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BANKING
SOMRUEDI BANCHONGDUANG
Tisco Bank expects that its capital funds will increase by two to four percentage points under the new Basel II framework. Oranuch Apisaksirikul, the bank's chief financial officer, said the adoption of Basel II would help raise the bank's capital base without the need to issue new equity or subordinated debt.
The Basel II capital accord is an international framework used by financial institutions to define the amount of capital required to serve as a cushion against their assets. Different asset classes, such as mortgage loans, small business loans or loans to government agencies, are classified as having different risk levels and hence varying requirements for regulatory capital.
Basel II adds to the existing Basel framework by incorporating risks such as operational risk. Banks can calculate capital requirements using either a standardised approach (SA) or an internal ratings based (IRB) approach.
The Bank of Thailand will require local institutions to adopt Basel II under the standardised approach this year. The standardised approach applies various risk weightings for borrowers based on credit ratings.
Mrs Oranuch said under the standardised approach, Tisco's capital base was expected to rise one or two percentage points when compared with the existing Basel I methodology.
The adoption of IRB, however, would raise the bank's capital funds even higher, she said.
''With IRB, Tisco Bank expects its capital adequacy ratio to increase by around two to four percentage points. With this approach, the bank will have no need to raise additional capital to support growth for the near future,'' Mrs Oranuch said.
Under IRB, risks are based on portfolio models developed by the financial institutions themselves based on past data. All local banks, including Tisco, are expected to begin compliance of Basel II using the standardised approach, but look eventually to adopt the IRB system. Siam Commercial Bank, for instance, has announced plans to adopt IRB by 2010.
Tisco's loan portfolio is 80% retail loans, of which three-quarters comprises auto-hire purchase loans.
Under Basel II, risk weightings for consumer loans are 75% of the loan amount, and just 50% for mortgage loans, in contrast to the 100% weighting used now.
Tisco's capital base currently stands at 10.2% of risk assets, below the industry average of 13% to 14%. The Bank of Thailand requires financial institutions to maintain a minimum capital adequacy ratio of 8.5%, of which half must be in the form of tier-one capital, primarily equity.
''In practice, Tisco is ready now to adopt IRB, but we will have to wait for the central bank to approve our models,'' Mrs Oranuch said.
Shares of Tisco closed yesterday on the Stock Exchange of Thailand at 18.60 baht, yesterday, up 40 satang, in trade worth 139 million baht.
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