BOT eases rule on single lending cap
The Bank of Thailand will temporarily relax the single lending limit rule to companies under a group to more than 25 per cent of the lender's Tier 1 capital base, according to a report by the central bank.
The current rule prohibits banks from lending more than 25 per cent of their Tier 1 capital to a single client.
According to the report, the BOT wants the rule to be eased in line with the demand for lending of large companies, while the activities of conglomerates can help strengthen the local economy.
Earlier, some banks urged the central bank to revise the rule because the single lending limit makes it difficult for banks to support large loan demands from big corporate customers to fund overseas expansion, including mergers and acquisitions.
The activities of larger companies needed the financial support of banks, they argued.
The BOT last month told the commercial banks it was about to relax the single lending limit rule. The relaxation is based on the capital add-on in line with the global standard that gives
importance to the concentration of risk.
After relaxation of the rule, commercial banks will be able to lend more than 25 per cent of their Tier 1 capital, but they are also required to increase capital reserves, starting on
However, the central bank has given commercial banks until January 2015 to adjust by allowing them to reveal their capital ratio and BIS ratio after deducting the reserve.
Despite the rule relaxation, banks will offer a credit line to larger companies of not less than 20 per cent of their outstanding loans. Siritida Panomwon na Ayudhya, a senior BOT director, said commercial banks would be more cautious in giving loans because they are required to reserve the increased capital as well.
At present, about four or five medium-sized and large banks have granted loans to conglomerate companies of more than 25 per cent of their Tier 1 capital.
The BOT, however, will relax the rule for commercial banks on a case-by-case basis depending on the capital ratio of each bank.