SUPERVISION REPORT 2011
Bank of Thailand
Executive Summary The Thai economy in 2011 was resilient with high international reserve and low unemployment, even though the annual economic growth was only 0.1 percent due to the flood in the fourth quarter. Inflation increased slightly from higher production cost due to the increased oil price and from strong domestic demand. The banking system was sound and continued to perform its financial intermediary role to support the real sector, and was well-placed to cope with the challenges in 2011, with continued profitability, high capital and improved asset quality. Capital adequacy ratio stood at 15.1 percent and the ratio of NPL after provision decreased to 1.3 percent, attributable to strong economic fundamentals, joint efforts by all the stakeholders to assist businesses and individuals affected by the flood, good risk management by banks, and rigorous banking supervision in line with international standards and appropriate to the Thai context. However, there was no room for complacence by all parties that should stand ready for the challenges from uncertain economic outlook, especially the European sovereign debt crisis with potential contagion on core European countries, as well as challenges from domestic front such as the minimum wage increase and reduction of deposit guarantee coverage amount. In this regard, the Bank of Thailand (BOT) placed emphasis on supporting the recovery of the Thai economy, in parallel to strengthening the financial system resilience and enhancing the capacity of financial institutions to prepare for the ASEAN Economic Community (AEC), as well as financial consumer protection. Key policies are highlighted below: Part I Supporting the recovery of the Thai economy : To alleviate the economic impact of the flood in late 2011, the BOT implemented accommodating monetary policy by lowering the policy rate twice (totaling 0.5 percent) between November 2011 and the first quarter of 2012. At the same time, the BOT issued measures to assist debtors affected by the flood; namely, temporary relaxation of regulation on loan repayment and credit lines for credit card and personal loans, soft loans for flood victims, and postponement of the effective date by one year for the loan-to-value ratio for low-rise housing with value less than 10 million baht. The BOT continued to monitor the situation closely and required banks to submit reports and specify a clear timeframe on assistance to the flood-affected debtors. Part II Strengthening financial system resilience : The BOT continued to give importance to supervision of significant activities of financial institutions and preparation for banks to comply with the international standards, especially the Basel III capital and
Supervision Report 2011
liquidity framework. For the capital requirement, the quantitative impact study suggested that Thai banks would be able to fully comply with Basel III rules. For the liquidity requirement whose international rules are yet to be finalized, the BOT is closely monitoring the changes in order to assess the impact on banks. Moreover, the BOT took part in international forums which played a role in the international standard settings such as the sub-committees under the Basel Committee on Banking Supervision to ensure that the international standards were appropriate for the country’s economic and financial context. Part III Enhancing the capacity of financial institutions to prepare for the AEC : The BOT promoted competition in the financial sector in line with the Financial Sector Master Plan Phase II by allowing retail banks to apply for an upgrade to commercial banks and allowing foreign bank branches for an upgrade to subsidiaries with more branches and ATMs provided that they meet the prerequisite on minimum paid-up capital of 10 billion baht. In addition, the BOT promoted greater financial access by relaxing regulations to facilitate banks’ microfinance business, as well as increasing the efficiency and safety of the payment system and encouraging the use of electronic payment in accordance with the payment system roadmap. Part IV Financial consumer protection : The Financial Consumer Protection Center was established and in operation in 2012 to enhance consumer financial literacy as part of the BOT’s mission on financial consumer protection. In addition, the BOT coordinated with other agencies, i.e. the Securities and Exchange Commission and the Office of Insurance Commission to ensure that financial institutions conduct businesses fairly and disclose all relevant information such as interest rates and fees. Looking ahead, the banking system will have to face both external and internal challenges. On the external front, challenges include uncertainties in the world economy, especially the European sovereign debt crisis which may bring about volatility in capital flows and the capital market, as well as repercussion on the corporate sector. On the domestic front, challenges include speed of economic recovery from the flood after the end of government assistance measures and effectiveness of the long-term water management which will directly affect investor confidence, as well as banks’ adjustment to public policies such as deposit insurance scheme. Therefore, the BOT will continue to closely monitor banks’ credit risk and liquidity risk management as well as their capital position.
Bank of Thailand
Content Chapter 1 : Overview of Thai Economy
Thai Economy in 2011 and Trend in 2012
1
Chapter 2 : Developments in the Banking System 2.1 Major Developments in the Banking System 2.2 Financial Position and Performance of the Banking System 2.2.1 Overall Loan Portfolio 2.2.2 Non-Performing Loan 2.2.3 Liquidity and Deposit 2.2.4 Performance of the Banking System 2.2.5 Capital Adequacy 2.2.6 Assets and Liabilities Box 1 : The Impacts of the Flood in 2011 Box 2 : Funding Structure of the Thai Banking System Box 3 : Adoption of International Accounting Standard and the Change in Financial Reporting in line with International Best Practices
6 8 8 12 15 17 19 20 22 26
29
Chapter 3 : Major Developments in Supervisory Framework 3.1 Implementation of Financial Institution Policies in 2011 3.2 BOT’s Notifications and Financial Institution Supervision Policies 3.3 Financial Sector Master Plan Phase II 3.4 Financial Institution Policies on International Forums Box 4 : The New Regulatory Framework for Capital and Liquidity Risk Management (Basel III) in Thailand Box 5 : Establishment of the Financial Consumer Protection Center
30 32 38 39 41 45
Supervision Report 2011
Chart Chart 1
Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart Chart
2 3 4 5 6 7 8 9 10 11 12 13 14 15
: : : : : : : : : : : : : : :
Contribution to GDP Growth (1988 Prices) Net Capital Flow and Exchange Rate Inflation Money Market and Capital Market Structure and Growth of Loan Portfolio Loan and Economic Condition Loan Quality NPL Loan Loss Provision Interbank Rate and Policy Rate Loan, Deposit and Liquidity Policy Rate and Average Interest Rate of Large Banks Income and Expense Capital Adequacy Ratio Financial Position
3 4 4 5 10 11 13 14 14 16 16 16 18 19 21
Table
Table 1 : Commercial Banks and SFIs’ Loan Table 2 : Capital Adequacy Table 3 : Foreign Currency Assets and Liabilities
4 19 20
Supervision Report 2011
Chapter 1 : Overview of Thai Economy Thai Economy in 2011 and Trend in 2012 The Thai economy expanded well during the first three quarters of 2011 despite the natural disaster in Japan and the global economic slowdown. However, due to the worst flood in 70 years in the fourth quarter, the annual economic growth rate was brought down to 0.1 percent from 7.8 percent in 2010. Non-agriculture production contracted by 0.3 percent from the previous year, with the construction sector contracting the most by 5.1 percent, followed by the manufacturing sector which contracted by 4.3 percent. Major manufacturing sectors including electronic products, electrical appliances, hard disk drives, and garment were affected from the slower demand from abroad, while the temporary supply chain disruption in the automobile industry during the second quarter was caused by the disaster in Japan in March 2011. In addition, the big flood during the fourth quarter which occurred in the major industries’ production hubs resulted in a contraction in almost all industries due to shortage of manufacturing parts and transportation problems. Agriculture production was not affected much by the flood and recorded a growth of 4.1 percent with an increase in farm income as a result of an increase in farming area, higher prices of agricultural products, as well as favorable weather conditions. Household spending and private investment growth slowed down from the previous year to 1.3 percent and 7.2 percent, respectively. While the household demand for goods remained stable, the supply shortage from the Japanese disaster and the flood caused the household spending to slow down from the previous year. The flood also affected labor income, employment in flood-affected areas, and consumer confidence. There was still demand for private investment during the first three quarters, a continuation from the previous year, in line with expansion of the production capacity in the manufacturing sector, producer confidence, and accommodating lending by financial institutions. However, in the fourth quarter, the flood caused a supply shortage and adversely affected investor confidence. On the external front, the current account had a surplus of 11.9 billion USD, a decrease from last year. The reduction in the trade surplus was due to a decrease in export stemming from both a slowdown in external demand and from the flood which disrupted production and transportation. On the other hand, the deficit in the service account of 11.6 billion USD improved from last year as a result of increased travel receipts and payments from insurance companies abroad to compensate the flood victims. The capital account
1
Bank of Thailand
2
was volatile throughout the year from the European sovereign debt crisis which affected investor confidence. Moreover, Thai Direct Investment abroad continued to rise, resulting in the net outflow for the capital account. The volatile capital flow led to more movements in the exchange rate with a wider band of 29.58 and 31.78 baht per USD. The financial sector continued to support economic expansion. Commercial bank loans at the end of 2011 expanded by 14.9 percent from the previous year. Funding through bond and stock markets was stable at 319.6 billion baht and 89.6 billion baht, respectively, compared to 2010, as the market volatility during the year made funding through these channels unattractive to businesses. Since the beginning of the year, the policy rate was raised by 1.50 percent per year to contain the inflationary pressure from economic expansion, but was reduced by 0.25 percent per year in the last quarter to support economic recovery after the flood and to ease pressure from the increased risks in the global economy. Thus, as at the end of the year, the policy rate increased from 2.00 percent per year to 3.25 percent per year. The government bond yield across all maturities moved in line with the policy rate movement, although the yield for medium and long term government bonds decreased rapidly during the middle of the year as investors were concerned about the European sovereign debt crisis and increased their holding of government bonds to mitigate risk. Overall in 2011, both internal and external stability remained resilient although there was some inflationary pressure due to higher production cost and strong domestic demand, with headline and core inflation at 3.8 percent and 2.4 percent, respectively. The business sector was sound, with financial position and debt serviceability intact. The employment market continued to tighten as the employment during the first three quarters expanded in line with economic condition. Although unemployment in the manufacturing sector rose slightly in the fourth quarter because of the flood, it was expected to be temporary and should not affect the overall employment market. On external stability, short-term external debt decreased. The ratio of external debt to GDP decreased to 34.2 percent from 35.2 percent at the end of 2010. International reserves increased from the previous year and remained high at 175.1 billion USD. The international reserves expressed in terms of short-term external debt and import stood at 3.6 times and 10.4 months, respectively. The economic outlook in 2012 is expected to expand further from 2011. The manufacturing sector should recover in the third quarter and the domestic demand should expand, from both consumption and post-flooded investment, along with the previous investment plans. Supporting factors include strong employment trend and confidence of consumers and investors, accommodating lending for economic expansion, and government expenditure and investment which are expected to increase from the previous year. Nevertheless, economic expansion will depend on the speed of recovery in the manufacturing sector, the government policies on
Supervision Report 2011
water management, and the global economy which still faces challenges from the European sovereign debt crisis, slow recovery of the US economy, the slowing down Chinese economy, and the conflicts in the Middle East. Domestic inflationary pressure is subject to the world oil prices, the minimum wage increase, and the increased demand from both the government and private sectors, especially during the second half of the year when the economy growth is approaching its production potential.
