Bank lending could fall amid tighter Basel III rules, boosting bond market

Thai banks, which last year mobilised about Bt180 billion in capital through subordinated debentures to cope with Basel III requirements, could reduce their lending as a result of the tougher capital-adequacy rules, the Thai Bond Market Association said |yesterday.

The Third Basel Accord, a global regulatory standard for banks' capital adequacy, is taking effect in Thailand this year.

Ariya Tiranaprakij, executive vice president of the ThaiBMA, said the Basel III requirements for capital adequacy and liquidity management of commercial banks could help them become more resilient to a financial crisis.

Last year, 11 commercial banks issued subordinated debentures worth about Bt180 billion in total, having sufficient capital to meet Basel III requirements, which include subordinated debentures as Tier 2 capital, she said.

Thai banks' average capital adequacy rose to 15 per cent of total risk assets, much higher than the 8.5 per cent required by Basel III.

Therefore, this year is expected to witness fewer debenture issues by commercial banks because they already have sufficient capital, she said, adding that this year's rules would be stricter, requiring fixed-income instruments, which are more akin to equity instruments, to be included in the capital base.

However, Ariya said banks' higher capital adequacy, in accordance with Basel III requirements, could result in less credit being extended in the future, with private businesses possibly needing to raise funds through the bond market, where financing costs are lower.

Currently, relatively few companies use fixed-income instruments for fund mobilisation.

Only about 100 of the more than 500 companies listed in the Stock Exchange of Thailand and the Market for Alternative Investment have done so.

Meanwhile, 60 of the 100 listed companies in the SET100 have raised capital through fixed-income instruments.

"The ThaiBMA will visit small, medium-sized and large companies listed in the SET, as well as those that are non-listed, to provide knowledge about fund-raising through debentures. We target having 10 new companies raising funds through the bond market this year.

"Last year, seven new companies raised capital through the bond market. After raising funds via the bond market, several property companies have continued their fund mobilisation through this channel," said the association chief.