WARNING FROM BOT
Control of risks mainly responsibility of corporates
The Bank of Thailand yesterday cautioned companies about counting too much on policy assistance from regulators, saying there was a limit on what authorities could do and companies should learn to manage their own risks."Businesses should not rely on policy much because regulators cannot help them all the time. They should find a method to deal with uncertainty," Assistant Governor Paiboon Kittisrikangwan said.
However, the central bank does plan to relax regulations to facilitate investors and enhance the competitiveness of commercial banks, he told a seminar hosted by the Thai Listed Companies Association (TLCA).
The crisis of the mid-1990s taught businesses to include risk management in their business plans. Both listed companies and commercial banks now are strong, as manifested by their bottom lines and BIS (Bank of International Settlements) ratios, which are double the standard requirement.
Monetary policy is based on assumptions, so there is a chance for error. Businesspeople should have their own risk management and conduct business using their common sense.
Thai companies are well aware that the impact from the euro crisis will stay for a long time, so they should prepare for the long term rather than hope regulators will announce a devaluation of the baht.
However, the monetary regulator can help reinforce businesses by easing some tight conditions such as lowering the policy rate, as it did during the past two years and amid the recent flooding.
The effect from the euro-zone meltdown will be taken into consideration for the next BOT meeting, Paiboon said.
The central bank has known that some existing regulations could be relaxed to support free trade and investment, he said. Regulations should not be barriers for investors.
In the future, individuals will be able to invest directly overseas. Currently they can invest abroad only through mutual funds.
The adjustment of regulations is part of enhancement of business competitiveness under the Finan-cial Sector Master Plan Phase II (FSMP Phase II), which will allow new players to enter the banking industry.
The competition will put pressure on the rate spread of banks, which currently is wide. The regulator cannot command banks to reduce the spread. Yet the big spread comes from banks' higher costs.
FSMP Phase II helps improve the cost efficiency of banks, Paiboon said. It encourages them to focus on competitiveness and when their costs go down, their spread gets thinner.
Kannikar Chaliaporn, president of Siam Commercial Bank (SCB), said the spread of the banking industry reflected the higher cost of funds.
Banks have higher costs from the increase in the premium they pay the BOT on deposits to 0.47 per cent from 0.40 per cent previously. If the financial development plan helps improve cost efficiency, the banking industry will not pass the additional cost on, Kannikar said.
TLCA president Chanin Vongkusolkit said that according to the TLCA's chief-executive survey in April, most companies fear three things - the slowing global economy, Thailand's political conflict, and natural disasters. Each of these companies should set up a risk management committee to deal with these possible threats.
Chanin, who is also president of Banpu, an energy company, said Banpu had given top priority to risk management, which is incorporated into its long- and short-term strategic plans.
Surong Bulakul, chief financial officer of PTT Group, said it had classified risks into risk from business policy, from global market conditions, and from government policy. One difficulty of its business springs from its status as a national firm whose role is to ensure the country has a sufficient supply of oil. But it is also a listed company that has to oversee its shareholders' interests and operate with good governance. The company has to seek enough funds for overseas investment in new energy sources while not taking advantage of Thai energy consumers.
Top executives suggested that besides including risk management in their business plan, companies should look at extreme stress cases to deal with the unexpected.
In the CEO panel session on "From Reactive to Proactive Risk Management: Anticipating the Unknown" held by the TLCA, Kannikar of SCB said the extreme stress case helped the bank respond to the recent flood crisis without stumbling.
The bank has applied the extreme stress case or what-if scenarios to the performances of the bank and its customers.
"We set scenarios for what kind of businesses will be hurt by the euro-zone debt crunch to assist customers, and what we should do if the Middle East situation becomes more tense until the oil price skyrockets," she said.
Businesspeople should listen to and learn from the mistakes of others, as they will be guidelines for improving and strengthening their business, Kannikar said.
The what-if scenarios should be added in the business plan especially for the impact of the euro crisis. The impact is expected to stay with the world for at least three years. All must be cautious and prepare enough liquidity. However, preparing liquidity does not mean terminating investment, she said.
Businesses should also balance their portfolio to diversify risks.
Human-resources development and leadership are key instruments of enterprises to tackle the crisis, she added.
Kobkarn Wattanavrangkul, chairwoman of Toshiba Thailand, said businesses should focus on how to improve their manpower and how to take quick action to deal with uncertainty.
Risk can happen at any time, so operators should look at risk as a normal issue for learning and transforming a crisis into an opportunity.
Toshiba learned from the flood crisis to change its mindset on doing business in terms of moving to multi-sourcing from single-sourcing, having sufficient inventory, having more warehouses and focusing more on research and development to increase value-added products, she said.