Chart 1 : Contribution to GDP Growth (1988 Prices) Chart 1 : Contribution to GDP Growth (1988 Prices) Chart 1 : ContributionSupply to GDP Side Growth (1988 Prices) % yoy 15 % yoy 15 10
Supply Side Supply Side
105 50 -50 -5 -10 -10 -15 -15
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2008 Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2 Q3 Q4 2011 Q1 Q2 Q3 Q4 Manufacturing 2008Agriculture 2009 2010 2011 Wholesale and Retail Trade Services & Others Agriculture Manufacturing GDP Wholesale and Retail Trade Services & Others GDP
% yoy 15 % yoy 15 10
Demand Side Demand Side
Demand Side
105 50 -50 -5 -10 -10 -15 -15
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2008 Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 2008 2009 Expenditure Domestic Consumption Change Inventories Expenditure DomesticinConsumption Statistical Discrepancy Change in Inventories
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 Q1 Q2 Q3 Q4 2011 Q1 Q2 Q3 Q4 2010 Gross Fixed Capital 2011 Formation Net GrossExports Fixed Capital Formation GDP Net Exports
Statistical Discrepancy GDP Source : Office of the National Economic and Social Development Board
Source:: Office Officeofofthe theNational NationalEconomic Economicand andSocial SocialDevelopment Development Board Source Board
3
2Bank | Bank of Thailand of Thailand 2 | Bank of Thailand
Chart 2 : Net Capital Flow and Exchange Rate Chart Net Capital RateRate Chart2 2: : Net CapitalFlow Flowand andExchange Exchange Million USD THB/USD 6,000Million USD THB/USD31.5 6,000 31.5 Net Capital Flow Exchange Rate (RHS) 4,000 31.0 Net Capital Flow Exchange Rate (RHS) 4,000 31.0 2,000 30.5 2,000 30.5 0 30.0 0 30.0 -2,000 29.5 -2,000 29.5 -4,000 29.0 -4,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 29.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2011 2011 Source : Bank of Thailand Thailand Bank of Source : Bank of Thailand
4
Chart 3 : Inflation Chart 3 3: :Inflation Chart Inflation % yoy 10% yoy 10 8 Headline Inflation 8 Headline Inflation 6 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 Jul Jan Jul Jan Jul -6 Jan Jan Jul Jan Jul Jan Jul 2008 2009 2010 2008 2009 2010 Source : Ministry of Commerce Source :: Ministry Source MinistryofofCommerce Commerce
Core Inflation Core Inflation
Jan Jan 2011 2011
Jul Jul
Table 1 : Commercial Banks and SFIs’ Loan Table Commercial Banks Loan Table1 1 :: Commercial BanksandandSFIs’ SFIs’ Loan Loan Loan
Loan
Commercial Banks Commercial Banks SFIs SFIs Commercial Banks Total Total SFIs Source : Bank of Thailand Source : Bank of Thailand Total Source : Bank of Thailand
Outstanding Outstanding (Billion Baht) (Billion Baht) 2011 2011 8,537.5 8,537.5 3,210.0 3,210.0 8,537.5 11,747.5 11,747.5 3,210.0 11,747.5
Share Share (%) (%) 2010 2011 2010 2011 73.5 72.7 73.5 72.7 26.5 27.3 26.5 27.3 73.5 100.0 72.7 100.0 100.0 100.0 26.5 27.3 100.0 100.0
Change %yoy Change (Billion Baht) %yoy (Billion Baht) 2010 2011 2010 2011 2010 2011 2010 2011 756.1 1,109.9 11.3 14.9 756.1 1,109.9 11.3 14.9 439.8 536.4 19.7 20.1 439.8 536.4 756.1 1,646.3 1,109.9 19.7 11.3 20.1 1,195.9 13.4 16.314.9 1,195.9 1,646.3 13.4 16.3 439.8 536.4 19.7 20.1 1,195.9 1,646.3 13.4 16.3
Supervision Report 2011 Supervision Supervision Report Report 2011 || | Supervision Report 20112011 Supervision Report 2011 |
Chart Market andand Capital Market Chart Chart Money :: Money Market Market and Capital Capital Market Market Chart 44 :::44Money Money Market and Capital Market Chart Money Market and Capital Market Policy Rate and Policy Policy Rate Policy RateRate Policy RateRate Money Market and Money Money Market Market Rate andand Money Market RateRate and Money Market Rate % per% annum per annum per annum 7% per 7% annum 7 7 6 6 6 6 5 5 5 5 4 4 4 4 3 3 3 3 2 2 2 2 1 1 1 1 0 0 0 Jan0 JanJul JulJan JanJul JulJan JanJul JulJan JanJul Jul Jan JanJul JulJan JanJul JulJan JanJul JulJan JanJul Jul 20082008 20092009 20102010 20112011 20082008 20092009 20102010 20112011 PolicyPolicy RateRate PolicyPolicy RateRate 2 - year 2 - year Government Government BondBond YieldYield 2 - year Government BondBond YieldYield 2 Government 10 - 10 year-year year Government Government BondBond YieldYield 10 - 10 year- year Government Bond YieldYield Government Bond
Source Source ::: Bank Bank : Bank Thailand of Thailand Source ofof Source Bank ofThailand Thailand Source : Bank of Thailand
Capitalization Capitalization in in Private Sector Sector Capitalization in Private Private Sector Capitalization in Private Sector Capitalization in Private Sector Billion Billion BahtBaht BahtBaht 500Billion 500Billion 500 500 400 400 400 400 300 300 300 300 200 200 200 200 100 100 100 100 0 0 0 0 20082008 20092009 2008 20092009 2008 Debt Debt Securities Securities DebtDebt Securities Securities
20102010 20112011 2010Equities 20112011 2010Equities Equities Equities
Sources Stock Exchange of Thailand Sources Sources :: : 1. 1. 1. Stock Exchange Exchange of Thailand of Thailand Sources 1.2.:: Stock Stock Exchange of Association Thailand Sources 1. Stock Exchange of Thailand Thai Bond Market 2. Thai 2. Thai Bond Bond Market Market Association Association 2. Thai Bond Market Association 2. Thai Bond Market Association 3.3. Securities Securities and Exchange Commission, 3. Securities and and Exchange Exchange Commission, Commission, 3. Securities and Exchange Commission, 3. Securities and Exchange Commission, Thailand Thailand Thailand Thailand Thailand
Large Commercial Banks’ Large Large Commercial Commercial Banks’ Banks’ Large Commercial Banks’ Large Commercial Banks’ Average Interest Rate Average Average Interest Interest Rate Average Interest RateRate Average Interest Rate % per% annum per annum per annum 8% per 8% annum 8 8 7 7 7 7 6 6 6 6 5 5 5 5 4 4 4 4 3 3 3 3 2 2 2 2 1 1 1 1 0 0 0 Jan0 JanJul JulJan JanJul JulJan JanJul JulJan JanJul Jul Jan JanJul JulJan JanJul JulJan JanJul JulJan JanJul Jul 20082008 20092009 20102010 20112011 20082008 20092009 20102010 20112011 MLRMLR MLR MLR 1 - year 1 - year Deposit Deposit RateRate 13 -- year Deposit Rate 13 -- year Deposit Rate month month Deposit Deposit Rate Rate 3Saving - month Deposit Rate 3Saving - Deposit month Deposit Deposit RateRateRate Saving Deposit RateRate Saving Deposit
Source Source :: Bank : ofBank of of Thailand Source : Bank Thailand Source Bank of Thailand Thailand Source : Bank of Thailand
Stock Stock Exchange Exchange Index Index Stock Exchange Index Stock Exchange Index Stock Exchange Index IndexIndex IndexIndex 1,2501,250 1,2501,250 1,1501,150 1,1501,150 1,0501,050 1,0501,050 950 950 950 950 850 850 850 850 750 750 750 750 650 650 650 650 550 550 550 550 450 450 450 450 350 350 350 350 Jan JanJul JulJan JanJul Jan JanJul JulJan JanJul 20082008 20092009 20082008 20092009
JulJan JanJul JulJan JanJul Jul Jan JanJul JulJan JanJul Jul Jul2010 2010 20112011 20102010 20112011
Source : Stock Exchange of Thailand Source Source :: Stock : Stock Exchange Exchange of of Thailand Source Stock Exchange of Thailand Thailand Source : Stock Exchange of Thailand
5
Bank of Thailand
Chapter 2 : Developments in the Banking System 2.1 Major Developments in the Banking System 6
In 2011, the Thai economy experienced volatilities from both internal and external factors, including the flood in Thailand, the natural disaster in Japan, and the European sovereign debt crisis, causing the economy which had been expanding well for the first three quarters to contract in the last quarter. However, the banking system continued to be profitable with higher capital and improved asset quality. Commercial banks raised provision for loan loss in line with the increased uncertainty and continued to focus on their risk management. Thus, the banking system was robust, well-placed to cope with volatilities during the year, and supportive of the ongoing economic recovery. Bank loans expanded by 14.9 percent in line with strong economic expansion during the first three quarters. The expansion was observed in both corporate and consumer loans. On funding side, banks faced more intense competition for deposits, not only from other banks but also from the Specialized Financial Institutions (SFIs) which had lower funding cost since they were not subject to the deposit insurance fees. Thus, banks adapted by offering more diverse deposits with high returns and resorting to more issuance of bills of exchanges (B/E), resulting in acceleration of deposits and B/E growth of 13.0 percent. Nevertheless, liquidity tightened slightly as the growth of deposits and B/E was exceeded by loan growth. Gross non-performing loan (Gross NPL) at the end of 2011 was 265.4 billion baht, decreasing by 47.2 billion baht from the previous year. The ratio of Gross NPL to total loans decreased to 2.7 percent while the ratio of Net NPL to total loans also decreased to 1.3 percent. NPL reduction was observed in both corporate and consumer loans as a result of debt repayment, write-off of bad debt, and sale of NPL to asset management companies. Special mentioned loan (delinquent loan or loan overdue by one month but not more than three months) also decreased to 2.3 percent of total loans. Although the delinquency rate for consumer loans increased slightly, it was expected to be temporary due to the flood during the fourth quarter. In 2011, net profit of the banking system stood at 144.2 billion baht, increasing by 17.2 percent from the previous year, from an increase in both interest and non-interest income. Net interest margin (NIM) increased to 2.5 percent. However, banks significantly increased provision for loan loss to cushion for potential effects from the flood, thereby return on assets (ROA) and return on equity (ROE) staying at the same level as last year, at 1.1 percent and 8.9 percent, respectively.
Supervision Report 2011
Capital fund of the banking system increased from continuous profitability and capital injection. However, as risk-weighted assets increased from loan expansion, the capital adequacy ratio (CAR) decreased to 15.1 percent which was still well above the minimum regulatory requirement. The banking system as a whole was resilient with continued improvement in risk management along with rigorous supervision conducted by the Bank of Thailand (BOT). Thus, the banking system was robust and well-placed to cope with challenges during the year. 1) The flood during the fourth quarter resulted in the slowing growth of manufacturing sector, commerce sector, and almost all categories of consumer loans. Pressure on liquidity and debt serviceability was observable from the delinquency rate for consumer loan that rose from 2.4 percent in the third quarter to 3.3 percent in the fourth quarter. Nevertheless, the BOT issued notification to facilitate financial institutions in assisting debtors affected by the flood and require them to regularly monitor the status of these loans. The total loans of financial institutions and non-banks under the flood relief program amounted to 604.9 billion baht at the end of 2011. 2) The prolonged European crisis, though impacted the global economic expansion, had limited direct impact on the Thai banking system due to its low direct exposure with the EU. Total foreign assets of Thai commercial banks stood at 17.6 billion USD or 4.3 percent of total assets, of which only 1.5 billion USD or 0.4 percent of total assets was with the EU. In addition, Thai commercial banks mainly relied on domestic funding in the ratio of 95 percent of total deposits and borrowings which was regarded as strength of the Thai banking system. Commercial banks still face further challenges in the periods ahead, including 1) The effects from the flood and uncertainties in the global economy, especially the EU crisis which could adversely affect the business of banks’ customers and warrant vigilant monitoring. In 2011, the EU accounted for 10.6 percent of Thailand’s total exports. Thus, credit risk management and strong capital fund are key issues in 2012. 2) Adjustment of banks to new regulatory requirements. For example, reduction of the maximum deposit insurance coverage amount to 1 million baht from August 11, 2012 onwards, which results in higher competition for deposits among financial institutions and induces banks to strengthen their financial position and performance for good credit rating, thereby enhancing confidence of depositors. In addition, banks need to adapt to changes from: additional fees for the repayment of Financial Institutions Development Fund (FIDF) debts, the revised guidelines on issuance of B/E such as the 10-million-baht minimum face value, and the Basel III capital requirements, all of which may affect banks’ funding structure. Thus, it is essential to ensure that banks have good liquidity risk management to cope with these challenges.
7
Bank of Thailand
2.2 Financial Position and Performance of the Banking System
8
2.2.1 Overall Loan Portfolio Despite economic contraction during the last quarter because of the flood, the Thai economy which expanded well during the first nine months in 2011 gave rise to an increase in banking system loan outstanding at the end of 2011 to 8,537.5 billion baht, increasing by 1,109.9 billion baht or 14.9 percent, up from 11.3 percent at the end of 2010. Corporate loan growth was mostly from the demand for working capital from domestic businesses in response to the rising cost of raw materials and oil. Consumer loan growth moderated as a result of the slowdown in the real estate sector during the first half of the year, a delay in automobile purchase pending on clarity in the tax incentive for first-time buyers, and the flood impacts. 2.2.1.1 Corporate Loan Corporate loan at the end of 2011 amounted to 6,080.0 billion baht, which constituted 71.2 percent of total loan, increasing by 14.8 percent, accelerating from 9.0 percent in 2010. The loan growth was observed in almost all business sectors, especially manufacturing, commerce, and public utilities. Small and Medium Enterprise (SME) loan, which accounted for 51.7 percent of corporate loan, accelerated to 14.4 percent from 7.2 percent at the end of 2010. Major developments in corporate loan (1) Manufacturing Sector (22.5 percent of total loan) expanded by 12.0 percent, up from 5.6 percent in the previous year as a result of an increase in large corporate and SME loan mainly in manufacturing of basic metals, automobile and accessories, chemical and pharmaceutical products, and beverages. (2) Commerce Sector (15.1 percent of total loan) expanded by 19.2 percent, a large increase from last year’s growth of 9.8 percent as a result of the loan to retail business including shopping malls and retail sale of metal, paint and glass, and food and beverages, and to wholesale business including wholesale trade of intermediate goods and fuels. The acceleration in loan was to support the recovery and increased demand for goods after the flood had eased up. (3) Financial Sector (9.0 percent of total loan) expanded by 14.1 percent, a slight increase from 13.0 percent last year as a result of loan to automobile hire purchase companies, asset management companies, and pawn shops. (4) Public Utilities Sector (6.5 percent of total loan) expanded significantly by 28.2 percent from 7.8 percent in 2010, as a result of expansion of loan to the production
Supervision Report 2011
of electricity and telecommunication businesses in line with a large increase in demand for electricity and telecommunication via mobile phones. (5) Services Sector (6.1 percent of total loan) expanded by 9.4 percent, an increase from 2.6 percent last year, mainly from loan to hotel and restaurant businesses, partly to accommodate an increase in demand for temporary housing from flood-affected victims. (6) Real Estate Sector (5.0 percent of total loan) recorded a 10.8 percent growth, in contrast with a 5.8 percent contraction in the previous year, as a result of an increase in loan to condominiums along the skytrain routes, housing development, and land development in areas not affected by the flood. (7) Construction Sector (1.7 percent of total loan) expanded by 8.0 percent, up from 6.1 percent in 2010, as a result of an increase in loan to private construction, civil engineering or large construction, and interior decoration.
2.2.1.2 Consumer Loan Consumer loan (28.8 percent of total loan) amounted to 2,457.5 billion baht, with a growth of 15.4 percent, decelerating from 17.7 percent in 2010. The slowdown was observed in most sectors, except for personal loan which continued to accelerate. (1) Housing Loan (14.0 percent of total loan) expanded by 10.1 percent, a slowdown from 13.7 percent in 2010, partly from a slowdown in the real estate sector during the first half of the year. Although the growth picked up in the third quarter from the step-up of marketing campaigns by both developers and banks, the growth slowed down in the fourth quarter as home buyers delayed their transfer of property due to the flood. (2) Car Loan (7.2 percent of total loan) expanded by 22.8 percent, a slowdown from 29.5 percent in 2010. The deceleration was partly from consumers delaying the decision to purchase, pending on clarity in the government measure on the first car during mid 2010. In addition, the flood in the fourth quarter greatly affected the automobile industry so that the auto dealers could not deliver cars on schedule. (3) Personal Loan (5.4 percent of total loan) recorded an accelerated growth from 2010 by 25.5 percent. Attracted by high return on this loan segment, banks intensified competition by offering new campaigns to retain existing customers and attract new customers. Moreover, personal loan accelerated during the last quarter as a result of spending needs during the flood. (4) Credit Card Loan (2.2 percent of total loan) expanded by 6.0 percent, down from 10.4 percent in 2010, partly because some credit card users switched to cash during the flood.
