Big banks unfazed by new capital rules

Corporate September 27, 2017 01:00

By   THE NATION

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THE COUNTRY’S big commercial banks say they are confident the Bank of Thailand’s (BOT) new capital requirements will not affect their operations.



The five large banks that are deemed domestic systemically important banks (D-SIBs) will be required to raise their minimum capital ratio by 1 percentage point to 11.5 per cent of total risk-weighted assets to strengthen them to cope with possible damages and lessen chance for financial troubles, said Ruchukorn Siriyodhin, BOT deputy governor for Financial Institutions Stability.

The five banks are Bangkok Bank (BBL), Krungthai Bank (KTB), Bank of Ayudhaya (Krungsri), Kasikornbank (KBank) and Siam Commercial Bank (SCB). 

The move is part of the BOT's attempts to supervise the systemically important banks more strictly than their smaller peers, given their high involvement in Thailand's major economic activities and the financial system.

In response the central bank's new minimum reserve requirement ratio for the big banks, Charnsak Fuangfu, senior executive vice president at BBL, expressed confidence over the strength of its capital base, saying that the bank adheres to principles of prudent financial management and keeps its liquidity and capital base well managed to cope with future business expansion and possible uncertainties.

At the end of June, BBL recorded a total capital ratio and tier 1 ratio of 18.7 and 16.9 per cent of total risk-weighted assets, respectively, on a consolidated basis.

Poonpat Sripleng, senior executive vice president of KTB, said that, at the end of this June, the bank's total capital ratio was at 16.27 per cent of total risk-weighed assets, higher than the BOT's new capital requirement ratio of 11.5 per cent by 2019.

“Now, we don't have any concern over our current capital base and the bank's financial status remains robust,” he said.

According to Krungsri's statement, its capital adequacy ratio stands at 16.29 per cent, higher than the new ratio required.

KBank also sees no impact on its operations thanks to its sufficient capital base to cope with the new capital requirement, the bank said in its statement yesterday.

Though, these D-SIBs must also follow stricter supervision and oversight than others, it does not mean that they will have to receive state assistance if they suffer a liquidity problem or financial troubles, the central bank said in its statement. 

confidence

 

Other factors regarding confidence in the financial institutions and financial systems would be taken into consideration in the event of a problem, it said. The list of D-SIBs will be reviewed every three years to properly reflect the systemic risk.

Based on the new requirement, a D-SIB, a locally registered commercial bank or a foreign bank's branch, is required to increase its minimum capital requirement by 1 percentage point to 11.5 per cent of total risk-weighted assets for common equity tier 1, its conservation buffer and its countercyclical buffer by 2020. 

Four key indicators are usually used to identify a D-SIB, said Somboon Chitphentom, assistant governor at BOT. They are size, interconnectedness, financial institution infrastructure and complexity.

A bank’s size must be big enough, with massive financial transactions, to affect the country's economic activities and financial system more than smaller ones.

Its interconnectedness with other financial institutions and the country's financial system must be high, while the D-SIB must act as an important financial institution infrastructure in providing financial services that can suspend the country's economic activities. The last relates to the high complexity of financial services and operations.

Usanee Liurut, executive vice president at Asia Plus Securities, said the list of D-SIBs has only a psychological impact on the markets.

“The BOT's first-time announcement could affect short-term confidence. However, Thai banks do not have financial troubles, do not need to raise capital and still find (their capital base) to be within the requirements,” she said.

Both DBS Vickers Securities (Thailand) and Bualuang Securities see only a limited impact from the new capital requirement on all five banks and they retain a positive view for them.

According to Bualuang Securities, all five banks see a capital adequacy ratio averaging at 17 per cent, much higher than the new requirement of 11.5 per cent.

Yesterday, the share prices of the five banks dropped despite the Stock Exchange of Thailand Index having increasing by 2.16 points at the close to 1,669.75, with a trade value of Bt60.20 billion. 

BBL yesterday closed at Bt186, down 0.27 per cent from Monday, SCB finished at Bt154, down 0.32 per cent, KBank closed at Bt208, down 0.48 per cent, KTB finished at Bt18.80, down 1.05 per cent, and BAY ended at Bt37.50, down 1.32 per cent.

Luxmon Attapich, a senior economist at the Asian Development Bank’s Bangkok office, said the statement was not easily understood by the general public. She said the five banks named are financially sound and people need not worry.