BoT embraces Basel III rule

BoT embraces Basel III rule

Five big banks ordered to beef up reserves

Central bank's executives; Ruchukorn Siriyodhin (left) Deputy Governor Financial Institutions Stability​ and Somboon Chitphentom Assistant GovernorFinancial Institutions Policy Group​ explain the issue to press yesterday.
Central bank's executives; Ruchukorn Siriyodhin (left) Deputy Governor Financial Institutions Stability​ and Somboon Chitphentom Assistant GovernorFinancial Institutions Policy Group​ explain the issue to press yesterday.

The Bank of Thailand has instructed Thailand's five largest financial institutions to beef up their capital reserves in order to comply with international standards on reserve requirements.

The central bank is set to raise capital requirements for domestic systemically important banks (D-SIBs), which are classified as important banks that are strongly connected with the economy and financial system, said Ruchukorn Siriyodhin, deputy governor overseeing financial institution stability.

"The move is in line with the objective to comply with an international standard, Basel III, and to take better care of the Thai financial system," said Mrs Ruchukorn.

The five banks classified as D-SIBs are Bangkok Bank, Krungthai Bank, Bank of Ayudhya, Kasikornbank (KBank) and Siam Commercial Bank (SCB), she said.

These five banks have total assets worth 12.5 trillion baht or 70.2% of the banking system's assets, according to central bank data.

D-SIBs are required to meet the tougher Basel III standard by increasing the common equity Tier 1 (CET1) ratio requirement and the capital adequacy ratio (CAR) by 0.5% each in 2019 and 2020.

Current capital requirements set by the central bank are 5.75% for CET1 ratio and 9.75% for CAR.

These five banks are also required to submit reporting forms for consolidated supervision to the central bank more frequently, up from every quarter to every month, starting from the beginning of 2019.

The reporting forms include information such as consolidated capital, liquidity, savings, loans, non-performing loans (NPLs), and other information that may have implications for the economy.

"Changes in the regulation will not affect these five banks as their current reserves are already higher than the new requirements," said Mrs Ruchukorn.

"The higher capital requirement is intended as a cushion in case of emergency and does not reflect that these banks have any problem."

An increase in Tier 1 capital implies an increase in capital reserves, and banks would initially rely on this capital when facing financial troubles, she said. Tier 1 capital is core capital that includes equity capital and disclosed reserves.

She said D-SIBs are identified by four bank-specific factors, which are size, interconnectedness, financial institution infrastructure and complexity of financial products and services.

The central bank will reconsider the list of banks that were classified as D-SIBs every 2-3 years, said Mrs Ruchukorn.

"When banks with high-value assets or a high volume of interbank transactions are in trouble, they are more likely to interrupt the system than other banks," said Somboon Chitphentom, the central bank's assistant governor for the financial institutions policy group.

He said the stricter regulation on these big banks is expected to strengthen confidence in the Thai financial system as they will be better at handling emergency situations.

Mr Somboon said the Thai banking sector remains strong with a CET1 ratio of 14.62% and CAR ratio of 17.58% at the end of June, considered much higher than the minimum requirement.

The average D-SIBs' CET1 ratio and CAR ratio stood at 14.25% and 16.93%, respectively, he said.


Shares of the five financial institutions listed on the Stock Exchange of Thailand declined slightly yesterday following the central bank's announcement.

But Prime Minister Prayut Chan-o-cha allayed concerns, stating the central bank's latest move is in line with an international standard and the five banks have been very stable following the 1997 Asian financial crisis.

Finance permanent secretary Somchai Sujjapongse echoed the premier's statement, saying the move is in accordance with an international standard and the five banks have high capital reserve ratios as shock buffers.

Kattiya Indaravijaya, the KBank president, said the bank has kept a strong Tier 1 capital base at 14%, exceeding the Basel III requirement at 6%. KBank, the country's fourth-largest lender by total assets, has also set aside provisions for loan losses above central bank requirements, with an existing NPL coverage ratio of 141%.

The local banking industry has acknowledged stronger regulations under the Basel III rule and complied with the international standard for several years.

KBank, as one of the five D-SIBs, has maintained a strong capital base in preparation for the future and unexpected situations. The central bank's announcement about D-SIBs would not affect the bank's financial condition, business operations, business plan, and profitability, said Ms Kattiya.

"Despite the trend of lower fee-based income using digital banking services and higher technology investment and regulatory expense, the bank expects to maintain positive profitability. We have seen such trends coming and prepared for the changes," she said.

Kittiya Todhanakasem, SCB's chief financial officer, said the central bank's announcement would build up confidence in the local banking system.

With the strong capital reserves of the big five banks including SCB, the announcement should not cause any impact. For the longer term, the move should strengthen the banks' credit rating and lower financial costs for fresh funding mobilisation, she said.

SCB, the country's third-largest bank, maintained a strong CAR at 17.62%, which of 15.49% was Tier 1 capital, as of August.

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