9
Bank of Thailand 44 || 44Bank of || Bank of Bank Bank of Thailand Thailand of Thailand Thailand
Chart 55: Structure and Growth of Loan Loan Portfolio Chart :5 Structure andand Growth of Portfolio Chart : Structure Growth of Loan Portfolio Chart Chart 5 :5 Structure : Structure andand Growth Growth of Loan of Loan Portfolio Portfolio
Structure of Structure of Loan Structure Structure ofofLoan Loan of Loan Structure Loan % % 100% % 100 100 100 80 80 80 80 60 60 60 60
10
40 40 40 40 20 20 20 20 00
00 2007 2008 2009 2010 2011 2007 2007 2007 2008 2008 2008 2009 2009 2009 2010 2010 2010 2011 2011 2011 Corporate Loan Consumer Loan Corporate Consumer Corporate Corporate LoanLoan Loan Consumer Consumer LoanLoan Loan
Loan Portfolio as December 2011 Loan Portfolio of Loan Portfolio Portfolio as ofof ofas asDecember December of December December 20112011 2011 LoanLoan Portfolio as 2011
Others Others Real Estate Real Estate Others Construction Real5.0 Real Estate EstateConstruction Construction ConstructionOthers 5.4 5.4 5.0 5.4 5.4 1.7 1.7 5.0 5.0 1.7 1.7 PublicPublic PublicPublic Utilities Utilities Utilities 6.5Utilities 6.5 Manufacturing Manufacturing 6.5 6.5 Manufacturing Manufacturing 22.5 22.5 Services Services 22.5 22.5 Services Services 6.1 6.1 Personal Personal 6.1 6.1 Personal Personal 5.4 Financial Financial 5.4 5.4 5.4 Financial Financial Car Car Business Business Car Car Business Business Commerce 7.2 7.2 Commerce 8.9 Commerce 7.2 7.2 Housing Housing 8.9 8.9 8.9 Commerce 15.1 15.1 Housing Housing Credit CardCard Credit 15.1 15.1 14.0 14.0 CreditCredit CardCard 14.0 14.0 2.2 2.2 2.2 2.2 Consumer Loan Consumer Corporate Loan Corporate Consumer Consumer LoanLoan Loan Corporate Corporate LoanLoan Loan 2,457.5 Billion Baht (28.8%) 2,457.5 Billion (28.8%) 6,080 Billion Baht (71.2%) 6,080 Billion Baht (71.2%) BillionBillion Baht Baht Baht (28.8%) (28.8%) 6,0806,080 BillionBillion Baht Baht (71.2%) (71.2%)2,457.52,457.5
Loan Growth Loan Growth Loan Growth Loan Loan Growth Growth % % yoy yoy% % yoy yoy 25 25 25 25 20 20 20 20 15 15 15 15 10 10 10 10 55 55 0 0 0 0 -5 -5 -5 -5 -10 -10 -10 -10 -15 -15 -15 -15 2007 2007 2008 2008 2009 2009 2007 2007 2008 2008 2009 2009 Total Loan Total Loan TotalTotal LoanLoan Consumer LoanLoan Consumer Consumer Consumer LoanLoan
2010 2010 2010 2010 2011 2011 2011 2011 Corporate Loan Corporate Loan Corporate Corporate LoanLoan SME SME LoanLoan SME SME LoanLoan
Corporate Loan Growth Corporate Loan Growth Corporate Loan Growth Corporate Corporate Loan Loan Growth Growth
Source : Bank of Thailand
% % yoy yoy% % yoy yoy 60 60 60 60 50 50 50 50 40 40 40 40 30 30 30 30 20 20 20 20 10 10 10 10 00 00 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 Housing Housing Housing Housing Personal Personal Personal Personal
2010 2010 2010 2010 2011 2011 2011 2011 CreditCredit CardCard CreditCredit CardCard Car Car Car Car
Corporate Loan Growth (Cont’d) Corporate Growth (Cont’d) Corporate Loan Growth (Cont’d) Corporate Corporate LoanLoan Loan Growth Growth (Cont’d) (Cont’d) % yoy% yoy % yoy40 % yoy 40 40 40 30 30 30 30 20 20 20 20 10 10 10 10 00 00 -10 -10 -10 -10
% yoy% yoy 40% yoy 40% yoy 40 40 30 30 30 30 20 20 20 20 10 10 10 10 00 00 -10 -10 -10 -10 -20 -20 -20 -20 2007 2007 2008 2008 2009 2009 2007 2007 2008 2008 2009 2009 Manufacturing Manufacturing Manufacturing Manufacturing Financial Business Financial Business Financial Financial Business Business
Consumer Loan Growth Consumer Growth Consumer Loan Growth Consumer Consumer LoanLoan Loan Growth Growth
2010 2010 2010 2010 2011 2011 2011 2011 Commerce Commerce Commerce Commerce Public Utilities Utilities PublicPublic Public Utilities Utilities
Source :: Bank of Source :: Bank of Source Source Bank Bank of Thailand Thailand of Thailand Thailand
-20 -20 -20 -20 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 Services Estate Services Construction Services Services Real Real Real Real EstateEstate Estate Construction Construction Construction
Supervision Report 2011 2011 | | Supervision Report
Supervision Report 2011
Chart 6 : 6 Loan andand Economic Condition Chart : Loan Economic Condition
Supervision Supervision Report Report 2011 2011 | |
6 : 6 Loan : Loan andand Economic Economic Condition Condition LoanLoan and Chart GDPChart Contribution to Loan Growth and GDP Contribution to Loan Growth % yoy% yoy 20 20 15 15 % yoy% yoy 10 20 10 20 155 155 100 -55
Chart 6 : Loan and Economic Condition % yoy% yoy
Loan GDP Loan Loan andand and GDP GDP
100 -55
-100 -100 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 Prices)Prices) Total Total Loan Loan GDP (Current -5 -5 GDP (Current GDP (Constant Prices)Prices) GDP (Constant -10 -10 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 GDP (Current GDP (Current Prices)Prices) Total Total Loan Loan GDP (Constant GDP (Constant Prices)Prices)
20
20
Contribution to Loan Growth
Contribution to Loan to Loan Growth Growth 15 15 Contribution % yoy% yoy 20 10 20 10 155
155
100
100
-55
-55 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 0 Corporate Loan Loan Consumer Loan Loan Corporate Consumer Total Total Loan Loan -5 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 Corporate Corporate Loan Loan Consumer Consumer Loan Loan Total Total Loan Loan
0 -5
Contribution to Corporate Loan Growth Contribution Corporate Loan Growth Contribution totoCorporate Loan Growth
Contribution toto Consumer Growth Contribution to Consumer Growth Contribution LoanLoan Growth
% yoy% yoy 20 20
% yoy% yoy 25 25
15 15 10% yoy 10% yoy 20 20 5 5 15 15 0 0 10 10 -5 -5 5 5 -10 -10 0 02007 2007 2008 2008 2009 2009 2010 2010 2011 2011 -5 -5 Manufacturing Commerce Manufacturing Commerce Financial Business Real Estate Financial Business Real Estate -10 -10 PublicPublic Utilities Construction Utilities Construction 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 Services OthersOthers Services Manufacturing Manufacturing Commerce Commerce Corporate Loan Loan Corporate Financial Financial Business Business Real Estate Real Estate SourceSource : Bank: Bank of Thailand of Thailand PublicPublic Utilities Construction Source : BankUtilities of Thailand Construction Services Services OthersOthers Corporate Corporate Loan Loan SourceSource : Bank: Bank of Thailand of Thailand
20 20 % yoy% yoy 25 25 15 15
Contribution Contribution to Corporate to Corporate LoanLoan Growth Growth
Contribution Contribution to Consumer to Consumer LoanLoan Growth Growth
20 10
20 10
155
155
100
100
5
5
0
2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 Personal Car Car Personal CreditCredit Card Card Housing Housing 0 Consumer Loan2009 Consumer Loan2009 2010 2010 2011 2011 2007 2007 2008 2008 Personal Personal CreditCredit Card Card Consumer Consumer Loan Loan
Car Car Housing Housing
11
Bank of Thailand
12
2.2.2 Non-Performing Loan Gross NPL of the banking system at the end of 2011 stood at 265.4 billion baht, down by 47.2 billion baht from the previous year. As a result, the ratios of both gross and net NPL to total loan decreased to 2.7 percent and 1.3 percent from 3.6 percent and 1.9 percent, respectively. The reduction in NPL was mainly a result of debt repayment, write-off of bad debt, and sale of NPL to asset management companies. Banks continued to place importance on credit risk management, both the credit approval process and monitoring of loan quality afterwards. Gross NPL of corporate loan amounted to 218.4 billion baht, most of which, or approximately three quarters of NPL of corporate loan, were in manufacturing, commerce, and services sectors, respectively. The gross NPL for corporate loan decreased by 47.0 billion baht from 2010, resulting in the ratio of NPL to total loan to decline from 4.0 percent to 3.0 percent, with the decline observable in all business sectors. The gross NPL ratio for consumer loan also decreased from 2.3 percent in 2010 to 2.0 percent. The decline in NPL could be observed in most categories of consumer loan, except for credit card loan which recorded a slight increase in NPL ratio. When considering loan quality, delinquent loan had 220.6 billion baht outstanding, decreasing from the end of 2010, which brought the ratio of delinquent loan to total loan down from 2.6 percent to 2.3 percent. However, delinquent loan for consumer loan increased from 2010 by 25.7 billion baht, resulting in an increase of the ratio from 2.6 percent to 3.3 percent. The increase in the ratio was for all categories of consumer loan, especially car loan which increased to 7.7 percent as a result of the flood during the fourth quarter of 2011. The increase was expected to be temporary since the BOT and commercial banks promptly issued guidelines to assist debtors affected by the flood. (details in Box 1) The banking system set aside provision for loan loss 47 percent above the level required by the BOT’s regulation1, which is in line with the International Accounting Standard Number 39 (IAS 39), while the NPL coverage ratio increased to 112.7 percent at the end of 2011. The continued increase in the provisioning and NPL coverage ratio reflected the cautious credit risk management by banks.
1
Classification and loan loss reserve requirement regulation requires financial institutions to set aside reserve for NPL at 100 percent of the difference between loan outstanding and present value of expected cash flow from the borrower or present value of expected cash flow from collateral disposal, for special mentioned loan at 2 percent and for normal loan at 1 percent.
Supervision Report 2011 ||66 ||Bank Bank ofof of Thailand Thailand Bank Thailand Bank of Thailand 6 |66 Bank of Thailand
Chart 7 : Loan Quality Billion Billion Baht Billion Baht Billion Baht Billion BahtBaht 500 500 500 500 500
NPL NPL NPL NPL NPL NPL
Chart Chart :: ::Loan Loan Quality Quality Chart Loan Quality Chart Loan Quality Chart 7 77: 77Loan Quality
Gross NPL Ratio Gross Gross NPL NPL Ratio Ratio Gross NPL Ratio Gross NPL Ratio Gross NPL Ratio
to% to Total Loan Loan to% to Total Loan Loan Loan %to Total toTotal Total Loan Loan % 10 to%%10 Total Loan %to Total toTotal Total Loan % to%%Total Loan 10 10 10 10 10 10 10 10
400400 400 400400
8 88 88
8 88 88
300300 300 300300
6 66 66
6 66 66
200200 200 200200
4 44 44
4 44 44
100100 100 100100
2 22 22
2 22 22
13
0 00 00 20072007 20082008 20092009 20102010 201120110 00 00 200720082008 200820092009 200920102010 201020112011 2011 20072007 Thai Thai Banks Banks Foreign Foreign Banks Banks Foreign Banks ThaiBanks Banks Foreign Banks ThaiThai Banks Foreign Banks %% Gross % Gross NPL (RHS) (RHS) %% Net % Net NPL NPL (RHS) (RHS) NPL (RHS) NPL (RHS) %Gross Gross NPL (RHS) % Net %Net Net NPL (RHS) % Gross NPLNPL (RHS) NPL (RHS)
0 00 00 20072007 20082008 20092009 20102010 20112011 200720082008 200820092009 200920102010 201020112011 2011 20072007 Total Total NPL NPL Corporate Corporate NPL NPL Consumer Consumer NPL Corporate Consumer NPL TotalNPL NPL Corporate Corporate NPL Consumer Consumer NPL TotalTotal NPL NPLNPL NPLNPL
Delinquency Delinquency Delinquency Delinquency Delinquency Delinquency
Delinquency Delinquency Ratio Ratio Delinquency Ratio Delinquency Ratio Delinquency Ratio Delinquency Ratio
Billion Billion Baht Billion Baht Billion Baht Billion BahtBaht 350350 350 350350 300300 300 300300 250 250 250 250250 200 200 200 200200 150 150 150 150150 100 100 100 100100
to% to Total Loan Loan Loan %to Total toTotal Total Loan % to%%Total Loan 5 55 55 4 44 44
4 44 44
3 33 33
3 33 33
22 22
2 22 22
11 11
1 11 11 20072007 20082008 20092009 20102010 20112011 200720082008 200820092009 200920102010 201020112011 2011 20072007 Total Total Delinquency Delinquency Corporate Corporate Delinquency Delinquency Corporate Delinquency TotalDelinquency Delinquency Corporate Delinquency TotalTotal Delinquency Corporate Delinquency Consumer Consumer Delinquency Delinquency Consumer Delinquency Consumer Delinquency Consumer Delinquency
2 50 50 5050 50 0 00 00 20072007 20082008 20092009 20102010 201120111 200720082008 200820092009 200920102010 201020112011 2011 20072007 Thai Thai Banks Banks Foreign Foreign Banks Banks Foreign Banks ThaiBanks Banks Foreign Banks ThaiThai Banks Foreign Banks % Delinquency % Delinquency (RHS) (RHS) % %Delinquency (RHS) Delinquency (RHS) % Delinquency (RHS)
Billion Billion Baht Billion Baht Billion Baht Billion BahtBaht 500500 500 500500
NPL NPL Status Status NPL Status NPL Status Status NPL Status
to% to Total Loan Loan Loan %to Total toTotal Total Loan % to5%%Total Loan 5 5 5 5
Billion Billion Baht Billion Baht Billion Baht Billion BahtBaht 100100 100 100100
400400 400 400400
50 50 5050 50
300300 300 300300
0 00 00
200200 200 200200
-50-50 -50 -50 -50
100100 100 100100
-100 -100 -100 -100-100
0 00 00 20072007 20082008 20092009 20102010 20112011 200720082008 200820092009 200920102010 201020112011 2011 20072007 Restructuring Restructuring Process Process Restructuring Process Restructuring Process Restructuring Process Restructured Restructured inin Repayment in Repayment Process Process Restructured Process Restructured inRepayment Repayment Process Restructured in Repayment Process Court Court Process Process Court Process Court Process Court Process Legal Legal Execution Execution Process Process Legal Execution Process Legal Execution Process Legal Execution Process
Source : Bank of Thailand
Source Source :: Bank :: of Bank ofof Thailand of Thailand Source Bank Source Bank ofThailand Thailand Source : Bank Thailand
NPL NPL Flow Flow NPL Flow NPL Flow NPL Flow NPL Flow
-150 -150 -150 20072007 20082008 20092009 20102010 20112011 -150-150 200720082008 200820092009 200920102010 201020112011 2011 20072007
etc.etc. etc. etc. etc.
Bank of Thailand Supervision Report Supervision Report 20112011 | |
Chart 8 : NPL
Chart : NPL Chart 8 :8 NPL
Structure of as Corporate Structure ofNPL Corporate NPLNPL 2011 Corporate of December of December As ofAsDecember 20112011
14
Financial Business Financial Financial Business OthersOthers 2.2% 2.2% 1.7% Business 1.7% Public Utilities 1.7% Public Utilities 2.6% 2.6% Public Utilities 2.6% Construction Others 2.2% Construction Construction 4.6% 4.6% 4.6% Manufacturing Services 14.8%14.8% Manufacturing Services Services 44.6% Real Estate 14.8% Real Estate 44.6% Manufacturing 12.9%12.9% 44.6% Commerce Commerce Real Estate 12.9% 16.6%16.6%Commerce 16.6%
Corporate NPL Ratio Corporate NPL Ratio Corporate NPL Ratio to Loan % to %Loan 20 20 15 15 10 10 5
5
0
0
Structure of Consumer Structure of Consumer NPLNPL Consumer as of2011 December ofNPL December 2011 2011 As ofAsDecember PersonalPersonal Personal 18.2% 18.2%18.2% Housing Housing 58.7%58.7%Housing 58.7%
Car Car Car 14.4%14.4% 14.4% CreditCredit Card Card 8.7% 8.7% Credit Card 8.7%
2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 Manufacturing Commerce Manufacturing Commerce Financial Business Services Financial Business Services Utilities Real Estate PublicPublic Utilities Real Estate Construction Construction
Consumer NPL Ratio Consumer NPL Ratio Consumer NPL Ratio to Loan % to %Loan 8 8 6
6
4
4
2
2
0
0
2007 2007 2008 2008 2009 2009 Housing Housing Personal Personal
Chart Loan Loss Provision Chart 9 :99Loan Loss Provision Chart :: Loan Loss Provision BillionBillion Baht Baht % % 350 350 160 160 300 300 140 140 120 120 250 250 100 100 200 200 80 80 150 150 60 60 100 100 40 40 50 50 20 20 0 0 0 0 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 Required Provision Required Provision Excess Provision Excess Provision Provision/Required Provision ActualActual Provision/Required Provision (RHS)(RHS) Coverage NPL NPL Coverage RatioRatio (RHS)(RHS) Source of of Thailand Source : Bank: Bank of Thailand Source : Bank Thailand
2010 2010 2011 2011 CreditCredit Card Card Car Car
Supervision Report 2011
2.2.3 Liquidity and Deposit Commercial banks increased the interest rate during the first nine months of 2011 in line with the policy rate which was raised six times totaling 1.5 percent to 3.5 percent annually. However, the flood during the fourth quarter and the weakening global economy induced the Monetary Policy Committee to lower the policy rate by 0.25 percent to 3.25 percent annually on November 30, 2011. As a result, small banks cut time deposit rate slightly, while large banks kept the rate of both deposit and loan the same, partly because of competition from SFIs and banks’ attempt to keep the deposit base before the insured deposit amount is lowered to one million baht per person per bank as from August 11, 2012. Commercial banks’ attempt to raise fund through deposits and B/E to accommodate the loan growth by increasing the interest rate resulted in expansion of deposit by 6.8 percent, from an increase of 5.2 percent in 2010. B/E issuance by banks also increased significantly with the record growth of 59.6 percent, making the ratio of B/E to deposits plus B/E to increase to 16.6 percent from 11.8 percent at the end of 2010. When combining both deposits and B/E, the total increase was 13.0 percent, accelerating from 8.3 percent at the end of last year. Nevertheless, as the deposit and B/E growth was exceeded by loan growth, slight liquidity tightening was observed in the banking system, compared to last year. The loan-to-deposit ratio increased to 107.8 percent and the ratio of loan to deposit plus B/E increased to 89.9 percent. Liquidity in the financial system was still ample. Liquid assets held by commercial banks comprising of cash, deposit at the BOT, and unencumbered assets totaled 2,492.8 billion baht or approximately 5.1 times the regulatory requirement.
