New regulations governing state banks in place by January, BOT says

Initial steps in the drafting of the new regulations have already begun but the hearing process will take some time to manage, according to the central bank.
Under Section 120 of the Financial Institution Business Act, the Finance Ministry on April 2 appointed the BOT to supervise, inspect and set up regulations to ensure that SFIs have prudent and proper risk-management systems, satisfactory overall efficiency, good corporate governance, and standardised levels of transparency.
SFIs were supervised by the ministry itself before the change in policy.
The new set-up means the ministry will still have the power to set state banks’ policies and nominate their executives, but will have to submit the nominees’ names for examination by the BOT.
Meanwhile, the central bank can propose an increase or decrease in an SFI’s budget if need be, but the actual process will still require approval by the ministry.
SFIs are mandated to provide financing to those who do not have access to commercial banks’ financial services, such as low-income individuals, farmers, and owners of small and micro-businesses.
“The new regulations will be different from the ones we use to supervise commercial banks, since SFIs receive a number of debtors with different occupations and the credit line of each debtor, such as farmers, is quite small,” said Tongurai Limpiti, BOT deputy governor for the Financial Institutions Stability Department.
“This means the regulations for SFIs will be more tailor-made and more lenient in terms of time frames. Therefore, some SFIs will still be using Basel I regulations and others will be using Basel II regulations.”
She said a draft of the new regulations would be sent to all state banks this quarter, as her office had been working on it for some time now and it would take a month or two for the SFIs to provide their feedback on their feasibility.
After that, another round of discussions among the BOT, the Finance Ministry and the state banks will take place, and then the new regulations can be announced.
“First we will have to plant the flag on where we want to be, and they can all work together towards it.
“If there are some regulations that are beneficial and the SFIs wanted to push them forward first, we will probably do that, but I expect all the new regulations to be fully effective by January 1 next year,” she said.
Tongurai suggested Section 120 should be amended to allow for better supervision of the state banks and both pre-emptive and prompt corrective actions, while allowing the central bank to dictate the budgets of SFIs for better efficiency.
Chatchai Payuhanaveechai, director and secretary of Government Savings Bank, said yesterday that the new policy was a good development for SFIs, as they would have an efficient and experienced regulator to monitor their status and strength and to provide recommendations in times of hardship.