September 29, 2017 / 3:08 AM / a year ago

Fitch: Thailand's Large Banks Well-Placed for D-SIB Requirements

(The following statement was released by the rating agency) BANGKOK, September 28 (Fitch) Thailand's large banks should all be able to comply with new capital requirements for domestic systemically important banks (D-SIB) deemed "too big to fail", says Fitch Ratings. The banks named as D-SIBs all have capital ratios that are well above the new minimum requirements that will be phased in by 2020. The D-SIB framework, announced by the Bank of Thailand (BoT) on 25 September, is a step towards full implementation of Basel III international regulations and imposes more stringent capital requirements on banks that could have large negative effects on the financial system in the event of their failure or impairment. The five largest commercial banks, which have market shares of 10%-16% of consolidated assets, have been classified as D-SIBs, which is in line with market expectations. The sixth-largest bank has a market share of only around 5%. The selection of these banks was in line with Basel recommendations, and took into account their size, interconnectedness, substitutability and complexity. The D-SIBs will be required to hold additional core capital of 0.5% of risk-weighted assets from January 2019 and 1% from January 2020.The minimum common equity Tier 1 (CET1) ratio for D-SIBs will rise to 8% by 2020, while the minimum total capital ratio will rise to 12%. The extra D-SIB requirements are lower than in other south-east Asian jurisdictions that are implementing the framework. Indonesian D-SIBs will have to hold an extra 1.0%-2.5%, depending on their profiles, while those in the Philippines will require an extra 1.5%-2.5%. Singapore already requires its D-SIBs to hold an extra 2.0%. Thailand's D-SIBs are unlikely to be affected by the new requirements, as they are already comfortably in compliance with the new ratios and have strong internal capital generation. Their CET1 ratios ranged from 12.6%-16.4% in June 2017, while their total capital ratios were 16.3%-18.1%. The BoT announcement also provided greater clarity on how the regulator will assess and supervise D-SIBs, but did not change our view of the sovereign's propensity to support the banking system. Importantly, Thailand has not implemented specific resolution legislation that reduces the likelihood of state funds being used to support failing banks, as is recommended by the international Financial Stability Board. That said, our ratings of Thailand's private commercial banks are not driven by sovereign support, but are based on either standalone credit strength or institutional support from foreign parents. State-owned Krung Thai Bank is the only commercial bank for which our rating takes into account extraordinary sovereign support. The next step toward Basel III compliance will be the implementation of the net stable funding ratio (NSFR), which the BoT plans for 2018. Thai commercial banks generally have stable funding and robust liquidity - the average liquidity coverage ratio was 170% in July 2017 - and we do not therefore expect implementation of the NSFR to cause challenges. The five Thai banks named as D-SIBs are Bangkok Bank, Siam Commercial Bank, KASIKORNBANK, Bank of Ayudhya and Krung Thai Bank. D-SIB classification will be reviewed every two to three years. Contact: Parson Singha, CFA Senior Director Financial Institutions +66 2108 0151 Fitch Ratings (Thailand) Limited Park Ventures, Level 17 57 Wireless Road, Lumpini, Patumwan, Bangkok 10330 Thanasit Utamaphethai Associate Director Financial Institutions +66 2108 0154 Dan Martin Senior Analyst Fitch Wire +65 6796 7232 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. 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