15
Bank of Thailand 8 | Bank of Thailand Bank Thailand 8 88| ||Bank Bankofof ofThailand Thailand
Chart Interbank Rate and Policy Rate Chart 10: :: Interbank Interbank Rate andPolicy Policy Rate Chart Chart1010 10 InterbankRate Rateand and Policy Rate Rate
16
% per annum % annum %4.0 %perper perannum annum 4.0 4.04.0 3.5 3.53.5 3.5 3.0 3.03.0 3.0 2.5 2.52.5 2.5 2.0 2.02.0 2.0 1.5 1.51.5 1.5 1.0 1.01.0 1.0 0.5 0.50.5 0.5 0.0 0.00.0 0.0 Jan Jul Jan Jan2009 Jan JulJul Jul 2009 2009 2009
Interbank Interbank Interbank Interbank
Jan Jan Jan2010 Jan 2010 2010 2010
Policy Policy Policy Policy
Jul JulJul Jul
Jan Jan Jan2011 Jan 2011 2011 2011
Jul JulJul Jul
Chart 11 : Loan, Deposit and Liquidity
Chart Loan, Deposit and Liquidi Chart Chart1111 11 : :: Loan, Loan,Deposit Depositand andLiquidi Liquidityty ty
Growthof Loanand andDeposit Deposit Growth ofofLoan Loan and Deposit Growth Growth Growth of of Loan Loan and and Deposit Deposit (Excluding Interbank) (Excluding Interbank) (Excluding Interbank) (Excluding (Excluding Interbank) Interbank)
% yoy % %20 %yoyyoy yoy 20 2020 15 1515 15 10 1010 10 5 5 55 0 0 00 -5 -5 -5 -5 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 2007 2007Loan2008 2008 2009 2009 2010 2010 Deposit+B/E 2011 2011 Total Deposit Total Loan Deposit Deposit+B/E Total TotalLoan Loan Deposit Deposit Deposit+B/E Deposit+B/E
% %% % 110 110 110110 105 105105 105 100 100100 100 95 9595 95 90 9090 90 85 8585 85 80 8080 80
Loan-to-Deposit Loan-to-DepositRatio Ratio Loan-to-Deposit Ratio Loan-to-Deposit Loan-to-Deposit Ratio Ratio (Excluding Interbank) (Excluding Interbank) (Excluding Interbank) (Excluding (ExcludingInterbank) Interbank)
2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 2007 2007 L/D2008 2008 2009 2009 L/(D+B/E) 2010 2010 Ratio 2011 2011 Ratio L/D Ratio L/(D+B/E) Ratio L/D L/DRatio Ratio L/(D+B/E) L/(D+B/E)Ratio Ratio
Chart 12 : Policy Rate and Average InterestRate Rate ofLarge Large Banks Chart Policy Rate and Average Interest Banks Chart Chart1212 12 : :: Policy PolicyRate Rateand andAverage AverageInterest InterestRate Rateofof ofLarge LargeBanks Banks % per annum annum %88% %perper perannum annum
88 7 7 77 6 6 66 5 5 55 4 4 44 3 3 33 2 2 22 1 1 11 0 0 00 Jan Jan
Jul JanJan JulJul Jul 2009 2009 2009 2009 Savings Rate Rate Savings Savings Savings Rate MLR Rate MLR MLR MLR Source :: Bank of Thailnd Source of Thailnd Source :ofBank of Thailand Source Source : Bank : Bank Bank ofThailnd Thailnd
Jan Jul Jan JanJan Jan JulJul Jul JanJan Jan 2010 2011 2010 2011 2010 2010 3-month Deposit Rate2011 2011 3-month Deposit Rate 3-month 3-month Deposit Deposit Rate Rate Policy Rate Rate Policy Policy PolicyRate Rate
Jul JulJul Jul
Dec DecDec Dec
1-year Deposit Deposit Rate Rate 1-year 1-year 1-year Deposit Deposit Rate Rate
Supervision Report 2011
2.2.4 Performance of the Banking System In 2011, the banking system recorded an operating profit of 255.2 billion baht, increasing from 2010 by 41.9 billion baht or 19.6 percent. Interest income expanded as with the increasing loan amount along with an improvement in asset quality, causing the net interest margin (NIM) to increase to 2.5 percent from 2.4 percent last year. Non-interest income increased by 13.2 percent mainly from credit card fees and insurance brokerage fees. The banking system’s provision for loan loss was as high as 62.6 billion baht, partly to cushion for the effect of the flood in the fourth quarter, while corporate income tax amounted to 48.4 billion baht. Net profit in 2011 stood at 144.2 billion baht, which increased by 21.2 billion baht or 17.2 percent from last year. The return on assets (ROA) and return on equity (ROE) remained stable at 1.1 percent and 8.9 percent, respectively. Net interest income continued to be the main income of the banking system, contributing 65.5 percent to total income in line with the larger loan portfolio. Effective interest rate spread declined as a result of an increase in funding cost.
17
Bank of Thailand
Supervision Supervision Report Report 2011 2011 || | Supervision Report 2011 Supervision Report Report 2011 2011 || Supervision
Chart131313:: : Income Income andExpens Expense Chart Chart Income and and Expens ee e Chart 13 : Income and Expens Chart 13 13 :: Income Income and and Expens Expens e eIncome PerformanceChart and Expense
Performance Performance Performance Performance Performance
Billion Billion Baht BahtBaht %% toto%Average Average Assets Assets Billion Billion Baht BahtBaht Billion to Average Assets Billion 300 300Billion 44 4 800 800Billion Billion Baht Average Assets Assets Billion Baht %% toto Average Baht 300 Baht 800 300 300 800 44 800 600 600600 250 250250 600 600 250 33 3 250 400 400400 200 200200 33 400 400 200 200 200 200200 150 150150 22 2 200 200 00 0 150 150 22 100 100100 00 -200-200 11 1 -200 100 100 -200 -200 5050 50 11 -400 -400-400 5050 -400 00 0 00 0 -400 -600 -600-600 2007 20072007 2008 20082008 2009 20092009 00 -600 -600 2007 20072007 2008 20082008 2009 20092009 2010 20102010 2011 20112011 00 2007 2008 2009 2007 2008 2009 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Interest Interest Income Income Operating Operating Profit Profit Net NetNet Profit Profit Interest Income Operating Profit Profit Interest Income Operating Profit Net Profit Interest Operating Profit Net Profit Fee FeeFee -- Based Based Income Income NIM NIMNIM -- Old Old (RHS) (RHS) NIM NIMNIM -- New New (RHS) (RHS) -Income Based Income - Old (RHS) - New (RHS) Fee Based Income Fee Based Income NIM Old (RHS) NIM New (RHS) NIM Old (RHS) NIM New (RHS) Gain Gain from from FX FX Operating Operating Profit Profit (RHS) (RHS) ROA ROA (RHS) (RHS) Gain from FX Operating Profit (RHS) ROA (RHS) Gain from from FX Gain FX Operating Profit (RHS) the ROA (RHS) Operating Profit (RHS) ROA (RHS) Other Other Income Income Note Note :: Dotted Dotted lines lineslines exhibit exhibit the the ratios ratios before before the the the adoption adoption Other Income Note : Dotted exhibit ratios before adoption Other Income Other Income Note ::of Dotted lines exhibit the ratios before the adoption Note Dotted lines exhibit the ratios before the adoption Net Net Profit Profit (As (As(As detail detail inin Box Box 3)3) 3) of new new reporting reporting standard standard inin 2011 2011 Net Profit detail in Box of new reporting standard in 2011 Net Profit Profit (As detail detail inin Box Box 3)3) Net new reporting reporting standard standard inin 2011 2011 (As ofof new
Fee-Based Fee-Based Income Income Fee-Based Income Fee-Based Income Fee-Based Fee-BasedIncome
%% % 100 100%%100 100 100 8080 80 8080 6060 60 6060 4040 40 4040 2020 20 2020 00 0 2007 20072007 2008 20082008 2009 20092009 2010 20102010 2011 20112011 00 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 ATM ATM Credit Credit Card Card ATM Credit Card ATM Credit Card Card ATM Credit Money Money Transfer Transfer and andand Collection Collection Money Transfer Collection Money Transfer and Collection Money Transfer and Collection Acceptances, Acceptances, Aval AvalAval and andand Guarantees Guarantees Acceptances, Guarantees Acceptances, Aval and Guarantees Guarantees Acceptances, Aval and Management Management Fee FeeFee Management Management Fee ofof Credit Management Fee Consultant, Consultant, Letter Letter and andand Cheque Cheque Consultant, Letter Credit of Credit Cheque Consultant, Letter of Credit and Cheque Consultant, Letter of Credit and Cheque Others Others Others Others Others Source Source :: Bank Bank ofof Thailand Thailand Source : Bank of Thailand Source :: Bank Bank ofof Thailand Thailand Source
ROA ROA ofof Listed Companies Companies ROA ofListed Listed Companies ROA Listed Companies ROA Listed Companies ROA ofof of Listed Companies
2010 20102010 2011 20112011 2010 2011 2010 2011 Interest Interest Expense Expense Interest Expense Interest Expense Interest Expense Non NonNon -- Interest Interest Expense Expense - Interest Expense Non Interest Expense Non -Loss Interest Expense Loan Loan Loss Expense Expense Loan Loss Expense Loan Loss Loss Expense Loan Income Income Tax TaxExpense Income Tax Income Tax Tax Income
Non-Interest Non-Interest Income Income and andand Expense Expense Non-Interest Income Expense Non-Interest Income and Expense Non-Interest Income and Expense Non-Interest Income and Expense %% toto Total Total Income Income
% to Total Income 6060%%60 Total Income Income toto Total 6060 5050 50 5050 4040 40 4040 3030 30 3030
2020 20 2007 20072007 2008 20082008 2009 20092009 2010 20102010 2011 20112011 2020 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Non-Interest Non-Interest Income Income Non-Interest Non-Interest Expense Expense Non-Interest Income Non-Interest Expense Non-InterestIncome Income Non-InterestExpense Expense Non-Interest Non-Interest
ROE ROE ofof Listed Companies Companies ROE ofListed Listed Companies ofofListed Companies ROE Listed Companies ROE Listed Companies
Average Average == 14.63% 14.63% Average = 14.63% Average == 14.63% 14.63% Average
Source Source :: The The Stock Stock Exchange Exchange ofof Thaila Thaila nd nd
Source : Stock The Stock ExchangeThailand of Thaila nd Source Source: :The : The The Stock StockExchange Exchangeof Thaila nd nd Source Exchange ofof Thaila
TRANS TRANS TRANS TRANS MINE MINE MINE MINE TRANS STEEL STEEL STEEL STEEL MINE TOURISM TOURISM TOURISM TOURISM STEEL ETRON ETRON ETRON ETRON TOURISM PAPER PAPER PAPER PAPER ETRON PROF PROF PROF PROF PAPER FASHION FASHION FASHION FASHION PROF FIN FIN FIN FIN FASHION AUTO AUTO AUTO AUTO FIN PETRO PETRO PETRO PETRO AUTO PERSON PERSON PERSON PERSON PETRO PROP PROP PROP PROP PERSON INSUR INSUR INSUR INSUR PROP HOME HOME HOME HOME INSUR BANK BANK BANK BANK HOME AGRI AGRI AGRI AGRI BANK IMM IMM IMM IMM AGRI ENERG ENERG ENERG ENERG IMM CONMAT CONMAT CONMAT CONMAT ENERG HEALTH HEALTH HEALTH HEALTH CONMAT MEDIA MEDIA MEDIA MEDIA HEALTH PKG PKG PKGPKG MEDIA FOOD FOOD FOOD FOOD PKG COMM COMM COMM COMM FOOD ICT ICT ICTICT COMM ICT
Average Average == 5.45% 5.45% Average = 5.45% Average == 5.45% 5.45% Average MINE MINE MINE MINE BANK BANK BANK BANK MINE TRANS TRANS TRANS TRANS BANK ETRON ETRON ETRON ETRON TRANS STEEL STEEL STEEL STEEL ETRON TOURISM TOURISM TOURISM TOURISM INSUR INSUR STEEL INSUR INSUR TOURISM FIN FIN FINFIN INSUR PAPER PAPER PAPER PAPER FIN PETRO PETRO PETRO PETRO PAPER PROF PROF PROF PROF PETRO PROP PROP PROP PROP PROF PERSON PERSON PERSON PERSON PROP FASHION FASHION FASHION FASHION PERSON AUTO AUTO AUTO AUTO FASHION IMM IMM IMM IMM AUTO HOME HOME HOME HOME IMM CONMAT CONMAT CONMAT CONMAT HOME AGRI AGRI AGRI AGRI CONMAT FOOD FOOD FOOD FOOD AGRI ENERG ENERG ENERG ENERG FOOD COMM COMM COMM COMM ENERG PKG PKGPKG PKG COMM HEALTH HEALTH HEALTH HEALTH PKG MEDIA MEDIA MEDIA MEDIA HEALTH ICT ICTICT ICT MEDIA ICT
18
Income Income and andand Expense Expense Income Expense Income and Expense Expense Income and
Supervision Report 2011
2.2.5 Capital Adequacy The banking system continued to have sufficient capital to support the economic expansion. At the end of 2011, capital fund of the banking system was 1,407.9 billion baht, approximately 80 percent of which was Tier 1 capital. The total capital increased from 2010 by 59.2 billion baht, of which 53.0 billion baht was Tier 1, as a result of profits and capital injection. After taking into account an increase in risk-weighted assets from the expanded loan portfolio, the new international accounting standard which required the recognition of expected future employee benefits at the beginning of the year, and the accounting effects from a merger between Thanachart Bank and Siam City Bank in the fourth quarter, the capital adequacy ratio (CAR) and Tier 1 ratio declined to 15.1 percent and 11.8 percent, respectively. In 2011, total capital injection of Thai and foreign banks amounted to 26.4 billion baht. CAR and Tier 1 ratio of Thai banks were 14.8 percent and 10.9 percent, respectively, while CAR of foreign banks was 17.3 percent. These capital adequacy ratios were well above the minimum regulatory requirement. 10 | Bank of Thailand
Table 2 : Capital Adequacy Capital Fund Capital Adequacy Ratio Table (Billion 2 : Capital Baht)Adequacy (%)
Commercial Banks
Commercial Banks Thai Banks Foreign Banks Thai Banks Total Commercial Banks Foreign Banks Total Commercial Banks
Tier 1 Capital TierFund 2 Total
(Billion Baht) 885.9 311.2 Tier 1 Tier 2 210.7 0.1 885.9 311.2 1,096.6 311.3 210.7 0.1 1,096.6 311.3
1,197.1 Total 210.8 1,197.1 1,407.9 210.8 1,407.9
TierCapital 1 Adequacy Tier 2 Ratio Total 10.9 Tier 1 17.3 10.9 11.8 17.3 11.8
Chart1414 :: Capital AdequacyRatio Ratio Chart Capital Adequacy % 18 16 14 12 10
CAR Tier 1 Basel I
Basel II
8 6
Source : Bank of Thailand
Source : Bank of Thailand
Minimum Requirement = 8.5% 2007
2008
2009
2010
2011
(%) 3.9 Tier 2 - 3.9 3.3 3.3
14.8 Total 17.3 14.8 15.1 17.3 15.1
19
Bank of Thailand
2.2.6 Assets and Liabilities
20
At the end of 2011, the banking system recorded 12,981.7 billion baht in total assets, increasing by 10.5 percent, down from 13.2 percent in 2010, due to the decline in interbank loan and other assets, especially derivatives, foreclosed properties, and deferred tax assets2. Banks’ investment increased from investment in BOT bonds as the BOT has turned to bonds as a key tool for adjusting liquidity in the financial system in place of the bilateral repurchase operations. Liabilities and equities consisted mostly of deposits at a ratio of 61.6 percent, a slight decline from 63.8 percent at the end of last year. The decline was partly because depositors switched to other securities with higher return such as B/E, government bonds, gold, equities, or other investments with tax benefits, i.e. long-term equity fund (LTF), retirement mutual fund (RMF) and life insurance with savings features. As Thai commercial banks concentrated on domestic operations in terms of funding, investment, and lending, their assets and liabilities in foreign currencies were immaterial. Foreign currency loan amounted to 6.2 percent of total assets, even though this was an increase from 5.0 percent in 2010 as a result of loan to large corporate for overseas investment. Foreign portfolio investment amounted to only 1.1 percent of total assets. On the liabilities side, deposits, direct borrowing and interoffice borrowing of foreign bank branches in foreign currencies amounted to 5.6 percent of total assets. In all, exchange rate risk of the banking system was relatively low.
