Central bank soothes investors, saying new measures aim to avoid a repeat of 1997

[webfact]

Central bank soothes investors, saying new measures aim to avoid a repeat of 1997

By The Nation

 

BOT deputy governor Ronadol Numnonda

 

The Bank of Thailand (BOT) has launched pre-emptive measures to prevent a financial crisis like the one in 1997, BOT deputy governor Ronadol Numnonda said in response to investors’ concerns about the resilience of local commercial banks in the Covid-19 fallout. 

 

The Stock Exchange of Thailand (SET) Index closed at 1,352.18 on Monday (June 22), down 18.64 points or 1.36 per cent. Total transaction volume was Bt65.772 billion with an index high of 1,367.98 and a low of 1,347.60. Stock analysts are blaming the central bank’s measures for pulling down the index. 

 

BOT on Friday ordered commercial banks to hold off on paying interim dividends and also stopped them from buying back shares to strengthen their capital ratio in response to the pandemic. 

 

To clarify this move, Ronadol said the central bank was only taking pre-emptive measures. 

 

“We have learned from the 1997 crisis that we should not let the situation get out of hand. At that time, bad loans skyrocketed to 50 per cent of total bank loans because no pre-emptive measures had been taken. Today, we are implementing preventive measures and bad debts are just 3.05 per cent of total bank loans,” he said. 

 

Bad debts stood at Bt490 billion at the end of this year’s first quarter. 

 

BOT has also called on commercial banks to conduct a stress test on the management of their capital in the next one to three years. 

 

Bank capital adequacy ratio is at the heart of the banking business, as it underpins bank lending and reserves against risk assets in case debtors get into trouble in the future. 

 

Banks are expected to submit results of their stress test to BOT as of late July. 

 

Ronadol, meanwhile, reassured investors that banks have strong capital. As of the end of the first quarter, the average BIS capital adequacy ratio was 18.7 per cent, which can be considered relatively high compared to the minimum requirement of 8.5 per cent, he said. 

 

During the 1997 financial crisis, the BIS ratio was 8.1 per cent. 

 

“After consulting with bankers, we believe that when  BIS ratio is between 11.5 and 12.5 per cent, banks could handle the Covid-19 fallout,” he said. 

 

If the BIS ratio falls below that level, banks will have to conduct capitalisation through different methods, such as holding off on paying dividends or buying back shares. Banks can also increase their Tier 1 capital by selling shares or raise Tier 2 capital by issuing debentures, he said.

 

Source: https://www.nationthailand.com/business/30390107

 

-- © Copyright The Nation Thailand 2020-06-23

 

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[CLS]

“BOT has also called on commercial banks to conduct a stress test on the management of their capital in the next one to three years. ”

Is this guy for real? Stresstests should be conducted by supervisory authorities and not by the commercial banks.

[smedly]

1 hour ago, webfact said:

The Bank of Thailand (BOT) has launched pre-emptive measures to prevent a financial crisis like the one in 1997

the very fact they are talking about it is concerning

[Trillian]

1 hour ago, CLS said:

“BOT has also called on commercial banks to conduct a stress test on the management of their capital in the next one to three years. ”

Is this guy for real? Stresstests should be conducted by supervisory authorities and not by the commercial banks.

"Banks are expected to submit results of their stress test to BOT as of late July". 

 

Self administered stress testing is not unusual or unreasonable and they will have to support the results. Most large banks have resource dedicated to this function any way in the same way that banks have their own audit functions as well as being audited externally.

Edited June 22, 2020 by Trillian

[smedly]

1 hour ago, webfact said:

If the BIS ratio falls below that level, banks will have to conduct capitalisation through different methods, such as holding off on paying dividends or buying back shares.

isn't that exactly what you are telling them to do

 

I said 6 months ago that similar patterns were emerging to 1997 and some big mouth TVF self appointed experts said I was talking rubbish 

[Trillian]

It was rubbish then and it's still rubbish, there's no comparison between today and 1997, none whatsoever, the move is purely pre-emptive and SOP.

Edited June 22, 2020 by Trillian

[baansgr]

Does this mean we will soon get 90 baht to £????????????

[smedly]

6 minutes ago, Trillian said:

"Banks are expected to submit results of their stress test to BOT as of late July". 

 

Self administered stress testing is not unusual or unreasonable and they will have to support the results. Most large banks have resource dedicated to this function any way in the same way that banks have their own audit functions as well as being audited externally.

it all worked just fine in 2008 didn't it ?, let me guess - you were involved in banking back then and thought it was all going swimmingly back then too

 

you know the horror of it all - we tax payers paid the price and not enough bankers were jailed - it should have been conditional

[Trillian]

2 minutes ago, smedly said:

it all worked just fine in 2008 didn't it ?, let me guess - you were involved in banking back then and thought it was all going swimmingly back then too

 

you know the horror of it all - we tax payers paid the price and not enough bankers were jailed - it should have been conditional

No and no. 

 

2008 is not 1997!

