Thai Central Bank Oversight Positive for Policy Banks
OREANDA-NEWS. Fitch Ratings takes a positive view of regulatory developments under which the Bank of Thailand (BOT) will be given greater supervisory powers related to Specialised Financial Institutions (SFIs).
Thailand's SFIs are state-controlled entities set up under specific legislation to fulfil government policy objectives. They comprise eight institutions - the Bank for Agriculture and Agricultural Cooperatives (BAAC), the Export-Import Bank of Thailand (EXIM), the Government Housing Bank (GH BANK), the Government Saving Bank (GSB), the Islamic Bank of Thailand (IBANK), the Secondary Mortgage Corporation (SMC), the SME Development Bank of Thailand (SME BANK) and the Thai Credit Guarantee Corporation (TCG). SFIs are an important part of the Thai financial system, accounting for 25% of system deposits and providing 29% of household debt.
The Ministry of Finance (MOF) will transfer its supervisory and inspection authority over SFIs to the BOT in 2Q16. The move will free the MOF from potential conflicts of interest between its roles as shareholder, objective-setter, and regulator of SFIs.
Fitch expects the transference of oversight authority to improve supervision and transparency, and ensure that the institutions are monitored more closely in line with the regime for commercial banks. The focus of the BOT's supervision will be ensuring that the SFI's credit process, corporate governance, and capital and liquidity buffers are in line with Basel II standards (which would still be somewhat different to the Basel III standards required of commercial banks).
The MOF also plans to establish an SFI Fund. The process of cash collection will be similar to that of the Deposit Protection Agency for commercial banks, but the collection rate will be much lower, at 0.18% of deposits for SFIs against 0.47% for commercial banks. Four SFIs that accept retail deposits from the public will be required to remit cash to the SFI Fund - BAAC, GSB, GH BANK and IBANK. The MOF intends for the SFI Fund to be used to recapitalise SFIs in the event that they encounter financial difficulties.
Fitch is positive about the SFI Fund plan - should an SFI need bailing out, government's direct fiscal burden would be lower (although the government would still be likely to step in with emergency assistance were the SFI Fund's resources to prove insufficient). The fund would also provide more timely support in the event that an SFI were to require an urgent capital injection: at present, cash must be found from within the budget of the central government, which may at times be a time-consuming process.
Furthermore, by imposing a levy on SFI deposits for the first time, the SFI Fund will help reduce the cost advantage that SFIs have over commercial banks in deposit mobilisation. Deposit competition between SFIs and banks has intensified in recent years, which is not in line with the original policy objectives and roles of SFIs.
Fitch maintains the view that the state will continue to provide extraordinary support to such institutions, given their key policy roles which is reflected in our credit ratings approach.