Table 3 : Foreign Currency Assets and Liabilities
Source : Bank of Thailand
2
Due to the reduction of corporate income tax rate from 30 percent to 23 percent in 2012, banks that had early adoption of International Accounting Standard No. 12 had to write down the deferred tax assets previously recognized.
Supervision Report 2011 12 |12 Bank of Thailand | Bank of Thailand
Chart 15 : Financial Position Assets Assets Assets Trillion BahtBaht Trillion 14 14 12 12
Chart Chart15 15: Balance : BalanceSheet Sheet
Liabilities andand Shareholders’ Equity Liabilities and Shareholders’ Equity Liabilities Shareholders’ Equity
%yoy %yoy 20 20 15 15
10 10 8 8
10 10
6 6 4 4
5 5
2 2 0 0
0 0 20072007 20082008 20092009 20102010 20112011 Loans (Net)(Net) Investment in Securities Loans Investment in Securities CashCash andand Deposits Other Assets Deposits Other Assets Asset Growth (RHS) Asset Growth (RHS)
%yoy %yoy 16 16
Trillion BahtBaht Trillion 14 14 12 12
11 11
10 10 8 8
6 6
6 6 4 4 2 2 0 0
1 1 -4 -4 20072007 20082008 20092009 20102010 20112011 Deposits Borrowings Deposits Borrowings Other Liabilities Shareholders' Equity Other Liabilities Shareholders' Equity Deposit Growth (RHS) Deposit Growth (RHS)
Structure of Assets as of December 2011 Structure of of Assets as as of of December 2011 Structure Assets December 2011
Loans (Net)(Net) Loans
Loans 73.2% (Net) 73.2% 73.2% (72.3%) (72.3%) (72.3%) Loans (Net) 73.2% (72.3%)
Investment Investment in Securities in Securities 15.9%15.9%Investment (15.5%) in Securities (15.5%)
Type Investments Type ofofInvestments Type of Investments
2010 20102010201120112011
Government Bonds Government Bonds Government Bonds 69%69%69%74% 74%74% Debentures Type of Investments 2010 2011 Debentures Debentures 12%12%12% 10% 10%10% Equity Instruments 18% Instruments EquityEquity Instruments 18% 18%15% 15%15% Government Bonds 74% Investment in Receivables Investment in Receivables 69% Investment in Receivables 1% 1% 1%1% 1% 1% Debentures 12% 10% Equity Instruments 18% 15% Investment 20102010 1%20112011 Investment inMarkets Receivables 1% Investment Markets Investment 201091%91% 2011 93%93% Domestic Domestic Markets Foreign 9% 7% Foreign Domestic 91% 9%93% 7% Investment Markets 2010 2011 Foreign 9% 7%
15.9% (15.5%) Investment in Securities CashCash and and 15.9% Other Other Deposits (15.5%) Deposits Assets Assets Cash and 4.0%4.0% 6.9%6.9% Deposits (4.5%) (4.5%) (7.8%) Other Assets 4.0% (7.8%) 6.9% Cash (4.5%) and Structure of of Liabilities andand Shareholders’ Equity (7.8%) Deposits Structure Liabilities Shareholders’ Equity Domestic 91% 93% Other Assets 4.0% as as of of December 2011 December 2011 Foreign 9% 7% 6.9% (4.5%) Shareholders' Shareholders' Shareholders' Equity Other Other (7.8%) Structure ofOther Liabilities and Shareholders’ Equity as of December 2011 Equity 12.2% Liabilities Equity Liabilities Type of Borrowings 2010 2011 Liabilities Type of Borrowings 20102010 20112011 (13.1%) Type of Borrowings 12.2% 6.2% 12.2% 6.2%6.2% (7.1%) Shareholders' Equity (13.1%) Borrowings 42%42%42%33%33%33% (13.1%) Borrowings (7.1%) Borrowings (7.1%) 12.2% Other Liabilities Type of Borrowings 2010 Bill of Exchange (B/E) 52% 60%60%60% Borrowings Borrowings Bill Bill of Exchange (B/E) 52%52%2011 of Exchange (B/E) (13.1%) 6.2% 20.0% Deposits Deposits Debentures and Others 6% 7% 7% 7% Borrowings 20.0% Debentures andand Others Debentures Others 42%6% 6%33% (7.1%) (16.0%) Deposits Borrowings 61.6% 61.6% 20.0% (16.0%) 61.6% Bill of Exchange (B/E) 52% 60% (63.8%) (16.0%) (63.8%)(63.8%) Debentures and Others 6% Borrowings Source of Borrowings 20102010 7% 20112011 Deposits Source of Borrowings 20.0% Source of Borrowings 2010 2011 61.6% (16.0%) Domestic 91%91% 94%94% Domestic (63.8%) Domestic 91% Foreign 9% 9%94% 6% 6% Foreign Source of Borrowings 2010 2011 Foreign 9% 6%
NoteNote : Numbers in parenthesis represent figures at end-2010 : Numbers in parenthesis represent figures at end-2010 Source : Bank of Thailand Source : Bank of Thailand
Note : Numbers in parenthesis represent figures at end-2010 Source : Bank of Thailand
Domestic Foreign
91% 9%
94% 6%
21
Bank of Thailand
Box 1 : The Impacts of the Flood in 2011
22
Although commercial banks were not affected much by the severe flood in late 2011, the Bank of Thailand (BOT) monitored the situation closely via video conference system in order to assist businesses and individuals who were affected by the flood and to minimize disruption to the financial system. The BOT worked in coordination with financial institutions, Specialized Financial Institutions (SFIs), and non-banks to assure that necessary measures could be implemented in a timely manner. In addition, the BOT ensured that financial transactions could be carried out normally and contingency plans were in place for public confidence in smooth functioning of the financial system. In response to the flood, the BOT implemented various supporting measures, including some temporary regulatory relief, and followed the contingency plans, while adhering to the maintenance of the financial discipline and financial institution stability as follows:
1. Measures to facilitate preparation for the flood 1.1 Measures on payment system : The BOT prepared a backup site for the interbank electronic transfer system (BAHTNET) and the check clearing system to facilitate interbank fund transfers by retail customers. The BOT also coordinated with financial institutions to ensure that they were ready to operate at both the main and backup sites. Moreover, the BOT stocked up banknotes for 3 months in the amount of 57 billion baht, and stored banknotes at banknote operations centers that were easily accessible. 1.2 Measures on liquidity in the financial system : The BOT continued to operate normally while keeping a close watch on liquidity in the financial system and stood ready for liquidity injection as appropriate. In addition, the BOT informed commercial banks to raise their deposits with the BOT to cushion for contingent demand for cash withdrawals from their customers. 1.3 Measures on assistance to debtors affected by the flood (1) Encouraging financial institutions and non-banks to take care of debtors by relaxing payment conditions, restructuring debt, and providing sufficient liquidity. Loans that had previously been classified as normal or special mentioned before the flood could be remained at the same classification. Banks and non-banks were also allowed to set the credit card minimum payment at less than 10 percent of the outstanding amount until June 30, 2012. Moreover, Thai commercial banks and SFIs, i.e. the Government Savings Bank and Islamic Bank waived ATM fees for inter-region cash withdrawals during the period of November 4 to November 30, 2011.
Supervision Report 2011
(2) Relaxing the regulations on credit limits for personal loan and credit card loan. Financial institutions and non-banks were allowed to set a higher credit limit than that allowed by the BOT rules by considering the debt serviceability of their customers and following other relevant BOT rules. This applied for loans approved by June 30, 2012. (3) Granting soft loans totaling 300 billion baht, of which the BOT provided no more than 210 billion baht (70 percent) and financial institutions provided at least 90 billion baht (30 percent), to assist SMEs and individuals whose domicile, residence, office, or businesses were in the flooded areas in 2011 as specified in the Notification of the Ministry of Finance. The loans will be administered by Thai banks, foreign bank branches, and SFIs, with a credit limit of 30 million baht and 1 million baht for each SME and individual, respectively. Loan approval is under consideration of the financial institutions. The BOT will charge interests from financial institutions at the rate of 0.01 percent annually and financial institutions may charge their debtors the interests no more than 3 percent annually for a period of no more than 5 years, ending by December 31, 2018. Financial institutions must submit their loan requests to the BOT by December 31, 2013. (4) Relaxing regulations on housing loans by postponing the effective date for the loan-to-value (LTV) ratio for low-rise residences with the value below 10 million baht for one year, to be applied to contracts dated from January 1, 2013 onwards. In addition, loans for the purpose of housing restoration which were approved between July 25, 2011 and December 31, 2012 were classified as mortgage loans and had 35 percent risk weight until the end of the term. (5) Supporting the portfolio guarantee scheme by the Thai Credit Guarantee Corporation according to measures assisting SMEs affected by the flood by allowing banks to deduct the credit guaranteed in the calculation of risk-weighted asset for credit risk and to deduct the guarantee amount before making the provisioning as if the loan was indirectly guaranteed by the Thai government. The BOT compiled all the measures to assist debtors of financial institutions, non-banks, and SFIs and posted them on the BOT website (www.bot.or.th) so that debtors could access and receive clear and sufficient information in order to select the appropriate financial services. The BOT also set up a hotline (1213) to address customer complaints via the Financial Consumer Protection Center and coordinated with financial institutions and non-banks to ensure that the complaints were resolved in an appropriate and timely manner. (As details in Box 5)
23
Bank of Thailand
2. Impacts of the flood on the banking system
24
2.1 Branch and ATM closure : The period which maximum closure occurred was between November 8 - 9, 2011 when 631 branches and 5,596 ATMs were closed, but the number gradually decreased as the situation improved. 2.2 Debtors receiving assistance from financial institutions : At the end of 2011, banks and non-banks reported the information of debtors receiving assistance, for which 16,911 were corporate clients and 1,176,914 were retail accounts, amounting to 604,939 million baht or 7.07 percent of total loans. Most were assisted by Thai banks (548,683 million baht) and non-banks (29,372 million baht). Most of the assistance was in the form of rescheduling, interest reduction, and relaxation of principal repayment. 2.3 Slowdown of bank loans and debt serviceability : The effects of the flood in the fourth quarter started to be evident in the form of slowdown of loans for manufacturing sector, commerce sector, and most types of consumer loan, except for personal loan which accelerated markedly reflecting the need to borrow for household spending. There were also signs of pressure on household liquidity and debt serviceability. The delinquency rate of consumer loan increased from 2.4 percent in the third quarter to 3.3 percent in the fourth quarter, the rate of which was as high as 7.7 percent for automobile loan. However, the effects were expected to be temporary because there would be need for repair and flood prevention, which should help drive the Thai economy, leading to a recovery in loan growth and debt serviceability.
