Kasikornbank (KBank) plans to put more focus on setting aside loan-loss provisions for corporate customers on a selective basis after the central bank enforces new requirements to comply with Thai Financial Reporting Standards version 9 (TFRS 9).
Under the financial reporting standards due to take effect next year, KBank will adjust some loan-loss provisioning practices, particularly for large corporate clients, by setting loan-loss reserves on a selective basis according to the risk profile and expected credit loss (ECL) of the customer, rather than the overall loan portfolio.
With the new practice, the bank needs to set aside either higher or lower provisions for credit loss of corporate clients, said co-president Kattiya Indaravijaya.
Under TFRS 9, banks are required to set aside impairment charges for credit loss based on the ECL model. The current International Accounting Standard 39 (IAS 39) uses an incurred loss impairment model.
The ECL calculation divides credits into three stages. The first stage, which consists of credits with no significant increase in credit risk, or so-called performing loans, will be calculated based on 12-month expected credit losses.
The second stage, credit with increases in risk but no evidence of impairment or under-performing loans, and the third stage, credit with objective evidence of impairment or non-performing, will be calculated based on expected lifetime credit losses.
The Bank of Thailand will also let lenders cut their excessive loan-loss provisions, defined as impairment charges that surpass the provision floor as stipulated by the central bank, through a five-year straight-line reduction approach, while banks can reverse the excessive reserve to a profit, Ms Kattiya said.
The provision floor requirement is aimed at strengthening banks' financial stability.
For small and medium-sized enterprises, loan-loss provisioning will be made based on both risk profile and overall loan portfolio, while impairment for retail banking business will be based on the portfolio of each type of loan.
"The bank prefers continuing to maintain the existing provision to reversing it into profit for financial stability," Ms Kattiya said.
But KBank will await clearer regulations from the central bank before making a final decision.
KBank's coverage ratio is 130% at present.
Separately, Ms Kattiya said the bank has no plan to follow in the footsteps of Siam Commercial Bank in waiving fees on digital transactions for SMEs, saying KBank is offering privileges and benefits under its latest campaign, MADHUB.
Krungthai Bank president Payong Srivanich said his bank could choose to keep its loan-loss coverage ratio at 120-130% of risk-weighted assets, though the new regulations are likely to allow reversal of a loan-loss provision surplus to profit.
"A strong buffer is a good risk management basis in preparation for unexpected events," he said. "The bank would like to keep loan-loss provision in the part that exceeds the regulation's requirement, rather than reversing to profit."