[ding]

Glad BOT is dealing with this preemptively but I'm no expert. Zero interest rates seem like a disincentive for banks to loan just like it's a disincentive to save or be in cash. At least when consumers spend instead of save, velocity increases.

Predicting inflation/deflation is difficult near term. In the US I'd say deflation before the inflation that HAS TO be the result of all this QE currency creation by Fed Inc. But the Fed needed to do something too because... well

[ExpatOilWorker]

Special mention SM loans,  which is debt that has not been serviced in 90 days have been stable around 400 billion baht, until now. It just jumped trifold to 1.2 trillion baht.

Most of the SM debt will of course eventually roll into NPL. 

[CLS]

38 minutes ago, Trillian said:

"Banks are expected to submit results of their stress test to BOT as of late July". 

 

Self administered stress testing is not unusual or unreasonable and they will have to support the results. Most large banks have resource dedicated to this function any way in the same way that banks have their own audit functions as well as being audited externally.

Don‘t know about US/UK.

But in the Euro zone and CH lessons were learned from the 2008 financial crisis and supervisory bodies installed to prevent a reoccurrence.

 

https://eba.europa.eu/risk-analysis-and-data/eu-wide-stress-testing

 

[uffe123]

Going down, just a matter of time and when.

Dont see how they can sustain the economy without tourist.

Motels with 5 people, there will be massive bankruptcies and shops closing for good.

Good job mister P

[Trillian]

9 minutes ago, CLS said:

Don‘t know about US/UK.

But in the Euro zone and CH lessons were learned from the 2008 financial crisis and supervisory bodies installed to prevent a reoccurrence.

 

https://eba.europa.eu/risk-analysis-and-data/eu-wide-stress-testing

 

Basel III capital adequacy levels being one of them.

[Trillian]

42 minutes ago, ding said:

Glad BOT is dealing with this preemptively but I'm no expert. Zero interest rates seem like a disincentive for banks to loan just like it's a disincentive to save or be in cash. At least when consumers spend instead of save, velocity increases.

Predicting inflation/deflation is difficult near term. In the US I'd say deflation before the inflation that HAS TO be the result of all this QE currency creation by Fed Inc. But the Fed needed to do something too because... well

Zero interest rates refers to the base rate, not to the lending or borrowing rate, the only thing that's affected by zero rates in the amount of interest paid on your savings.

[Trillian]

15 minutes ago, ExpatOilWorker said:

Special mention SM loans,  which is debt that has not been serviced in 90 days have been stable around 400 billion baht, until now. It just jumped trifold to 1.2 trillion baht.

Most of the SM debt will of course eventually roll into NPL. 

I wouldn't be surprised to see NPL's reach 8% or higher, but the effect is not lasting, loans get restructured, property gets remortgaged etc etc, actual losses will be much lower.

[mr mr]

1 hour ago, smedly said:

3 hours ago, webfact said:

The Bank of Thailand (BOT) has launched pre-emptive measures to prevent a financial crisis like the one in 1997

the very fact they are talking about it is concerning

exactly what i was thinking as soon as i read the headline. it's like cnbc talking about the stock market. when they say go all in you know troubles near.

[Trillian]

3 minutes ago, mr mr said:

exactly what i was thinking as soon as i read the headline. it's like cnbc talking about the stock market. when they say go all in you know troubles near.

It's part and parcel of the news, which is supposed to be based on fact, if people can't handle the news or fact they should watch the cartoon channel.

[CLS]

19 minutes ago, Trillian said:

Basel III capital adequacy levels being one of them.

Then you should know that it is good practice that the supervisory bodies conduct the stress tests and not the commercial banks.

[Trillian]

2 minutes ago, CLS said:

Then you should know that it is good practice that the supervisory bodies conduct the stress tests and not the commercial banks.

I know that doesn't preclude banks from conducting their own stress tests which they are advised to do at least once a year, there's nothing in the article to suggest the Central Bank is not also doing testing on a scheduled basis.

[Serindib]

2 hours ago, ExpatOilWorker said:

Special mention SM loans,  which is debt that has not been serviced in 90 days have been stable around 400 billion baht, until now. It just jumped trifold to 1.2 trillion baht.

Most of the SM debt will of course eventually roll into NPL. 

Interesting data. Can you give the link ?

[ExpatOilWorker]

10 minutes ago, Serindib said:

Interesting data. Can you give the link ?

https://www.bot.or.th/App/BTWS_STAT/statistics/BOTWEBSTAT.aspx?reportID=829&language=ENG

[Bender Rodriguez]

who or what create this PLANDEMIC ?

 

blind PANIC that we would all die.... stocks went down, people panic sold and now ELITE/rich can buy companies for satangs on the baht...

 

US stockmarket went up 30 percent compare before this fake crisis ...

 

tax payer money again went into handouts to BANKS for bad investments, junk bonds...

 

same game, different name

[Trillian]

2 hours ago, Bender Rodriguez said:

who or what create this PLANDEMIC ?

 

blind PANIC that we would all die.... stocks went down, people panic sold and now ELITE/rich can buy companies for satangs on the baht...