Supervision Report 2011
Box 11 11:: The :: The Impacts Impacts of the Flood Flood in 2011 2011 BoxBox Box The The Impacts Impacts of of of thethe the Flood Flood in in in 2011 2011 TheThe Impact of the Flood on Banking System’s Loan Impact Impact of the Flood Flood on Banking Banking System’s System’s Loan Loan TheThe The Impact Impact of of of thethe the Flood Flood onon on Banking Banking System’s System’s Loan Loan % % % yoy yoy % yoy yoy 40 40 40 40 30 30 30 30 20 20 10 10
Corporate Corporate Loan Loan Corporate Corporate Loan Loan Corporate Loan
20 20 10 10
00 00 -10 -10 -10 -10 -20 -20 -20 -20 20082008 2009 20082008 20092009 2009 Manufacturing Manufacturing Manufacturing Manufacturing Financial Financial Business Business Financial Financial Business Business
2010 2011 20102010 2010 20112011 2011 Commerce Commerce Commerce Commerce Construction Construction Construction Construction
Consumer Consumer Loan Loan Consumer Consumer Loan Loan Consumer Loan
% % % yoy yoy % yoy yoy 35 35 35 35 30 30 30 30 25 25 25 25 20 20 20 20 15 15 15 15 10 10 10 10 55 55 00 00 2008 2009 20082008 2008 20092009 2009 Housing Housing Housing Housing Personal Personal Personal Personal
Delinquency Delinquency Delinquency Delinquency Delinquency % to%Total to Loan to Total Total LoanLoan Loan 55% to55%Total
25 2010 2011 20102010 2010 20112011 2011 Credit Credit Card Credit Credit CardCard Card Car Car Car Car
Consumer Consumer Delinquency Delinquency Consumer Consumer Delinquency Delinquency Consumer Delinquency % to % to to% %Loan Loan to Loan Loan 10 10 10 10 88 88
44 44
66 66
33 33
44 44
22 22
22 22
11 11 2008 20082008 2008
2009 2010 2011 20092009 2009 20102010 2010 20112011 2011 Total Total Delinquency Delinquency TotalTotal Delinquency Delinquency Corporate Corporate Delinquency Delinquency Corporate Corporate Delinquency Delinquency Consumer Consumer Delinquency Delinquency Consumer Consumer Delinquency Delinquency
Source Source Bank :: Bank of Thailand Thailand of Source Source Bank Thailand of Thailand Thailand Source :: Bank of
00 00 2008 20082008 2008
2009 20092009 2009 Housing Housing Housing Housing Personal Personal Personal Personal
2010 2011 20102010 2010 20112011 2011 Credit Credit Card Credit Credit CardCard Card Car Car Car Car
Bank of Thailand
Box 2 : Funding Structure of the Thai Banking System
26
The main source of fund of the Thai banking system continued to be deposit. Nonetheless, its share in total source of fund continued to decrease from 72.0 percent at the end of 2007 to 60.6 percent at the end of 2011, partly due to the fact that commercial banks turned to raise funds by issuing bills of exchange (B/E). The B/E outstanding balance of the Thai banking system at the end of 2011 amounted to 1,565.2 billion baht, resulting in the ratio of B/E to deposit plus B/E to increase to 16.6 percent in 2011 from 7.1 percent in 2007, and the ratio of B/E to total source of fund to 12.1 percent from 5.5 percent over the same periods. Deposit mobilized by commercial banks faced more competition from alternative saving instruments, especially B/E and deposit offered by Specialized Financial Institutions (SFIs) due to a change in risk-return of bank deposit compared to other saving instruments as deposit guarantee coverage will be reduced to one million baht per depositor per bank from August 11, 2012 onwards. Hence, depositors diversified their investment to other financial instruments with more attractive return such as B/E, while banks resorted to lower cost-bearing B/E that was not subject to the deposit insurance fee collected by the Deposit Protection Agency (DPA) at a rate of 0.4 percent per year and was excluded from the base for maintaining liquid assets at 6 percent. Moreover, the fundraising process for B/E was simpler than other debt securities. Furthermore, over the past few years, SFIs had been competing with banks in raising deposits to support expansion of policy lending schemes. SFIs had a cost advantage as they did not have to contribute to DPA and their deposit was guaranteed in full by the government. Thus, the share of SFI deposits increased from 19.0 percent at the end of 2007 to 24.6 percent at the end of 2011. The term structure of deposit of the Thai banking system at the end of 2011 was similar to that of 2010, where the majority of deposit was short-term and the ratio of savings deposit was 51 percent. The term structure of B/E, on the other hand, changed markedly from the previous year with lengthening maturity. This was because banks raised longer term fund in order to maintain the interest expense in the period of rising interest rate, and because banks wanted to maintain their customers base which would be affected from the reduction of deposit guarantee amount to one million baht from August 11, 2012 onwards as evidenced in the decrease of B/E with maturity less than three months from 56.3 percent in 2010 to 36.6 percent, while B/E with six to twelve months maturity increased from 7.2 percent to 23.1 percent.
Supervision Report 2011
The structure of depositors of the Thai banking system was similar to the previous year. Individuals remained the highest share at approximately 60 percent. The structure of B/E customers changed from 2010, with more retail customers, resulting in individual customers having the share of one-third, close to the level of corporate customers. As the funding structure has changed to fundraising via B/E, with retail customers holding more B/E as explained above, the BOT and the Securities and Exchange Commission (SEC) have improved the related regulations in order to protect depositors and retail investors as follows: 1. Revision of the SEC’s notifications related to supervision of bills and debt securities to be implemented from July 2, 2012 onwards. The essence included requiring that bills offered to the general public have face value not less than 10 million baht, maturity not more than 270 days, no embedded derivatives feature, and explicitly stated that B/E receives no protection from DPA. 2. Revision of the BOT’s notifications related to issuance of bills and debt securities by including B/E as the base for maintaining liquid assets as required by law and specifying characteristics of banks’ bills and debt securities to be in accordance with the SEC’s recently revised notifications. There were several factors that are likely to affect the funding structure of the Thai banking system, namely, the improvement of B/E supervision as mentioned above, the reduction of the deposit guarantee to one million baht per depositor per bank, and the additional levies from banks at a rate of 0.47 percent of money taken from the public (0.01 percent of deposit allocated to DPA and 0.46 percent of baht denominated fund taken from the public by every branch and office in Thailand, including B/E issuance, debt securities issuance, borrowings, and repurchase agreement, for all transactions after January 27, 2012 onwards, for the repayment of debts of the Financial Institutions Development Fund3), compared with the amount of levies previously required at 0.4 percent of deposit. Banks have adjusted their funding strategies accordingly and the BOT will monitor liquidity management of banks, going forward.
3
As a result of the flood in 2011 which caused severe economic and social damages, the government had an urgent need for spending in order to restore the country. Hence, the Emergency Decree to Improve the Management of the Ministry of Finance’s Loan to Assist the Financial Institution Development Fund B.E. 2555 was passed and announced in the Royal Gazette on January 26, 2012. In essence, it was to empower the Bank of Thailand to collect levies from financial institutions in the amount, inclusive of the levies collected for DPA, not more than 1 percent of the outstanding balance of money that financial institutions take from the public, in addition to the average protected deposit balance. The levies shall be used to repay the remaining principal and interest of liabilities incurred by the Ministry of Finance, according to the Emergency Decrees Authorizing the Ministry of Finance to Raise and Administer Loans for the Financial Institutions Development Fund B.E. 2541 and B.E. 2545.
27
Bank of Thailand
BankofofThailand Thailand 1414|| Bank 1414|| Bank BankofofThailand Thailand 14 | 14Bank | Bank of Thailand of Thailand Box22 : : Funding FundingStructure Structureofofthe theThai ThaiBanking BankingSystem System Box
Structure Funding Commercial banks and SFIs’ Deposit Structure Commercial banks and SFIs’ Deposit Structure ofof2ofFunding Commercial banks and SFIs’ Deposit Box Box 2Funding : : Funding FundingStructure Structureofofthe theThai Thai Banking Banking System System %% 100 100 %% 80 80 100 100 % % 100 100 60 6080 80
28
Box Box 2 : 2Funding : Funding Structure Structure of the the Thai Banking Banking System System % Thai %of
Structure StructureofofFunding Funding Structure Structure of Funding of Funding
80 80 4040 60 60 60 60 20 2040 40 40 40 200200 2007 2008 2008 2009 2009 2010 2010 2011 2011 20 202007 Deposit B/E Deposit B/E 00 2007 2008 2009 Interbank 2010 2010 Borrowing 2011 2011 Interbank2008 Deposit 2009 Interbank Borrowing Interbank Deposit 0 02007 Deposit Deposit B/E B/E 2007 2007 2008 2008 2009 2009 2010 2010 2011 Borrowings OtherLiabilities Liabilities 2011 Borrowings Other Interbank Interbank Deposit Deposit Interbank Interbank Borrowing Deposit Deposit Equity B/E B/EBorrowing Shareholders' Equity Shareholders' Borrowings Borrowings Other OtherInterbank Liabilities Liabilities Interbank Interbank DepositDeposit Interbank Borrowing Borrowing Structure Deposit Structure ofofDeposit Shareholders' Shareholders' Equity Equity Borrowings Borrowings Other Other Liabilities Liabilities %% Shareholders' Shareholders' Equityof Equity 100 Structure Deposit Structure Structure ofofDeposit Deposit 100 %% 80 80 100 100 % % 100 100 6060 80 80 80 80 40 4060 60
Structure Structure of Deposit of Deposit
%yoy %yoy Commercialbanks banksand andSFIs’ SFIs’Deposit Deposit 100 Commercial 100 4040 Commercial banksbanks and SFIs’ and SFIs’ Deposit Deposit %% Commercial %yoy %yoy 80 80 100 100 4040 % % %yoy3030 %yoy 100 100 40 40 60 6080 80 3030 2020 80 80 30 30 40 4060 60 2020 60 60 1010 20 2040 40 20 20 40 40 1010 00 200200 2008 2009 2010 2011 2008 2009 2010 2011 10 10 20 20 Bank Deposit %yoyBank BankDeposit+B/E Deposit+B/E(RHS) (RHS) Bank Deposit %yoy 00 00 B/E %yoy SFIDeposit Deposit (RHS) 2008 2008 2009 2009 %yoy 2010 2010 2011 2011 B/E SFI (RHS) 0 0 SFI Deposit 0 0 SFI Deposit Bank Bank Deposit Deposit %yoy Bank Deposit+B/E Deposit+B/E (RHS) 2008 2008 2009 2009%yoy 2010Bank 2010 2011 2011(RHS) B/E B/E Deposit %yoy %yoy%yoy SFISFIDeposit Deposit (RHS) (RHS)(RHS) (RHS) Bank Bank Deposit %yoy Bank Deposit+B/E Bank Deposit+B/E SFI SFIDeposit Deposit B/E B/E %yoy %yoy SFI Deposit SFI Deposit (RHS) (RHS) Structureofof B/E B/E* * Structure SFI Deposit SFI Deposit %% Structure ofofofB/E * ** 100 Structure Structure B/E B/E 100 Structure Structure of B/E of B/E * * %% 80 80 100 100 % % 100 100 6060 80 80 80 80 40 4060 60
60 60 60 60 2020 2020 40 40 40 40 40 40 40 40 200200 200200 2007 2008 2008 2009 2009 2010 2010 2011 2011 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 20 20 20 202007 Call Month CurrentAccount Account SavingsAccount Account 0 0- -1 1Month 00 0 0 AtAtCall Current Savings 2007 2008 2009 2009 2010 2010 2011 2011 Morethan than 1- -3 3Months Months Morethan than Months 2008 2008 2009 2009 More 2010 2010than 0- -1 1Month Month More than2011 1- -3 3Months Months More 12008 More 3 3- -6 6Months 02007 12011 0 02007 0 02007 At At Call Call 0 0 1 1 Month Month Current Current Account Account Savings Savings Account Account 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 More than 6 12 More than 1 5 Years Months 2007 2008 2009 2009More 2010 2010 More2007 than 6Months Months Morethan than2011 Months More than 6 - 12 Months More than 1 - 5 Years More than 3 3- -6 2008 6 6- -12122011 Months More More than than 1 1 3 3 Months Months More More than than 3 3 6 6 Months Months At Call At Call 0 1 Month 0 1 Month 0More 0More - -1 1Month Month More More than than 1 1 3 3 Months Months Current Current Account Account Savings Savings Account Account Morethan than5 5Years Years Age than1 1- -5 5Years Years Morethan than5 5Years Years More NoNoAge than More More More than than 6 6 12 12 More More than than 1 1 5 5 Years Months Months More1than 3 Months 1 - 3 Months More3than 6 Months 3Years - 6 Months More than 3- -6 6Months Months Morethan than16than 6- -31212 Months 0More - 1 Month 0 than - 1 3Month More More Months 1Months - 3 Months Share of Depositor Share of B/E* holder Share of Depositor Share of B/E* holder Morethan than65than 5-Years Years NoNoAge Age More More 12 6Months - 12 Months More than More1than - 5 Years 1 - 5 Years Morethan than31than 1- -65 5Months Years Morethan than65than 5-Years Years More More 3Years - 6 Months More More 12 6Months - 12 Months %% %% More than MoreShare 5Share than Years5ofYears No Age No Age More than More 1than - 5of Years 1 -Depositor 5Depositor Years More than More5than Years5 Years Share Share of ofB/E* B/E*holder holder 100 100 100 100 Share Share ofofDepositor of Depositor ShareofShare ofB/E* B/E* ofholders B/E* holder holder Share Depositors Share %% %80% 80 80 80 100 100 100 100 % % % % 100 100 100 100 60 60 6080 6080 80 80 80 80 4040 60 60 60 60 20 2040 40
80 80 4040 60 60 60 60 20 2040 40
40 40 40 40 200200 200200 2007 2008 2008 2009 2009 2010 2010 2011 2011 2007 2008 2008 2009 2009 2010 2010 2011 2011 2007 2007 20 20 Businesses 20 20 Businesses Mutual Funds Mutual Funds Businesses Mutual Funds Businesses Mutual Funds 00 00 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011Institutions 2007 2007 2008 2008 2009 2009 Thai 2010 2010Financial 2011 2011 Individuals ThaiFinancial Financial Institutions Individuals Thai Financial Institutions Thai Institutions 0 0 Individuals 0 0 Individuals Businesses Businesses Mutual Mutual Funds Funds Businesses Businesses Mutual Mutual Funds Funds 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 Others Others Others Others Businesses Businesses Mutual Mutual FundsFunds Businesses Businesses Mutual Mutual FundsFunds Individuals Individuals Thai ThaiFinancial Financial Institutions Institutions Individuals Individuals Thai ThaiFinancial Financial Institutions Institutions Source : BankofofThailand Thailand Thai Financial Individuals Individuals Thai Financial Institutions Institutions Individuals Individuals Thai Financial Thai Financial Institutions Institutions Others Others Source : Bank Others Others OthersOthers OthersOthers Source Source: Bank : BankofofThailand Thailand Source Bank ofThailand Thailand * Represented by other bills, of which approximately 90% is B/E Source Source : :Bank : of Bank of Thailand
Supervision Report 2011
Box 3 : Adoption of International Accounting Standard and the Change in Financial Reporting in line with International Best Practices The Federation of Accounting Profession Board published a new Thai accounting standard, effective on January 1, 2011, in line with the new standards issued by International Accounting Standard (IAS) and the International Financial Reporting Standard (IFRS). The new standard brought about changes to some financial ratios of the banking system. The key change was the International Accounting Standard Number 19 (IAS 19) which stipulated that staff-related expenses and benefits that corporations, including banks, expect to pay in the future should duly be recognized as expense. As a result, staff-related expenses would increase, thus reducing net profits and retained earnings. The first time adoption of this accounting standard would lead to a relatively higher cost as such expense was never accounted for before or was accounted for but not in accordance with the standard. Therefore, the decline in retained earnings would cause capital fund as well as the BIS ratio and Tier 1 ratio to decline slightly. The Bank of Thailand (BOT) has also amended the financial reporting format so as to facilitate new types of transactions which the BOT had permitted banks to undertake prior to issuance of the new accounting standards. Moreover, some adjustments were made in categorization and reporting format to be in line with international best practices adopted by major global auditing firms, which would facilitate greater ease of cross-country comparison. These adjustments led to some changes in key ratios below. For convenience of the users, the BOT published the aforementioned adoption of these new accounting standards and the revised financial reporting in the press release dated May 6, 2011 and the data recorded under both former and revised standards are shown in parallel in the regular press release.
