Central bank vigilant of future risks
The Bank of Thailand's Monetary Policy Committee (MPC) and Financial Institutions Policy Committee (FIPC) say Thailand's financial system still faces several risk factors in the periods ahead.
"Global macro-financial conditions could be highly uncertain, while domestic growth might still be uneven across sectors," read a summary conclusion by the joint meeting of the MPC and the FIPC.
"These could weigh on some corporations' and households' ability to service debts, and also could add to rollover risks, especially for businesses relying on short-term borrowing and bond issuance for financing."
The joint meeting concluded that Thailand's financial stability, however, stays sound, both domestically and externally.
Despite more visible signs of domestic recovery, debt-servicing ability continued to deteriorate for certain business sectors -- small and medium-sized enterprises (SMEs) as well as households, the summary conclusion said.
Banks are struggling with an uptick in non-performing loans (NPLs). The gross NPL ratio at the end of March stood at 2.94%, up from 2.83% at the end of 2016. The outstanding value of distressed loans was 405 billion baht at the end of March, up from 386 billion at the end of December.
However, commercial banks' net profit still edged up 0.4% year-on-year to 51 billion baht for the three months to March. Loan-loss provisions set aside in the period stood at 35 billion baht, while the coverage ratio rose to 162% from 160% at the end of 2016.
The statement said that search-for-yield behaviour remains but the issuance of unrated bonds and the size of accredited investor mutual funds, which had been growing in earlier periods, started to decelerate following some recent defaults.
Separately, the central bank has permitted financial institutions under its supervision to expand their business scope into nanofinance and financial technology (fintech), and also loosened regulations on financial institutions' venture capital companies.
The central bank has also allowed armoured transport providers to offer their services to other operators in emergency situations.
"The expansion of financial institutions to nanofinance aims to help SMEs access financing," read the central bank's notice.
Nanofinance operators can only provide loans for occupational purposes, with a lending maximum of 100,000 baht per borrower and a ceiling interest rate of 36% annually.
Including fintech within financial institutions' scope is aimed at helping make financial institutions' more flexible for investment in technology, but the investment still has to be within limited areas permitted by the Bank of Thailand.
The revision also allows financial institutions' venture capital companies to invest in SMEs, fintech firms and other venture capital business that are not in the financial sector, and private equity funds and private equity that invest in fintech.
The revised regulation also increases the length of these venture capital investments from up to seven years to 10 years.
Financial institutions under the central bank's supervision include commercial banks, finance companies and credit fonciers.
The Bank of Thailand will hold a conference to clarify the changes in regulations on July 14.