Banks ready for euro-zone spillover effects

Commercial banks are ready to set aside higher loan-loss provisions, as suggested by the Bank of Thailand which is concerned over banks' loan quality in light of intensifying euro-zone crisis.

Chartsiri Sophonpanich, president of Bangkok Bank, said that the bank is now closely monitoring possible impacts from the crisis and stands ready to review the necessity of higher provisions. He insisted that none of the bank’s clients have reported negative impacts.

At present, the bank sets aside Bt1.5-Bt1.8 billion per quarter, fully covering all newly-extended loans. He insisted that the bank has established the system to control non-performing loans at a low level.

"The central bank asked us to periodically review the provisioning. This is a good suggestion and is what we have been doing. Most banks now possess high capital to risk asset ratio, with tier-1 capital of about 11 per cent," Chartsiri said.

Kannikar Chalitaporn, president of Siam Commercial Bank, expected that the Thai export sector would feel the pinch of the crisis in the fourth quarter of this year until 2016. It is necessary that all parties must be prepared and lifted their guards. She noted that Thai banks are financially strong to withstand the headwinds, but some clients may face difficulties with their transactions with Europe or foreign parties.

While banks need to closely assist the clients, she said that banks also need to closely monitor ongoing political conflicts which could affect investor confidence. This has been a worrying issue for the bank for 6-7 years.

According to Kannikar, SCB has recently raised the monthly provisions from about Bt300 million a month to Bt500 million. At present, the provisions account for 130 per cent of outstanding loans, which is high enough to cope with possible impacts and loan extension. She is confident that the level is sufficient, given the low level of NPLs.

The average NPLs of the Thai banking sector is now below 3 per cent of outstanding loans.