Summary of Changes on Financial Data and Ratio Former Current Changes of financial ratios from International Accounting Standard Capital Adequacy Ratio (CAR or BIS ratio)
Total Capital Risk-Weighted Asset
Total Capital (Declined in retained earnings from the adoption of Employee Benefits) Risk-Weighted Asset
Tier-1 ratio
Tier-1 Capital Risk-Weighted Asset
Tier-1 Capital (Declined in retained earnings from the adoption of Employee Benefits) Risk-Weighted Asset
Changes of financial ratios from change in Financial Reporting Net Interest Margin (NIM) Cost to Income Ratio (or Operating Efficiency)
Interest Income Interest Expense (Including Dividend) (Excluding DPA) Average Asset
Interest Income (Excluding Dividend)
Interest Expense (Including DPA)
Average Asset
Operating Expense (Including DPA and Fee expense)
Operating Expense (Excluding DPA and Fee expense)
Net Interest Income + Fee Income + Other Incomes
Net Interest Income + Net Fee Income + Other Incomes
Note : The changes are presenting in Red DPA is the deposit protection premium paid to Deposit Protection Agency (DPA)
29
Bank of Thailand
Chapter 3 : Major Developments in Supervisory Framework 3.1 Implementation of Financial Institution Policies in 2011 30
Major Financial Institution Policies in 2011 In 2011, the Thai economy faced several challenges from both external and internal factors. On financial institution stability, the Bank of Thailand (BOT), therefore, continued to pursue its objective of safeguarding the stability of the financial system, as well as preparing commercial banks for the new international supervisory standards which were revised after the recent global financial crisis. For short-term policy implementation, the BOT issued flood-relief measures. In addition to maintaining financial system stability, the BOT’s policy aimed at encouraging financial institutions to serve their stakeholders in a fair manner. In view of increasing efficiency of the financial institution system, the BOT continued to implement the policy in accordance with the Financial Sector Master Plan Phase II (FSMP II) and in preparation of Thai financial institutions for the ASEAN Economic Community (AEC). Flood-relief Measures To ease the burden of businesses and people affected by the flood in the fourth quarter of 2011, the BOT temporarily relaxed its regulations on both corporate and consumer loans. The effective date of the regulation on loan-to-value ratio (LTV) for low-rise housing priced lower than 10 million baht was postponed by one year, while regulation on home repair loan was relaxed. Furthermore, the BOT issued a circular seeking cooperation from financial institutions to provide assistance in terms of debt repayment and debt restructuring for credit card loan, personal loan, and other debtors. Notwithstanding this, the BOT continued to place emphasis on banks’ good governance and prudent conduct of business that also takes into account the interests of their customers. Measures to Strengthen Financial Institution Stability The BOT issued supervisory guidelines and policy statements on credit risk, market risk, corporate governance, and consumer protection. On credit risk, the BOT revised regulations to strengthen credit underwriting of loans that can potentially be irrecoverable. The scope of regulation on loan guaranteed by the Thai Credit Guarantee Corporation (TCG) was extended to foreign bank branches. On operational risk, the BOT issued a guideline on establishment and supervision of branches and representative offices of Thai banks overseas and representative offices of foreign banks in Thailand, to promote transparency and to be in line with the current circumstances. On market risk, the BOT revised the regulation on borrowings with inflation-embedded derivatives to be in alignment with the Ministry of Finance’s inflation-linked bonds.
Supervision Report 2011
On consumer protection, the BOT issued a circular on marketing campaigns to mobilize fund by financial institutions to ensure that consumers receive clear information on the rate of return that can be compared with interest rates offered by other banks. On supervision of financial businesses, the BOT issued a notification to permit banks to apply for a license from the Securities and Exchange Commission (SEC) to undertake futures contracts, to act as a trustee, and to provide insourcing services such as distribution of electronic cash card for public utility. Preparation for the Implementation of International Supervisory Standards International standards were revised to be in line with the current financial context and to strengthen capital and risk management of financial institutions. In 2011, the BOT has prepared financial institutions for the adoption of two key international standards. First, on capital and liquidity supervisory requirement according to the Basel III framework, the BOT held a public hearing with the Thai Bankers’ Association and the Association of International Banks and conducted an impact study of the proposed rules on the Thai financial system. Second, on the International Accounting Standards and International Financial Reporting Standards relevant to the Thai financial institution system, the BOT conducted a survey to assess the readiness for implementation including development of the database, and analyzed potential impact of the standards for appropriate policy formulation in the future. Implementation of the Financial Sector Master Plan to Increase Efficiency in the Financial System In 2011, key implementation of the FSMP II covered measures on promoting competition and financial access, and strengthening financial infrastructure. On competition and financial access, the BOT announced a policy to facilitate banks’ microfinance business, enabling existing banks to serve grassroots customers with more flexibility by allowing banks to determine their business models as deemed appropriate. In addition, the BOT proposed to the Ministry of Finance (MOF) to allow Land and House Retail Bank (Public Company Limited) for an upgrade to a commercial bank and to permit existing foreign bank branches to apply for upgrading to a subsidiary with a maximum of 20 branches and 20 off-premise ATMs. On financial infrastructure, an information system was developed to facilitate risk management of the banking system. Financial Institution Policies on International Forums The BOT participated in the formulation of the financial sector liberalization and banking sector negotiation strategies with the Working Committee on Financial Sector Liberalization in line with the government policy framework and the FSMP II. In 2011, the BOT participated in the negotiations and liberalization of financial services with the ASEAN cluster and was currently in the sixth round of negotiations of financial services liberalization (2011-2014). In addition, the BOT participated in the meetings of banking sector liberalization strategic planning to prepare for ASEAN Financial Integration, and
31
Bank of Thailand
in seven other Free Trade Agreements negotiations between Thailand and its dialogue partners. On the role in international forums, the BOT attended meetings of various forums which played key roles in formulating international supervisory standards, i.e. the Financial Stability Board Regional Consultative Group (FSB RCG), the sub-committees of the Basel Committee on Banking Supervision (BCBS), and the Executives’ Meeting of East Asia Pacific Central Banks (EMEAP), where the BOT voiced its stance on issues regarding international supervisory framework.
32
3.2 BOT’s Notifications and Financial Institution Supervision Policies
3.2.1 Credit Risk
(1) Clarification on flood-relief measures The BOT issued a circular to seek cooperation from financial institutions in assisting debtors affected by the flood as follows: • Financial institutions may retain the same classification prior to the flood for debtors classified as normal or special mentioned and may regard such support as part of debt restructuring; • Financial institutions and non-bank credit card companies may reduce the minimum monthly payment to less than 10 percent of outstanding balance as deemed appropriate up to June 30, 2012; and • Regulation on personal loan under supervision and credit card loan was relaxed by allowing higher credit line than the level specified by the BOT with such rules applicable to loans approved by June 30, 2012 for debtors affected by the flood. As the BOT continued to place emphasis on soundness of the financial system, financial institutions were required to have policies on flood-relief assistance and clear criteria to prove or associate the impact of the flood to affected debtors. For the purpose of close monitoring of the situation, financial institutions shall report the BOT the outstanding balance of all assistance provided. Moreover, financial institutions should provide flood-relief assistance on the basis of good governance and in a safe and sound manner with due regard to the interests of debtors.
Supervision Report 2011
(2) Relaxation of regulation on calculation of credit risk for housing loans affected by the flood The BOT issued a circular to relax the regulation on calculation of credit risk under the Standardized Approach for housing loan in order to provide financial relief for banks, real estate developers and consumers affected by the flood, by postponing the effective date of the regulation on LTV for low-rise housing priced below 10 million baht from January 1, 2012 to January 1, 2013. In addition, home repair loan approved between July 25, 2011 and December 31, 2012 can be classified as housing loan and has the risk weight of 35 percent. (3) Clarification on calculation of provision for the loan guaranteed by the right to pension benefits The BOT issued a circular to allow financial institutions which joined the Government Pension Guarantee Scheme according to the Government Pension Act (No. 26) B.E. 2553 and the Government Pension Fund Act (No. 7) B.E. 2553 to use the right to pension benefits as collateral in the calculation of loan loss provisioning. This type of collateral should be considered on par to collateral with payment certainty from government entities, for which 100 percent of the collateral value can be deducted before provisioning in accordance with the BOT’s notification on classification and provision of the financial institutions. (4) Revision of regulation on credit with the potential to be irrecoverable The BOT revised the regulation on credit that can be potentially irrecoverable, for example, credit to a person whose behavior suggests lack of or difficulty in servicing debt, credit granted without relevant document, credit with evidence that the debtor or the guarantor does not exist, credit without credit analysis or assessment of debt serviceability, and credit with overestimated collateral value. Financial institutions shall pay attention to underwriting these types of credit and take into account associated risk. (5) Revision of regulation on credit guaranteed by the Thai Credit Guarantee Corporation under the Portfolio Guarantee Scheme The BOT revised the notification on calculation of credit risk and provision for credit guaranteed by the TCG under the Portfolio Guarantee Scheme by expanding the scope of application to all banks, including foreign bank branches and covering the Portfolio Guarantee Scheme Phase 2 and Phase 3, Portfolio Guarantee Scheme to assist SMEs affected by the flood in 2011, and Portfolio Guarantee Scheme in which the government compensate for loss from the operation on behalf of the TCG.
33
Bank of Thailand
34
3.2.2 Market Risk
The BOT revised the regulation to clarify the definition of inflation-embedded derivatives products to exclude inflation-linked bond with simple structure in support of inflation-linked bonds issued by MOF. Moreover, the BOT revised the regulation to narrow the scope of embedded derivatives transactions by prohibiting banks from issuing deposits with embedded derivatives to avoid confusion among customers with deposit insured by the Deposit Protection Agency (DPA). However, banks can still issue other borrowings with embedded derivatives.
3.2.3 Operational Risk
The BOT issued: 1) the notification on the establishment and supervision of overseas branches of Thai banks; 2) the guideline on the establishment and supervision of representative offices of Thai banks overseas; and 3) the guideline on the establishment and supervision of representative offices of foreign banks in Thailand, with a view to enhancing transparency on establishment and supervision of these financial institutions, in line with the current financial context.
3.2.4 Scope of Business
(1) Futures contracts The BOT revised the notification to expand the scope of futures contracts by allowing banks to apply for a license from the SEC to undertake businesses related to futures contracts, namely: 1) act as an agent in the Thailand Futures Exchange; 2) act as an advisor to general investors; and 3) act as a proprietary trading dealer with other juristic persons, in addition to institutional investors, for hedging purposes. (2) Trust business The BOT issued the notification to allow banks that meet the qualifications as prescribed by the BOT to act as a trustee, provided that they receive a license from the SEC. (3) Insourcing business For clarity, the BOT revised the notification to permit banks to provide supporting services to other parties (insourcing) and to provide other services, by replacing the original notification with two notifications as follows: • The notification to permit banks to provide customers with services other than core banking businesses, for which the definition of “Cash Managementâ€? was prescribed, the types of services were re-categorized into five groups and other types of businesses were added such as production of barcode cards and distribution of electronic cash cards for public utility.
Supervision Report 2011
• The notification to permit banks to provide services to financial business or government authorities (insourcing), for which the scope of services was extended to be in line with the BOT regulation on outsourcing services of financial institutions. In addition, banks were permitted to act as an agent for other financial institutions under the scope as prescribed in the regulation on appointment of banking agent, and the service users were extended to include affiliated companies in case of: (1) commercial banks registered in Thailand; (2) foreign bank branches; and (3) asset management companies established under the Asset Management Company Act.
3.2.5 Corporate Governance of Financial Institutions
The BOT revised the notification on prohibited qualifications of directors, managers, persons with managing power or advisors of financial institutions. The notification prohibited former BOT employees who could potentially influence current BOT employees from holding these positions in financial institutions. Formerly, the prohibition applied to ex-BOT executives who left the BOT positions for less than one year for those held the position of directors or higher of any department and those in the position of division executives with access to information on financial institutions. Currently, the prohibition applies to those in the position of senior directors or higher in the financial institution policy and supervision and those in the position of assistant governors or higher for all other work areas. This new rule is consistent with the international standards and the practice of other regulators which generally prohibit former employees at senior management positions only.
3.2.6 Consumer Protection
The BOT issued a circular to clarify practices on marketing campaigns to mobilize funds in the form of deposits, Bill of Exchange (B/E) or any other forms, with an aim to ensure that customers received clear and transparent information about the rate of return as follows: (1) Financial Institutions must disclose information on the Annual Percentage Rate (APR) which can be compared with the rates offered by other financial institutions so that customers are able to choose a service without overly complex information. In addition, financial institutions were discouraged from launching any marketing campaign which offered different rates of return among the customers and campaign that did not disclose clear rate of return, thus making it difficult for customers to compare the return with that offered by other banks, even though such activities were not classified as gambling; (2) In the case that a financial institution offered step-up interest rates, the Effective Interest Rate (EIR) for the whole saving program must be disclosed to customers, except in the case of other borrowing products with embedded derivatives as allowed by the BOT; and
35
Bank of Thailand
(3) Banks could not use the term “deposit” for monies taken from the public that were not guaranteed by the DPA, for example, B/E. Furthermore, the BOT discouraged banks from offering deposit products with embedded derivatives, though banks were allowed to keep those offered to their customers before the date of the notification until maturity.
36
3.2.7 Consolidated Supervision
The BOT issued a circular to revise the reports on consolidated supervision to be in line with other reports of financial institutions, namely, the reports on the consolidated financial statement, capital adequacy under the Basel I and Basel II, and assessment of interest rate risks in the banking book.
3.2.8 Preparation for the New International Supervisory Framework In December 2010, the BCBS issued the new international supervisory framework (Basel III) which was later revised in June 2011. Basel III aimed to enhance the resilience of financial institutions in time of financial or economic crisis and to reduce contagion risk from the financial system to the real economy, thereby enhancing the overall financial and economic stability. The major components of Basel III include capital requirement, liquidity risk management, and systemic risk supervision. Thus far, the BOT has taken important steps to prepare for the implementation of Basel III as follows: • Studied and analyzed the new rules as well as sent the comments to the BCBS, following public hearings with banks; • Communicated with relevant stakeholders about the Basel III framework through various channels such as public hearings, articles, and circulars to provide clarification regarding securities eligible for capital under Basel III; and • Conducted a quantitative impact study (QIS) to assess the impacts on banks’ capital position and liquidity management as part of the process to set appropriate guidelines on Basel III for Thailand.
3.2.9 Over-the-Counter Derivatives Market Reform
In response to the recent global financial crisis, the G-20 countries committed to reform the Over-the-Counter (OTC) derivatives market in order to contain the
Supervision Report 2011
systemic risk stemming from counterparty credit risk and lack of transparency in the market, by requiring all standardized OTC derivatives contracts to be cleared through a central counterparty (CCP) and traded on electronic trading platforms by the end of 2012. OTC derivatives transactions must also be reported to a trade repository (TR). As the reform could have implications on the domestic money market in terms of business operations, competitiveness and financial institution system stability in Thailand, the BOT set up a working group comprising representatives from the Thai Bankers’ Association, the Association of International Banks, the SEC, the Insurance Commission, and the Stock Exchange of Thailand to examine the reform in detail and assess its impacts on Thailand. Furthermore, the BOT exchanged information and views with experts in various occasions, as well as raised concerns about the reform’s impact on small economies in order to promote understanding among the international community, especially the G-20, to ensure that the reform was appropriate to and had minimal adverse impacts on small economies.
