to follow the new accounting standard, al-though the country is subject to IAS 39. Instead, the ministry could allow SFIs to follow other account standards that are not as tight as IAS 39, he said.

"It depends on the ministry's policy as to how to deal with SFIs. It will not cause any impact, as the ministry always backs them up," Krirk said.

Krirk said all commercial banks had since last year set aside a Bt100-billion reserve in accordance with the new accounting standard, while only some SFIs were subject to IAS 39.

IAS 39 requires banks to set aside 100 per cent of reserves based on cash flow in terms of net present value. The standard would strengthen the banks' balance sheets and counter losses more rapidly rather than other accounting standards.