The Bank of Thailand is demanding that all commercial banks set up a risk management board by the middle of 2019 as part of efforts to strengthen risk management to protect financial stability.
Amid growing uncertainties in both local and international markets, the risk management boards are expected to help banks rein in risks involved with markets, credit and the financial segment, said Ronadol Numnonda, deputy governor for financial institutions stability at the central bank.
Several banks, even some large players, have not installed a risk management board yet, he said.
The risk management board must be separate and independent from the credit board to improve the risk management and good governance of the sector.
Risk management should be a part of banking culture, Mr Ronadol said.
A series of recent defaults by both bond issuers and on the loans for some corporations that are bank customers triggered the central bank's call for risk management boards.
The extended low-rate environment and intensified competition in corporate lending saw commercial lenders underprice risks in lending to large corporations at cheaper rates than they should. Such practice leads to higher financial fragility, Mr Ronadol said.
His comments echoed the remarks of Bank of Thailand chief Veerathai Santiprabhob, that financial institutions' underpricing of risk in loans to large companies is an area of concern for the central bank.
Even so, the central bank has no plans to tighten the single lending limit, a cap for each bank in lending to a particular group of companies at 25% of the capital base, Mr Ronadol said.
He said macroprudential measures would not be a panacea for financial institutions' underpricing of risks in lending to large corporations, as other areas could become vulnerable.
The central bank plans to implement principle-based regulations in 2019 to supervise financial institutions, rather than rule-based ones, Mr Ronadol said.
Under principle-based regulations, the central bank will give banks practical guidance and allow them self-governance. The regulator plans to implement the first phase of the guidance for core banking, IT and digital areas, including cloud data, in the first quarter of 2019.
The regulator will let banks set up their own sandbox to test innovative financial products and services before commercial launch.
Financial products and services in the overall industry are still required to be tested in the central bank's regulatory sandbox.