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Eye on credit risk stressed

SCB sees low growth for economy, firms after slowdown

Political tensions in the Kingdom over the past eight months have presented a challenge to financial institutions on managing credit risks and returns, while their front offices demand speed and flexibility in acquiring new borrowers, according to Siam Commercial Bank, the second-largest lender by outstanding loans.

Even though the political unrest has been temporally resolved and businesses are more confident in resuming their activities, SCB has acknowledged that credit risk remains a worry, said Yokporn Tantisawetrat, senior executive vice president and chief risk officer.

"The country has spent eight months in economic slowdown. When the economy and businesses are unable to grow much, it definitely affects credit risk, especially with retail customers, who have the smallest cash flows compared with SMEs and corporate clients," he said.

Of SCB's total loan portfolio of Bt1.68 trillion, small and medium-sized enterprises account for 20 per cent and retail customers (individuals) 44 per cent.

The bank needs to keep its eye on credit risk and tighten loan criteria for new customers, including auto buyers, while for existing customers who are unable to repay their debts, assistance measures are the solution, he said.

Yokporn said front-line staff needed to be imbued with the ability to perceive when expected return was worth the risk of a loan going sour.

"It is not always that the bank will grant a loan to a strong client or deny one to a weak client. If the borrower does not qualify according to the underwriting criteria, we cannot approve the loan, or we will offer a financial structure to the client instead," he said.

If the bank can manage risk while also retaining profitability, it will not have to worry about its capital adequacy ratio (CAR) because its profit will be applied to strengthen common-equity Tier 1 capital.

The cost of issuing equity to support Tier 1 capital is higher than that of issuing subordinated debentures for Tier 2, even though under the Basel III the cost of Tier 2 is higher than before, as the issuer must absorb losses from issuing sub-debt.

SCB's CAR is currently 16.16 per cent, above the minimum requirement of 8.5 per cent set by the Basel Committee on Bank Supervision. Of that total, 11.53 per cent is Tier 1, higher than the 4.5 per cent required by the committee.

Yokporn said the bank has no need to issue sub-debt for Tier 2 capital even though some of its debentures will mature this year and some other Thai banks had previously issued this instrument.


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