KBank adds loan-loss provisions

KBank adds loan-loss provisions

Move to strengthen bank's capital buffer

KBank's logo at the entrance to its head office in Rat Burana district, Bangkok. Pornprom Satrabhaya
KBank's logo at the entrance to its head office in Rat Burana district, Bangkok. Pornprom Satrabhaya

Kasikornbank (KBank) expects to set aside additional loan-loss provisions for the remainder of this year to strengthen its capital buffer against the backdrop of mounting uncertainties.

Non-performing loans (NPLs) are expected to climb, reducing the coverage ratio and capital base, so the bank aims to put aside additional reserves on a quarterly basis in line with the central bank's demand that commercial banks must conduct a new round of stress tests, said president Predee Daochai.

The bank's new stress tests take into account the pandemic impacts and assume the economy will contract 8.1% this year. It plans to report the results to the Bank of Thailand next month, he said.

The new stress test should not differ much from the one run late last year as it priced in the worst-case scenario of the economic downturn, said Mr Predee.

The central bank wants commercial banks to strengthen their capital base to brace for heightening uncertainties in the next 1-3 years.

"The faltering economy and the higher bad debt would lower the capital adequacy ratio, but the bank aims to maintain the ratio at least at 11.5-12.5% as the central bank requires the banking industry to have a strong capital buffer," he said.

Mr Predee, who is also chairman of the Thai Bankers' Association, said the BIS capital ratio of the banking sector at 18.7% is strong enough to cope with the current economic situation.

However, a sound capital base should be maintained to prepare for unexpected situations amid heightening uncertainty, he said.

Payong Srivanich, president of Krungthai Bank (KTB), said the bank is running a new stress test factoring in Covid-19, but he also does not expect much difference from the previous test.

With the bank's strong capital base, it can withstand rising bad debts, said Mr Payong. KTB needs to monitor the economic condition and borrowers' debt-servicing ability after the central bank's debt relief measures expire.

Finance Minister Uttama Savanayana said commercial banks' capital base is solid and they have learned from previous crises how to get through hardships. He is not worried about local banks' capital strength.

"It's a crisis concerning demand, not supply-side," said Mr Uttama.

After the lockdown is eased, economic activities will restart and the important engines will recover, he said.

The government has taken care of business operators' liquidity amid the viral outbreak and it should continue to help them jump-start their businesses after the lockdown has been lifted, said Mr Uttama.

For marginal small and medium-sized enterprises (SMEs), the government already approved a 50-billion-baht fund to assist those who are unable to access bank loans, he said.

The fund is managed by the Office of SME Promotion.

Regarding the central bank's 500-billion-baht soft loan scheme to SMEs, Mr Uttama said commercial banks have already extended 90 billion.

The central bank is offering 500 billion baht in soft loans at 0.01% interest to financial institutions for two years to re-lend to SMEs with a maximum credit line of 500 million baht at 2% interest. The government will absorb interest charges for six months for SMEs that receive soft loans.

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