Central bank revises rules to meet international standards, aiming to strengthen bank capital and brace for uncertain future
The Bank of Thailand (BOT) has amended regulations on eligibility criteria for regulatory capital, so it is in line with international standards.
Nawaron Dejsuvan, assistant governor for BOT’s Financial Institutions Policy Group, said that the central bank has amended regulations on eligibility criteria for financial instruments qualified as banking capital. Though the capital level of the domestic banking system is high, with a BIS Ratio in September standing at 19.43 per cent, commercial banks will need to build up their capital cushion to withstand unanticipated events in the future.
The eligibility criteria of financial instruments are revised in line with international standard as follows:
• Additional Tier1 (AT1) capital instrument is a financial instrument with no maturity date. Issuing banks are allowed to pay interest or other returns to holders without prior approval from the BOT, provided the banks’ BIS Ratio is higher than the ratio prescribed by the BOT.
• Tier 2 capital instrument is subordinated debt that can be redeemed after a minimum of five years from the date of issuance. The BOT has revoked the clause giving banks the right to postpone the schedule for the payment of interest.
The purpose of the amendments is to assuage investors’ concerns regarding the payment of interest. As a result, banks can raise capital more easily which in turn will boost their capital levels and liquidity. Banks should, therefore, be able to provide additional loans to businesses and households to support economic recovery.
Call the Regulatory Policy Department at (02) 283 5874, (02) 283 5878 or (02) 283 5312 for more information.
