BoT orders stress tests from banks

June 23, 2020

The Bank of Thailand is requiring commercial banks to run a new round of stress tests that takes the pandemic’s impact into account and report the results next month, while strengthening capital buffers will be discussed in case the outcome shows capital adequacy ratios (CAR) are below 11.5%.

Given the preemptive measure, banks needs to strengthen their capital base to brace for heightening uncertainties in the next 1-3 years, said deputy governor for financial institution stability Ronadol Numnonda.

“The central bank has talked and agrees with banks a suitable CAR should be 11.5-12.5% to cope with higher uncertainties. If the ratio is lower than that, we will talk about strengthening the capital base with banks,” he said.

Apart from alleviating the financial burden for customers, a strong buffer will support the economic recovery after the pandemic, said Mr Ronadol.

The central bank agrees with the Thai Bankers’ Association on maintaining the CAR at 18.7% by refraining from paying interim dividends and buying back shares.

Suspending interim dividend payment and stock buybacks would support banks’ liquidity and capital base. Under normal practice, bumping up capitalisation is done to boost tier-one capital, while bond issuance would be used to increase tier-two capital.

Under the circumstances, the central bank would prefer supporting banks control distressed loans during recapitalisation by strengthening capital buffers.

“We need to keep our guard up to prepare for uncertainties. The central bank will not sit idly by and let the situation deteriorate to the point where it needs to raise capital. With the measures, the non-performing loan [NPL] ratio should not jump to 50% as happened during the 1997 financial crisis,” Mr Ronadol said.

The central bank requires banks to maintain a minimum CAR at 8.5%. According to central bank data, commercial banks’ total CAR stood at 18.7% at the end of March and the NPL ratio was 3.05%.

The Bank of Thailand announced a second-phase debt relief scheme to help those ravaged by the pandemic, effective from Aug 1.

Under the new relief package, the ceiling rate for credit cards will be reduced to 16% from 18% per year, that of personal revolving loans and instalment loans will be lowered to 25% from 28% and car title loan ceilings will be reduced to 24% from 28%.

Financial institutions are allowed to offer additional credit lines to customers, while debt restructuring can be applied to those hurt by the virus outbreak on a case-by-case basis.

Interested borrowers can apply to participate in the second phase of the debt relief scheme from July 1 to the end of this year.

As of June, 15 million retail loan accounts have applied for the first-phase debt relief measures.

Moreover, the central bank allows financial institutions to reward good borrowers by cutting interest rates and offering cash back, gift vouchers and other incentives.

Meanwhile, specialised financial institutions said they will extend their relief measures if the dire situation persists.

GH Bank needs to evaluate its customers’ debt-servicing ability before making any decision and it still has time before the current measures expire at the end of October, said GH Bank president Chatchai Sirilai.

GH Bank’s borrowers who have applied for the first phase of the debt relief package make up 430 billion baht of the bank’s total loans of 1.2 trillion. Of the total 430 billion baht, half have requested debt holidays and others asked for interest rate reductions. GH Bank’s NPL ratio is climbing to 4.6% from 4.1% at the end of last year.

Source : Bangkok Post