All commercial banks are required to submit their business plans and consolidated financial statements to the Bank of Thailand (BOT) by the end of the year as part of the implementation of the central bank's financial master plan.

Each bank must specify whether their parent firm is a holding company, a security company or an insurance company, said Tongurai Limpiti, senior director of the BOT's Financial Institutions Policy Group.

"We are open enough to allow a security company or an insurance company to be the parent company of a bank," she said. "But normally in Thailand a bank or a holding company is expected to be the parent firm."

The bank's master plan aims to regulate banks more efficiently, and to supervise not only banks but also other financial institutions under the banking business umbrella. This will allow the central bank to oversee the actual performance of the banking group and prevent any financial problems in advance.

Currently, Thanachart Bank is operated under a holding company, while other banks are mostly parent companies themselves rather than subsidiaries.

Tongurai said the business structure of Thanachart Bank was not different from the others. However, the holding company can be an investment company only and is limited in the business it can do.

At the end of this year, all banks must report their consolidated financial statements to the central bank. These statements must include of those of security companies, leasing and hire-purchase companies in the bank group. Insurance company financial statements are not included because they have a different level of risk, she said.

The financial statements of non-bank companies do not have to be consolidated into banks' financial statements except for those companies under restructuring, in which banks must dilute their stakes within 10 years.

Tongurai said that most Thai banks and foreign full branches have informed the BOT that they will adopt the Standardised Approach (SA) in their credit-risk and operational-risk management practices, in line with the Bank for International Settlement (BIS) standard, or Basel II. Basel II is the new international banking standard that Thai banks plan to implement by 2008.

 They banks also plan to adopt the Internal Ratings-Based Approach (IRB) in the near future.

Tongurai said the central bank was concerned that the banks implementing the SA could not price lending rates to reflect the real risk level of their customers. It understood that they did not have enough information for the IRB and did not want to spend the large amounts in IT systems required to determine operational risk.

Basel II implementation will not affect banks' capital, although they are obliged to provide additional reserves for operational risk and 150 per cent of the capital requirement for non-performing loans compared to the current requirement of 100 per cent.

But their reserves will be reduced as a result of being allocated to lower credit debtors, she said, adding banks still have two more years to accumulate retained earnings to boost reserves.

Anoma Srisukkasem

The Nation