 

US stockmarket went up 30 percent compare before this fake crisis ...

 

tax payer money again went into handouts to BANKS for bad investments, junk bonds...

 

same game, different name

Make yourself a nice cup of tea then take a lay down in a dark room for a while and you'll be OK.

[Cake Monster]

10 hours ago, smedly said:

the very fact they are talking about it is concerning

Yes it is, and I really am starting to think that the main issue the BOT have is all the unsecured Loans on the Commercial Banks books.

Everybody is trying to play down the amount of NPL that is going delinquent at the moment.

NPL will be a real issue here in Thailand, as before Covid hit, Loans were at a record 77% of GDP, and are now about to breach the Legal limit set at 80% of GDP.

Going forward there will be a large amount of money issues for the Banks ( not just in Thailand ), with companies defaulting as well as the Household debt, and indeed Government debts that will need to be repaid.

With the Tourist sector quoted this week as being 18% of GDP, ( a much nearer the true figure me thinks ), a huge revenue stream is being lost, and Manufacturing has not yet felt the full impact of Covid, which for Thailand is a double whammy.

 

 

[Trillian]

19 minutes ago, Cake Monster said:

Yes it is, and I really am starting to think that the main issue the BOT have is all the unsecured Loans on the Commercial Banks books.

Everybody is trying to play down the amount of NPL that is going delinquent at the moment.

NPL will be a real issue here in Thailand, as before Covid hit, Loans were at a record 77% of GDP, and are now about to breach the Legal limit set at 80% of GDP.

Going forward there will be a large amount of money issues for the Banks ( not just in Thailand ), with companies defaulting as well as the Household debt, and indeed Government debts that will need to be repaid.

With the Tourist sector quoted this week as being 18% of GDP, ( a much nearer the true figure me thinks ), a huge revenue stream is being lost, and Manufacturing has not yet felt the full impact of Covid, which for Thailand is a double whammy.

 

 

There is a legal limit of 60% of GDP for government borrowings, currently they are at 41% but soon to be 56%. There is no legal limit to consumer lending by commercial banks, currently it's around 77% although it has been over 80% in the past, I'm therefore wondering what legal limit you are referring to when you mention 80% and that limit about to be breached?

 

https://www.ceicdata.com/en/indicator/thailand/household-debt--of-nominal-gdp

 

This level is still below the ceiling of 60% set by the Finance Ministry's fiscal sustainability framework.

 

https://tradingeconomics.com/thailand/government-debt-to-gdp

Edited June 23, 2020 by Trillian

[AgMech Cowboy]

10 hours ago, smedly said:

the very fact they are talking about it is concerning

Not really. The times are particularly stressful. It's just the central bank explaining the differences to 1997. People forget or distort history to cause panic. This bank is just being start to point out the big differences.

[CLS]

12 hours ago, Trillian said:

I know that doesn't preclude banks from conducting their own stress tests which they are advised to do at least once a year, there's nothing in the article to suggest the Central Bank is not also doing testing on a scheduled basis.

True, nothing in the article.

But the supervisory body should remember the banks to follow their guidelines, if there are any. Not the stress tests per se.

[Trillian]

21 minutes ago, CLS said:

True, nothing in the article.

But the supervisory body should remember the banks to follow their guidelines, if there are any. Not the stress tests per se.

I don't understand what you wrote but never mind.

 

The Thai central bank has become pretty efficient and very effective since the crash of '97, the memory of what happened is still fresh and the burning desire to ensure nothing even remotely similar happens again is a number one priority. Their over performance is in many respects the cause of some of today's problems with Baht strength, in particular their reluctance to make THB fully convertible. I'm absolutely certain that the Bank does have guidelines and that commercial banks here are very respectful of the authority of the central bank since BOT delegates its responsibility for policy execution to them and they are held accountable. If you've ever wondered why it's so difficult sometimes to transfer funds out of Thailand it's because many commercial bank staff live in fear of violating the foreign currency exchange policies of the central bank.

[Cake Monster]

16 hours ago, Trillian said:

There is a legal limit of 60% of GDP for government borrowings, currently they are at 41% but soon to be 56%. There is no legal limit to consumer lending by commercial banks, currently it's around 77% although it has been over 80% in the past, I'm therefore wondering what legal limit you are referring to when you mention 80% and that limit about to be breached?

 

https://www.ceicdata.com/en/indicator/thailand/household-debt--of-nominal-gdp

 

This level is still below the ceiling of 60% set by the Finance Ministry's fiscal sustainability framework.

 

https://tradingeconomics.com/thailand/government-debt-to-gdp

It was my understanding ( rightly  or wrongly ) that a mechanism was in place to prevent the Banks lending more than 80% GDP on unsecured Loans to stop another 1997 crash from happening, where Money was being lent , but with inadequate security.

There are at present several reports that NPL is running at 8% of borrowed money on the Banks books, and this is starting to worry Investors.

It is also obviously starting to worry BOT, or they would not be sounding out like this