Liquidity sufficient, banks say

Following Krungthai Bank’s plan to raise capital for the first time in 13 years, Kittiratt urged local banks to increase their registered capital in preparation for strong loan demand, particularly ahead of the blooming of the Asean Economic Community (AEC) in 2015. Most Thai bankers said they have sufficient liquidity to cover any risk and fund loan expansion.
Of major banks’ capital, Tier 1 – consisting of common shares and retained earnings – is now above 10 per cent. The banking industry’s average CAR, the ratio of lower-quality assets to risk-weighted assets, is 11-12 per cent. At above 10 per cent, Tier-1 capital is higher than the Basel III requirement, which will be implemented next year. Basel III will require banks to hold 4.5 per cent of common equity, up from 2 per cent under Basel II, and 6 per cent of Tier-1 capital, up from 4 per cent, to risk-weighted assets.
The industry average for Tier 1 is 9 per cent.
KTB’s capital mobilisation will increase its Tier-1 ratio to 10.83 per cent from 7.92 per cent at the end of this year. Its CAR will rise to 15.82 per cent from 12.91 per cent.
Anuwat Luengtaweekul, chief financial officer of Thanachart Bank, said the bank has no plan to increase its capital and believes its capital can serve growing loan demand as well as the activities related to the AEC.
Local banks today have a strong capital base, as their Tier-1 ratios are all higher than the Bank of Thailand’s minimum requirement, he said.
TBank’s CAR is 14 per cent, its Tier-1 ratio is 9 per cent and Tier-2 ratio is 5 per cent.
Thai banks’ capital is sufficient for lending activities including the expected activities from the AEC, he added.
An analyst at Finansia Syrus Securities said banks are well aware that a capital base is important for doing business and managing risks, as reflected by their strong CARs.
The banking industry currently shows a CAR of 16 per cent since several banks have already beefed up their capital base to comply with Basel III next year.
Starting in February, Kasikornbank has issued subordinated bonds valued at Bt22 billion to enhance its long-term funding and Tier-2 capital to deal with the Bank of Thailand’s regulations.
Siam Commercial Bank (SCB) has issued subordinated bonds of Bt20 billion.
CIMB Thai Bank has recently boosted its registered capital to Bt10.54 billion from Bt8.15 billion.
Thanachart Bank has reinforced its Tier-2 capital by issuing subordinated bonds worth Bt8.5 billion.
KTB is the latest bank to plan a massive recapitalisation to fortify its Tier-1 capital.
Earlier, analysts said KTB would have to augment its capital because its Tier-1 ratio is 7.9 per cent, the lowest among major banks.
After mustering fresh capital, KTB’s CAR will improve to 15.82 per cent from 12.9 per cent and its Tier-1 ratio to 15.82 per cent.