3.2.10 Accounting Policies for Financial Institutions
The BOT continued to ensure that financial institutions be prepared for the implementation of the relevant International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) which may significantly affect the Thai financial institution system. In order to achieve the objective, the BOT had meetings with Thai banks’ representatives to assess readiness for implementation, including preparation for the information system and database development to facilitate the calculation of the impaired loss on loans and receivables as well as the income recognition by using effective interest rate as part of the process to set appropriate supervisory guidelines later on. Additionally, the BOT reviewed and monitored the progress of amendments on accounting standards by the International Accounting Standard Board (IASB) and analyzed potential impacts of IFRS adoption on the Thai financial institution system such as the International Financial Reporting Standard 9 on Financial Instruments (IFRS 9) and the International Financial Reporting Standard 13 on Fair Value Measurement. The BOT also voiced its opinions on issues that may affect financial position and performance of financial institutions, and preparation plans on accounting policies and information system to the Federation of Accounting Professions in order to pass on to the IASB, including such issues as amortized cost and impairment of financial assets, hedge accounting, derecognition of financial assets and financial liabilities, and the postponement of effective date of the IFRS 9.
37
Bank of Thailand
3.3 Financial Sector Master Plan Phase II
38
For further progress in implementation of FSMP II, the steering committee on FSMP II set up three sub-committees to oversee relevant action plans on taxation, financial laws, and human resource development. The implementation of FSMP II under the purview of the BOT as well as the sub-committees in accordance with the action plans approved by the Cabinet was as follows: (1) Reduction of Financial System Operating Cost • The sub-committee on taxation started to consider tax measures to reduce the cost associated with non-performing loans (NPL) and non-performing assets (NPA). • The BOT introduced the Banknote Exchange System to help banks reduce banknote transportation cost. (2) Promotion of Competition and Financial Access • The BOT adopted a policy to facilitate banks in providing microfinance. The main objective was to encourage existing banks to lend to grassroots customers with more flexibility by allowing banks to choose their business models as deemed appropriate. • The MOF permitted the upgrade of Land and House Retail Bank (Public Company Limited) to be a commercial bank as proposed by the BOT. • The Finance Minister issued the Notification of the MOF, effective on December 15, 2011, permitting existing foreign bank branches and existing foreign bank subsidiaries to apply by 2012 for an upgrade to be a subsidiary which could have up to 20 branches and 20 off-premise ATMs. Potential candidate must be a foreign bank branch operating in Thailand with strong capital position, good operating performance, and expertise in international finance. The parent bank must be incorporated in a country with current or future financial, trade, and investment connection with Thailand and have regulators that are reliable and in a good relationship with the BOT. Moreover, the candidate must meet other criteria as specified by the BOT; for example, having capital adequacy ratio of no less than 12 percent, the ratio of NPL to total loan under 3.5 percent, satisfactory risk rating by the BOT, and good risk management system. In addition, the subsidiary to be established must have a minimum of 10 billion baht in paid-up capital. • The BOT circulated the ministerial regulations on the reduction of fees relating to registration of equipment right and legal transaction, and the waiver of fees for automobile transfer of merging financial institutions.
Supervision Report 2011
(3) Strengthening Financial Infrastructure • The BOT developed the operational loss data system to support banks’ risk management system. Banks already started to submit information into the system and extracted the information for operational risk management. • The sub-committee on human resource development continued to push forward the plan to upgrade the quality of human resource in the Thai financial institution system in accordance with the FSMP II.
3.4 Financial Institution Policies on International Forums The BOT participated in the formulation of the financial sector liberalization and banking sector negotiation strategies with the Working Committee on Financial Sector Liberalization headed by the Director-General of the Fiscal Policy Office, MOF. The liberalization and negotiation strategies were consistent with the policy framework of the International Economic Policy Committee headed by the Prime Minister and the liberalization policy under the FSMP II. The BOT participated in the negotiations on liberalization of financial services under various forums at multilateral level under the World Trade Organization (WTO), regional level under ASEAN and ASEAN with dialogue partners, and bilateral level between Thailand and its dialogue partners. In all forums, the BOT negotiated cautiously in accordance with the negotiation policy framework of the Cabinet. In 2011, the BOT participated in various negotiations on liberalization of financial services as follows: (1) Participated in the Working Committee on Financial Services Liberalization under the ASEAN Framework Agreement on Services (WCFSL/AFAS). The liberalization negotiations were carried out in successive rounds and currently at the sixth round (2011-2014); (2) Participated in the Senior Level Committee on Financial Integration and the Task Force on ASEAN Banking Integration Framework to prepare for the banking sector liberalization towards the ASEAN Financial Integration under the objective of ASEAN Economic Community (AEC); and (3) Negotiated with various dialogue partners on liberalization of financial services and investment. Currently, the FTAs under negotiation are ASEAN-India, ASEAN-Japan, BIMSTEC, Thailand-Australia, Thailand-New Zealand, Thailand-India, and Thailand-Chile.
39
Bank of Thailand
40
Additionally, in 2011, the BOT played an active role in the reform of international standards on banking supervision as follows: (1) Participated in the Financial Stability Board Regional Consultative Group for Asia (FSB-RCG). The FSB is responsible for coordinating, revising and promoting the development of supervision of the financial sectors, including banking, securities, and insurance businesses. In 2011, the FSB focused on supervision and resolution of systemically important financial institutions (SIFIs) and supervision of shadow banks; (2) Participated in the meetings of three sub-committees under the Basel Committee on Banking Supervision (BCBS), namely Standards Implementation Group (SIG), Basel Consultative Group (BCG) and Core Principles Group (CPG). Recently, the issues of focus of the BCBS were the supervisory guidelines on capital and liquidity of banks (Basel III); and (3) Participated in the EMEAP Working Group on Banking Supervision (WGBS) 4, which is a forum to promote cooperation and international relation. Since June 2010, the BOT had been chosen as a co-chair of the WGBS and had coordinated with EMEAP member countries to push forward important policy stances, namely, the Basel III framework and the OTC derivatives infrastructure reform. As a member of those international and regional committees and sub-committees, the BOT was able to gain insight and information in depth and play more active role in the international banking regulatory reforms.
4
EMEAP Working Group on Banking Supervision (WGBS) comprises representatives from Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, and Thailand.
Supervision Report 2011
Box 4 : The New Regulatory Framework for Capital and Liquidity Risk Management (Basel III) in Thailand Since 2008, the Bank of Thailand (BOT) has introduced the regulatory framework for capital requirement under the Basel II framework by referring to the International Convergence of Capital Measurement and Capital Standards - A Revised Framework (Comprehensive Version : June 2006) of the Basel Committee on Banking Supervision (BCBS) Thereafter, the BCBS issued two new regulatory frameworks (Basel III) as follows: (1) A Global Regulatory Framework for More Resilient Banks and Banking Systems (2) International Framework for Liquidity Risk Measurement, Standards and Monitoring The two frameworks were published in December 2010 and revised in June 2011, and aimed to enhance the resilience of financial institutions in time of financial or economic crisis and to contain contagion risk from the financial system to the real sector. The BOT is well aware of the importance of supervision to ensure that the financial institution system is robust with solid capital. In this regard, the BOT adopted the Basel III frameworks in a manner appropriate to the Thai context. The effective date is January 1, 2013 which is in line with the international standard.
1. Essence of the Basel III Framework The main components are capital requirement, liquidity risk management, and systemic risk supervision as follows: 1.1 Capital Requirement which aimed to ensure that financial institutions have adequate and good quality capital to cushion for potential risks both in normal and crisis periods. To achieve this goal, four different areas are considered: (1) Enhanced quality and quantity of capital base by requiring common equity (common shares and retained earnings) as core capital and increasing the minimum capital adequacy ratios from 2 levels to 3 levels, i.e. common equity (CE) ratio, Tier 1 ratio and total capital ratio; (2) Adjustment of risk coverage for risk-weighted assets by extending the risk-weighted asset calculation to include complex and risky transactions; (3) Introduction of leverage ratio by introducing a new ratio to limit excessive transactions for both on- and off-balance sheet, when compared to Tier 1 capital; and (4) Maintenance of additional capital buffers by requiring extra capitals to cushion for a crisis period and for the period of excessive credit growth.
41
Bank of Thailand
42
1.2 Liquidity risk management which aimed to ensure that financial institutions have enough liquidity in face of volatility during a crisis period. The BCBS developed two indicators to measure liquidity risk: (1) Liquidity Coverage Ratio (LCR), a requirement for financial institutions to maintain enough liquid assets for cash outflow over 30 days stress period; and (2) Net Stable Funding Ratio (NSFR), a requirement to enhance stability of a funding structure that focuses on medium- and long-term funding. These two indicators are supplemented by liquidity risk monitoring tools as well. 1.3 Supervision of Global Systemically Important Banks (G-SIBs) : The BCBS issued the guideline on Global Systemically Important Banks : Assessment Methodology and the Additional Loss Absorbency Requirements in November 2011, aiming to strengthen the supervision of banks that are important to the global financial system. G-SIBs are required to maintain a capital surcharge in the form of Common Equity Tier 1 ranging from 1-2.5 percent, depending on their systemic importance.
Basel III Framework 1.1 Enhancement of quality and quantity of capital base
(1) Capital Requirement
1.2 Adjustment of risk coverage for risk-weighted assets 1.3 Imposition of Leverage Ratio 1.4 Requirement of additional capital buffers 2.1 Standard indicators to measure liquidity risk
(2) Liquidity Risk Management
Liquidity Coverage Ratio Net Stable Funding Ratio 2.2 Liquidity risk monitoring tools
(3) Supervision on Global Systemically Important Banks (G-SIBs)
3.1 G-SIBs identification 3.2 Enhanced requirement of supervision for G-SIBs
Supervision Report 2011
2. Preparation for Basel III Implementation in Thailand The BOT has taken the following steps to prepare the Thai financial system for Basel III implementation. 2.1 Communicating with the concerned parties both within and outside the BOT : The BOT organized informational sessions, published articles on the BOT policy stances, held public hearing sessions with banks through the Basel II / Basel III Club, and issued a circular to provide clarification regarding securities eligible for capital under Basel III. 2.2 Conducting the quantitative impact study (QIS) : The BOT conducted the quantitative impact study to assess the impact of Basel III on capital position and liquidity management of both Thai commercial banks and foreign bank branches. The QIS is performed on a bi-annual basis, starting from December 2010 onwards. Based on the recent QIS result, capital position of the Thai banking system was not much affected by Basel III as all the banks could maintain the capital adequacy ratio above that was prescribed by the BCBS. As for the guidelines on liquidity requirement, it is currently under the observation period and the BOT will closely monitor the potential impacts on and adjustment by banks according to the new standard. 2.3 Taking a more active role in international regulatory reforms : As a member of various committees and sub-committees at both international and regional forums, it enabled the BOT to gain insight and information in depth and play more active role in the international banking regulatory reforms.
3. Future Plan 3.1 Capital requirement : The BOT will publish a notification on capital requirement by the second quarter of 2012, specifying the minimum capital requirement as follows: • Thai Commercial Banks are required to maintain three levels of minimum capital adequacy ratios : common equity ratio at least 4.5 percent, Tier 1 capital ratio at least 6.0 percent, and total capital ratio at least 8.5 percent (the same as the current rule); and • Foreign bank branches are required to maintain the total capital ratio at 8.5 percent, an increase from the current level at 7.5 percent.
43
Bank of Thailand
These requirements will take immediate effect on January 1, 2013 with no transition periods as outlined by the BCBS5. Additionally, the BOT will require banks to hold a capital conservation buffer of 2.5 percent; the capital buffer will be phased in starting on January 1, 2016 with an annual increase in CE ratio by 0.625 percent to reach the final level of 2.5 percent on January 1, 2019 in accordance with the BCBS.
44
3.2 Liquidity risk supervision and leverage ratio : As the BCBS is in the process of revising the regulation on liquidity risk supervision and leverage ratio, the BOT will closely monitor banks’ information on liquidity risk and leverage ratio so as to assess appropriateness of this regulation and its impact before adopting such rules. For the time being, the BOT will issue a circular specifying guidance on reporting of liquidity risk data and a circular specifying guidance on leverage ratio calculation by the second quarter of 2012.
5
BCBS will commence to gradually enforce the minimum capital requirement from January 1, 2013 by requiring to maintain common equity ratio at least 3.5 percent and Tier 1 ratio at least 4.5 percent, and gradually requiring to increase common equity ratio and Tier 1 ratio to at least 4.5 percent and 6 percent, respectively, by January 1, 2015.
Supervision Report 2011
Box 5 : Establishment of the Financial Consumer Protection Center Financial consumer protection is one of the Bank of Thailand (BOT)’s key missions. In this connection, financial education and consumer protection have gained more importance as the financial markets become increasingly sophisticated, with variety of new financial products and services as a result of financial innovation, intense competition and technological development together with the drastic change in advertising strategies. Hence, consumers should have adequate financial knowledge and understanding of the complexity and risk associated with financial products in order to choose the product appropriate for their needs. In the past, the BOT performed the task of consumer protection in three aspects: (1) Regulated financial institutions and non-bank financial institutions under the BOT supervision to ensure that the end users receive fair and equitable treatment; (2) Provide financial knowledge; and (3) Handled various complaints on such issues as credit, foreign exchange service, and bonds. To enhance its roles in financial consumer protection, the BOT set up the Financial Consumer Protection Center (FCC) that officially opened on January 13, 2012. Established as a center for proactive strategies in partnership with other agencies responsible for consumer protection, the FCC is tasked with two main responsibilities as follows: 1. To serve as a one-stop service center for public enquiries and complaints pertaining to financial services provided by the financial institutions under the BOT supervision. The FCC will help resolve, coordinate, and follow up on the complaints, as well as provide information and advice on the BOT services, i.e. bonds, banknotes and foreign exchange regulations. An information technology system has been introduced to monitor, evaluate and process the complaints where the feedbacks will be provided to relevant departments in the BOT; and
45
Bank of Thailand
46
2. To equip consumers with financial knowledge so as to raise awareness and understanding of consumer rights and responsibilities, enable them to make informed decision on financial products and services, and avoid falling victim to frauds. The FCC uses various channels, i.e. booklets, newspaper articles, and the BOT website. The FCC is currently working on mass media channel such as television and radio, focusing on simple language in order to reach out to the target group in a more proactive and comprehensive manner. The FCC contact details are as follows: • Hotline number : 1213 (weekdays during 8.30 a.m. - 12.00 p.m. and 1.00 p.m. - 4.30 p.m. and automated information service available 24 hours) • E-mail address : fcc@bot.or.th • Facsimile number : +662-283-6151 • Website : www.bot.or.th, then choose Financial Consumer Protection Center • In person : Bangkok : Financial Consumer Protection Center, Bank of Thailand Headquarters Building 3, 5th floor Regional Offices : Financial Consumer Protection Center Division Bank of Thailand’s Northern Regional Office (Chiang Mai), North Eastern Regional Office (Khon Kaen), and Southern Regional Office (Songkla)